Sarah Wolak: A lot of the discussion last year was about potential developments in the HECM space. What specific changes would you like to see that would better serve today’s borrowers?
Loren Riddick: I would say the first thing is that I am very grateful for the program, and I am very aware of the three wonderful components that mortgage insurance offers. Obviously, another protection. If lenders know that they are 100% covered and that those accumulated IOUs are secure – as long as they follow the rules, they will get their money – that is very important.
Then, of course, there is the nonrecourse feature. That’s great for the family, and the fact that the heirs are guaranteed 5% equity.
Now, that being said, we are very dark on the Mutual Mortgage Insurance Fund in reverse – very strong. Asking a customer who has $1 million in property and just wants to set up a line of credit as a major financial tool – which it is – to pay about $30,000 to $37,000 in closing costs because they have a $20,000 home insurance payment at 10% LTV just doesn’t sound right.
There have been suggestions of increasing the annual MIP or perhaps moving the MIP forward as it is implemented. If the client won’t take the painting at closing, they probably only have an MIP of half a percent. Then, when they reach the maximum amount of what they can achieve, everything else will be filled in the fund. That is one thing that is directly related to the mortgage insurance situation that I hope someone will hear.
I’m not a big fan of HECM-to-HECM funds; I feel like that’s eating away at our kids. As an industry, we shouldn’t do it unless it’s absolutely necessary for the client. Changing that business isn’t good for the industry, and it’s not fair for customers to continue paying closing costs. I would like to see the fund adjusted so that when someone needs to redo a HECM, there is some mortgage insurance paid out of the fund.
If someone really cares about the industry, they play the long game. They build their business. The phone rings because they care about people, and they do a good job, and they come out on top. I’m talking about low feeders who want to convert as many reverses as possible. All the hard work has already been done, and now they come and re-supplie the client, going back to the source again and again. That’s not fair in our industry; it is not good for anyone.
Wolak: In what situation would a reverse mortgage make sense?
Riddick: Let’s say, in your area, there is a real estate professional who has been there for twenty or thirty years, and has a five-star review that you read about. Then compare their services and prices on the 1-800 number in the 200 cubicle building. Which one will provide better service? A local guy.
Now here’s the big question: Will the local guy cost more than the 1-800 guy, or will it be the exact opposite? The local one will probably be more expensive, and there is a reason for that. There’s a reason people pay 5% to 6% to a real estate professional instead of doing a sale-by-owner. There is a difference.
So what happened? Let’s say someone goes to that local professional and gets a loan, and let’s say you give them a rate of 5.875%. And then three months later, some lower supplier, because he bought a lead from the credit bureau or whoever, goes behind that contract and calls the client and says, ‘Hey, I can get you 5.25% interest.’
They didn’t sell anything. They did not teach. They never spoke to anyone. They just offered a better price.
So what happened? Two things: No. 1, they cover that debt, and the local guy who broke his hip gets charged his commission again. So it disrupts that book of business, it hurts the tried and true professionals, and it hurts the industry because the investor who originally bought the loan didn’t get three payments on it. In my experience, retreats were meant to stay on the books for eight to 10 years.
Wolak: In May, you are one of the hosts of the Reverse Mastermind Summit, which I understand will focus on sales coaching. Is this situation something you will be talking about?
Riddick: Definitely, if it’s suggested, we’ll mention it. And there is room for best practices. There are a number of ethical principles that need to be involved in this process.
But the main focus of this conference is giving back to our industry. We wanted to work together to raise awareness and excitement for the reverse industry as well NRMLA membership. It’s like my love letter to the industry and retreat program [because] it has been good for my family, my clients and my community. I think the focus is to inspire, motivate and equip loan officers who want to go back, do it right and learn from the best. Most of us have had to walk through the woods with a machete because we don’t have a mentor — and that’s one of the biggest challenges in our industry.
This particular conference is for anyone. Even a trained veteran like me, I’ll be up front taking notes like everyone else. Because there are many people who have wrong ideas. Let me ask you this: A real estate agent goes to a listing and decides it’s 12 years ahead. Wells Fargo‘s paid. The question is who owns that house until he pays, the bank or the customer? Ninety-eight percent will say the bank, but we’re all wrong.
I’ll tell you why: Think of someone who knocks on that house and slips on snow or a banana peel. Are they suing Wells Fargo or the homeowner? They sued the owner of the house. When a Realtor says, ‘I want to get you top dollar for your house, but we need to update your kitchen,’ you don’t call Wells Fargo to get permission to do that, do you? A mortgage is not a three-headed beast. It’s just a loan.
Wolak: There is a lot of uncertainty in the space. How can that narrative change?
Riddick: People will say, ‘You’re telling me that somebody can buy a $700,000 house, and put down, you know, $400,000, and not have a payment on that $300,000 loan for the rest of their life? Man, that sounds too good to be true.’ That is the job of the experts to step in and help them understand that in 1987, Congress developed a system that allows older Americans to redistribute their wealth more equitably.
There are 10,000 to 12,000 seniors turning 62 every day, billions of dollars in high equity, and yet more than 95% of our peers don’t even know what a HECM means in the world going forward. So again, the Mastermind Summit is about providing that empowerment in the right way for our industry.
There is something happening right now in our nation that is near and dear to my heart, that’s when home becomes home. Think about this for a moment: You probably have a widow in your town right now who owns a $700,000 home and owes $300,000, despite paying $2,000 a month on that amount.
Home has become a struggle. There is a yard to mow, stairs to climb and he doesn’t use almost every area. Most importantly, she passes the chair that her husband loves, and she is no longer there. That home is now a house. And God help her – $2,000 in fixed income was probably tough for both of them, but now she’s on her own.
He prays for help and doesn’t know where it will come from. Here’s the truth: He has $400,000 in equity — the $700,000 value minus the $300,000 mortgage — but he can’t take it with him when he dies. All of that equity is at risk for the market or the nursing home owner. And here’s the big question: When will you pay off that $300,000 at 75? Probably not. Yet we’ve all been taught to believe that’s the way it should be – and it’s not.
Here’s what happens: We empower a mortgage and real estate professional to list a $700,000 home, pay off the mortgage and sell it. Then we arrange a reverse purchase – part cash, part loan.
What’s going on? We are saving that woman’s life. He goes from being a prisoner in a house that became a house to paying off his mandatory mortgage. Now you’re living off that $2,000 a month instead of paying it off – $24,000 a year in tax-free income. He can buy a $600,000 home or condo with no payments for life. The client loves it, the Realtor loves it, and their job just got a whole lot easier.
And here’s the best part about being a mortgage professional: If there’s no traditional loan and it’s cash, we’re still making money. For the first time in the history of our game, the client wins, the Realtor wins and the mortgage pro wins. And almost no one knows that this is possible. That’s why I’m so grateful for what we do.
