#8 - Unlocking Your Home's Potential with a Reverse Mortgage
“It is what we know already that often prevents us from learning.”
- Claude Bernard
Who says you can’t teach an old house new tricks?
Mary Robb is a Reverse Mortgage Loan Originator with Mutual of Omaha. Mary’s been a force in real estate since 2011, but she dialed in on reverse mortgages in 2017 because she saw our seniors deserved better. With a background in Social Work, she's always been about helping people help themselves. She even detoured into credit repair, winning numerous awards in just a few short years. Today, she shares her passion for debunking myths about reverse mortgages.
In this conversation, Eric Blake and Mary Robb peel back the layers on what reverse mortgages really are, and how they differ from the traditional mortgage we're all familiar with. From surprising financial strategies to how this could be a game-changer for aging in place.
You can learn more about Mary’s story by reading a recap of the episode below, watching on YouTube, or listening on your favorite podcast app!
Wendy McConnell: Welcome to the Simply Retirement Podcast with your host, Eric Blake. I'm Wendy McConnell. So, Eric, tell me about this quote.
Eric Blake: Well, it's often the case that we can be held back from learning new things, or being open to learning new things, because of what we already know, or what we think we know. I have to admit that's been the case for me when it comes to the topic we're talking about today, and that's reverse mortgages. But if it's okay with everybody, I've got just a quick announcement. I just found out I’m going to be a grandfather! My daughter let us know that she's going to have a little girl in January, and I'm very excited. I'm not sure I'm quite ready. I don't feel like I'm quite old enough for this, but we’re going to make it work!
Wendy McConnell: You don't have to be ready. A little snow baby!
Eric Blake: That's right. Her birthday is January 10th, and the due date is January 12th.
Wendy McConnell: That is some great news. Very happy to hear. And you don't need to be ready. You just have to come in with the love.
Eric Blake: I can handle that. I can do it.
Wendy McConnell: All right. Eric, did you want to introduce our guest?
Eric Blake: Yes! So, think about how over the last several years, we've seen property values go up. Everybody's house is going up in value, so this is a topic that really needs a second look. If you think about the net worth of most retirees, their house is either the first or second largest asset. If it's not their home, it may be their 401ks or IRAs, but many feel like the only way they can access the equity in their home is by selling it, whether you have to downsize or sell and then rent.
I'm actually going to steal this phrase from our guest today. The way she phrases it is, “You've got money stuck in the walls.” If you need to access your money and you really would prefer to stay in your house, a reverse mortgage is something you at least need to learn about. Our guest is Mary Rob. She's going to help us understand how these things work, when to think about them, and when not to think about them. Mary Rob, welcome to the Simply Retirement Podcast.
Mary Robb: Thank you so much for this opportunity to be with you, who also has a heart to serve people, to have a better retirement life as well.
Eric Blake: Absolutely. Tell us a little bit about yourself, your background, how you got into this business. What drives you on a day-to-day basis to help people?
Mary Robb: Remind me how much time we have. I'm kidding! Going way back to the early 80s, I have a social work degree. I have always had a heart and a passion to help people. I got into marketing and sales and recruiting and advertising. And then God literally put me into the mortgage business. I had no interest, desire, or experience to be in mortgage. And I was visiting with someone and all they kept saying was, “God keeps telling me to hire you as a traditional, or as we call them forward mortgage loan officer.”
I ended up working with her for a couple of years and by God's grace and a lot of hard work, was very successful in a short amount of time. But then, as God does, He put it in front of me that there are people who are not being helped because of credit repair. So I asked my co-workers, “Who does the bank recommend for credit repair?” And they pretty much all said the same thing. “There's no one that I know that I trust in that industry.”
So God put it on my heart to quit my job —I was brand new in my career, but doing well — and open an honest, affordable credit repair business. Now, credit repair is kind of like reverse mortgage. It unfortunately can have a negative stigma because there are people out there that have done it wrong. They've done it illegally and taken advantage of people. It has a bad industry reputation. And reverse mortgage, old school, from decades ago, things didn't go as well in reverse mortgage as they do now. I basically did it for four years, won Better Business Bureau awards for customer service.
