An older member walks into a branch and mentions seeing a commercial about reverse mortgages. They want to learn more, so how does your teller respond? Does the teller know how to respond? What about the branch manager?
Credit unions typically discuss offering reverse mortgages after member inquiries reach critical mass. Even If your credit union does not offer the loan, you still need to identify members’ needs and make appropriate recommendations. If members are coming to you for information, they trust you and expect you to point them in the correct direction.
Education is the key to protecting members. It helps them make informed decisions and helps you identify what the member really needs.
Any person considering a reverse mortgage must first receive counseling from an objective, FHA- approved third party, but do not rely on that counseling to adequately inform members about the consequences of their choice. Provide accurate information early in the reverse mortgage process to protect both the member and the credit union, regardless of where the loan is ultimately originated. Knowledgeable members are better able to help the credit union understand and satisfy their financial needs.
State Employees Credit Union of North Carolina ($20.6B, Raleigh, NC) offers reverse mortgages and manages an in-house system to originate and portfolio its loans. Its reverse mortgage brochure is an excellent educational resource and a potential model for other credit unions assembling similar information.
Click to see SECU’s Reverse Mortgage Brochure
You also want to educate yourself about your member. In its white paper, Mortgage Lending in Reverse, the CU Housing RoundTable recommends asking members questions such as:
What is the purpose of the loan?
How long will the senior remain in the home?
Has a budget been completed before and after the reverse mortgage?
Has the senior involved family members in the decision making process? If so, do these family members have the best interest of the senior as their primary objective?
Does the senior understand the reverse mortgage?
Has the senior considered other financial options to meet financial needs?
Questions like these help identify the member’s true needs. If a reverse mortgage adequately addresses their needs, then determine if it is also the most financially advantageous solution.
Weigh The Options
A common suggested alternative to reverse mortgages is a home equity line of credit (HELOC). HELOCs can often be a better fit for seniors who want to save money while meeting specified goals. When a reverse mortgage and HELOC are both appropriate, compare them to see which option provides the greatest credit for the least cost to the member.
Consider two scenarios. In the first, a 65-year-old member wants a lump sum to pay off a car loan and complete home repairs. The member completely owns the $250,000 home but is planning to move in approximately four years. How much credit could your institution provide through a HELOC? What would it cost the member to pay it off in that four-year period? Compare these figures to the AARP’s HECM calculator.
In the second scenario, the same member does not plan on moving but wants $500 a month as supplemental income and has a life expectancy of 10 years. Is the HELOC still the best solution? How does this change if the senior still owes $35,000 on the home? What if the home requires $90,000 in repairs?