There have been numerous reports recently telling us that the fastest growing age group in the country are those individuals over 90 years of age. Each year as I age I become a stronger and stronger supporter of any advancement that prolongs life. And while we individualize this phenomenon there are some ramifications that directly impact the mortgage industry. One of the most obvious ones are the business opportunities that this provides. While reverse mortgages have been steadily growing in popularity, we can expect to see a greater push in this product as the housing recovery continues. Another opportunity of course is the development and sale of homes in communities that cater to seniors. It is quite reasonable to expect to see growth in this housing segment as more and more baby-boomers reach the age of retirement and look to relocate to warmer climates or move closer to the grandkids. Since these individuals typically dislike working with companies over the phone or through the internet, the move toward Internet lending may leave them looking for someone who will take the face-to-face time to assist them through the mortgage lending process. They will probably not want to send private information on-line or sign documents electronically. Lenders need to be prepared to take some applications the old-fashioned way.
There is a downside to this opportunity as well. Seniors have to sell the houses they have been living in for many years and to which they are very emotionally attached. More than likely they see the value of their property not in terms of market value, but in the value they attach to it. I recently had a conversation with a senior that exemplifies this. This individual was contemplating selling a property and wasn’t sure what its value was so I suggested she get an AVM to give her some idea of what similar properties had sold for. When the value came back she was very disturbed that it was much lower than expected. We went through the comps and for each one she had a reason why her property was worth more. Finally I asked her what she really thought it was worth. She gave me a price that was several hundred thousand more than the AVM value. So I asked her if she were looking for a house in that price range and hers was on the market would she pay that much for it. Her answer was no. So, I asked why she thought it as worth that much. Her reply was simply “Because I have so many good memories here”, and she stated “I am just going to sell it to my son for what I think it is worth.” Then she added, “He can always get some lender to finance it.”
Understanding the sentimentality of “home” however does not translate into value. Many of the individuals facing this situation are looking to use non arms-length transactions to sell their properties to family members for amounts higher than the actual value of the property and those individuals, so they believe will simply refinance it to get the cash back out. With a proliferation of these transactions, home values in aging communities may very well escalate to unsustainable highs. So, a few words to the wise. Don’t neglect what could be a valuable opportunity; but don’t be blinded so blinded by the opportunity that you ignore value issues. It is time to review and refresh those policies and procedures on non-arms-length transactions so that you don’t find that you have financed a lot of senior sentimentality.
About The Author
rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak, a leader in operational risk management programs in all areas of the consumer lending industry. In addition to consulting experience in mortgage banking, student lending and other types of consumer lending, she has hands on practical experience in these organizations as well as having held numerous positions from top to bottom of the consumer lending industry over the past 25 years.