So think about it. A credit repair company winning a customer service award from the Better Business Bureau over eight counties in the Fort Worth, Texas area, and Chamber of Commerce Entrepreneur of the Year, and Business Person of the Year back-to-back, and BBB Women to Watch, etcetera. I was a credit repair business owner with a heart to help people, helping realtors help their clients get to a point where their credit was at a score where they could buy a home. That was a passion and a purpose for me. When you’re honest and affordable and legal, and you give up a lot of your retirement, which Eric doesn't want to hear, but I surrendered a lot of my retirement to keep a business open to help hundreds of people and also employ a lot of people, there comes a point where you go, this was great, we served God's plan.
I got back into mortgage. I knew I could do traditional mortgage again because I liked it and had been successful. But I have that social work servant's heart in me. To me, the population of seniors is underserved, overlooked, and underappreciated. They're uneducated on the benefits of reverse mortgages, and so I thought if I can champion and change the industry’s reputation in my world, and the people trust me with their referrals for credit repair, I can do the same for reverse mortgages. And yesterday was my six-year anniversary.
Eric Blake: Congratulations!
Mary Robb: I specialize in and only do reverse mortgages, reverse mortgage refinancing and reverse-for-purchase. It’s a very nuanced product. It's very unique. You don't want to do it with a mortgage loan officer who does one once every 5 or 6 months, or once or twice a year. You really want to work with someone who is an expert in the industry and who takes it seriously and that’s their focus. It’s that type of a product, kind of like yours, where you need to specialize. I live in the Fort Worth area, and I’m licensed in all of Texas, and in a total of 15 states.
I have a passion and a purpose to serve the seniors and I believe so strongly in reverse mortgages that for five years when I taught classes to realtors and mortgage law officers, I’d say, “This sounds crazy, but I've never wanted to age so fast in my life. I’m 57. I'm 58. I'm 59.” Whatever age I was at the time, I’d say, “When I turn 62, the youngest age you can be to qualify for a reverse mortgage, my husband and I are getting a reverse mortgage.” Let me make myself clear. We don't need a reverse mortgage. I work. I make a great living. We are blessed to have success, but I understand the financial aspects and the retirement strategies of a reverse mortgage, and I have one.
Wendy McConnell: Mary, tell us about the benefits of a reverse mortgage and how it differs from a traditional one.
Mary Robb: The most important difference would be that it's a mortgage specific in age category: it's a special financing option for people 62 and older. You're accessing the equity in your home, or as Eric said I say, you're accessing the money in the walls. The difference between a traditional and forward mortgage and a reverse mortgage is there's no required monthly principal and interest payment. In a forward mortgage, when you buy maybe a $200,000 or $300,000 home through your realtor and your loan officer, by the time you've done your 30-year mortgage, if you've never refinanced it, you may end up paying $500,000 to 600,000 for that house and interest.
Those are required monthly principal and interest payments. When I say “money in the walls” and I speak to my seniors or I teach classes, I'll say, “Your home is your own personal-shaped piggy bank.” As Eric said, housing wealth is where the majority of seniors’ wealth is. It's tied up in the walls.
You've been paying a mortgage, or you've paid cash for a home, and now you're at a point in life where you would prefer not to have a required monthly principal and interest payment. Or some people have paid and realize they're out of cash. They don't have as great a financial planner as Eric Blake, or they've maybe outlived their retirement plan, which is happening nowadays, people are living much longer.
I say, “You cannot punch through the drywall and pull out $5,000 to $8,000 to pay your property taxes, but if you activate the equity money in the walls, you have the opportunity to use it to help pay property taxes, pay off credit card debt, pay off that mortgage that has the required principal and interest payment. I have some people that haven't taken a vacation in years. A senior wants to have a better life, and the money's in the walls.
Wendy McConnell: What's the process then?
Mary Robb: You talk to me first. It's a conversation. I tell my prospects and my clients all the time. I'm going to educate you and guide you through the process. Should you choose to work with me? I’m not going to pressure you and drag you through the process.
When you deal with a call center it's a different environment. Picture 100 people in a call center, 1,000 people in a call center, and some of those places get 20,000 to 40,000 calls a month. When I'm dealing with my clients, they’re referral clients from people like Eric, realtors, loan officers, etc. I'm dealing with a smaller number of people, giving more personalized service, doing more handholding. And my husband and business partner, Greg, is my licensed loan assistant. He's also employed by Mutual of Omaha to be my licensed loan assistant. Together we help people get through the process.
So, the first conversation is, “What's going on in your life? What's happening? What goals are you trying to accomplish? What do you even know about reverse mortgages, good, bad, or indifferent?” It's always a conversation with me, not, “What's a credit score, what's your house value?” It’s, “What's going on in your life?” Having the empathy to visit with them, and then if they decide to move forward, it's a matter of doing an application.
Another thing that's different about reverse mortgages is they're required to have a counseling conversation with an FHA-approved counselor. Reverse mortgage home equity conversion mortgage is the official name for an FHA-reverse mortgage. And they're required to speak to a third party approved by FHA to go over the quote, to go over the numbers, to explain the basics again. They hear from another person, an objective third party who has nothing to gain but who understands the product. That the conversation will include asking whether anybody is pressuring them to do this? Whether it’s an unethical loan officer, a financial planner — not Eric Blake — who might say, “Ooh, my senior has access to $50,000. I want to invest that money!” Or an adult child or family member or grandchild can oftentimes pressure a parent or grandparent to access that money.
Eric Blake: How do reverse mortgage lenders determine the loan amounts? What factors go into that final distribution amount?
Mary Robb: We use what's called principal limit. We plug in the age of the youngest borrower, so if I have a 62-year-old wife married to a 72-year-old husband, all of our numbers and quotes are based on the youngest person. It's based on actuarial tables for the age of the youngest borrower, the value of the home, and current interest rates. When I show a quote, I always show both adjustable and fixed rates. That's also a similarity to traditional mortgages — there’s adjustable and fixed, refinance or purchase. We do the same thing, with the benefit of no required monthly principal and interest payment.
They're still responsible for paying taxes and insurance. But one of the financial strategies and benefits is, we have a reverse mortgage. Our strategy is we've been paying $1,000 a month on it for nine years. I would have been 80-some years old if I stayed in my 30-year term. We paid it off with a reverse mortgage and we voluntarily make prepayments, which increases our line of credit, dollar for dollar. That growing line of credit right now is at seven and eight percent. You can't put $1,000 a month into a checking or savings account and gain and compound at 7 and 8%. So those are some of the financial strategies of it.
That principal limit gets to a gross reverse mortgage amount of money minus closing costs that are typically rolled in, but not required. Most seniors don't want to come to the table with closing costs minus if there's a lean to pay off. Everybody's situation is so unique — as unique as their fingerprint. How old is the youngest borrower? What's the value of the home? What are the rates? Today's rates are at 8% compared to a year and a half ago when I did my mortgage at 3. 5%. Very, different amount of money that's available in a reverse mortgage.
Eric Blake: Well, I have to admit that this is where my negative thought process comes in with these. You heard these horror stories that have happened in the past that somebody got sold the wrong thing or for the wrong reasons. I always say that there are different products and strategies that fall into that category. Annuities can be in that category, even life insurance and reverse mortgage. Again, one of those strategies that gets that negative connotation, a lot of times based on the people who sold it. What are the potential risks or drawbacks associated with a reverse mortgage, and what can borrowers do to mitigate those risks?
Mary Robb: I'm going to start on the more obvious one. We don’t own your home. The lender does not own your home. You're on the deed and title again, just like in a traditional mortgage. The borrowers are on the deed and title. We have a lien on the property, just the same as a traditional mortgage. The biggest misconception is that when the borrower moves into assisted living or dies, we automatically own the home. We don't own the home. The family or the living borrower has an opportunity to sell the home and pay off the loan balance or 95% of the appraised value, whichever is the lesser of the two. The risk is that the closing costs can be a little bit on the higher side.
Any FHA government loan comes with an upfront mortgage insurance premium, I think there's somewhere in the neighborhood of one and a half to 1.35%, 1.75% upfront. This is an FHA product. The mortgage insurance fund is fed money from these upfront mortgage insurance premiums and yearly premiums. So, if someone has a $300, 000 home, at 2%, a $6,000 check is automatically cut to FHA when the loan is approved. To not ever have to make a required principal and interest payment while you live in the home. To know that this is a non-recourse loan, meaning the loan is against the value of the home and the collateral of the home. The borrower or the borrower's heirs are never responsible for the requirement of paying back a loan.
They're encouraged to sell the home and keep the profit just like any other traditional mortgage, but they're not held responsible. If a borrower takes, for example, $100,000 dollars out of their line of credit and then sells the home three months later, or dies three months later, and that $100, 000 is sitting in their checking account, we don't go after that money. All we can do is collect or sell the home. If the borrower or heirs don't want to be involved, they sell the home, pay off a loan balance, or pay off or refinance 95% of the appraised value, whichever is the lesser of the 2. So, when people say, “I want to leave my children my home,” I’ve got news for you.
Most children don't want their parents’ homes. These generations, that's become very rare that you have that situation happen. I'll tell people, “Your child still has access to the equity of your home if you should die or move into assisted living. The loan comes due when the last borrower doesn't live there, but if the borrower or the heirs don't want anything to do with selling the home or refinancing it to keep it in the family, you turn the keys in. It's a deed in lieu of foreclosure. Heirs are not responsible for that. That's a big misconception.
At the same time, if you have $10,000 in upfront closing costs but you've now eliminated making payments of $1,000 or $2,000 a month, how quickly have you paid for those closing costs? At 62 years old, when I got my mortgage with plans to live in this home indefinitely? I can live here indefinitely, with a growing line of credit. It's just a misconception about reverse mortgages. “We own the home” is the biggest problem out there.
Eric Blake: It sounds like the key is sitting down with somebody who is willing to take the time to educate you on the pros and cons, walk you through the specifics, and make sure they're answering your questions so that you can feel like you're making an educated decision.
Mary Robb: Yes. You'll love the conversation I had yesterday with someone whose home is completely paid for. She has 100% equity, but she'd like $100,000 dollars. She wants to upgrade her home. She wants to do some traveling. And she said, without me having to say it, “I would like to leave as much money in my retirement accounts as possible. I don't want to access my retirement accounts for the money to upgrade and improve my home, and maybe pay off some other debts or do some vacationing and traveling. Financial planners are starting to become aware that reverse mortgages, home equity, conversion mortgages, are a great strategy to keep assets under management with you.
There’s a great book out there by Wade Pfau. It's all about retirement strategies, and how and when and sequence of returns and all those buffer asset phrases that you financial planners like, about how the earlier you get one, the better off you are. At the same time, it's never too late to get one.
I've got a client who was 88 or 90 when she got her reverse mortgage. It allowed her to age in place longer. She did not want to go to assisted living until she really, really had to. And when she passed away, I walked into the church funeral, and the daughter — who's a banker and friend of mine —said the best thing we could have ever done for my mom was to get the reverse mortgage with you. It allowed her to stay and age in place longer, maybe have some home healthcare come in. The daughters weren't paying for her to quickly go to assisted care, which, as you know, is expensive. When the time came for her to go to assisted care, she had enough money built up in her line of credit that her equity paid for her to be in a higher-quality assisted care center, without the children being stressed and having to pay for that. Children nowadays are taking care of their parents more and they're investing less in their own retirement.
Eric Blake: I know. Mary, you said so many great tips and nuggets of information on how we can better be educated about reverse mortgages. How can our audience connect with you or learn more about you and the services you offer?
Mary Robb: Mary Robb. (817) 600-1473. I'm at Mutual of Omaha, Reverse Mortgage. Many people recognize the name Mutual of Omaha, it’s been in business for 112 years, a Forbes 300 company, very stable and secure. My email is mrobb@mutualmortgage.com.
The other thing we may or may not have time to talk about is reverse mortgage refinance. I'm leaving to teach a class at a real estate office after this podcast about reverse for purchase. Reverse mortgage refinance is refinancing the current home you live in. Reverse for purchase is buying the next home. You really want to age in place, but not necessarily the two-story that you've lived in for 30 years. Maybe you don't want to use the pool in the backyard anymore. Maybe you're in an expensive school district and the children are gone. A lot of seniors think they have to stay in the home they're in because they're mortgage- free or they're almost done paying their mortgage. They don't know that it's easier to qualify for a reverse mortgage then it might've been back in the day when they got a traditional mortgage.
Wendy McConnell: Eric, tell me how people can get in touch with you if they have more questions.
Eric Blake: If you'd like to learn more about us you can go to our website, www.Blakewealthmanagement.com. You can learn about our Simply Retirement Roadmap process, learn more about us, check out our free resources, sign up for our newsletter. And if you feel like you're ready, click the "Start Here" button. This is how we can help you make an educated and informed decision about whether we’re the right firm to help you navigate your retirement journey.
Wendy McConnell: Well, thank you, Eric, and thank you, Mary, for joining us today.
Mary Robb: Thank you for having me.
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