Unlocking Your Home's Hidden Value with Sean Skaggs!

What's up, you guys? Welcome back to the New and Experienced Investor Podcast. We are in season 4. We have an amazing guest with us today, Sean Skaggs. How's it going?

It's going great.

Awesome.

Thanks for coming.

Yeah, thank you.

Yeah, so this is our first guest of season 4. Joe, are you excited?

I'm excited. Yes.

I'm the first.

Yeah.

Yeah.

You're the first.

First for season 4. So, yeah, today we're talking about reverse mortgages and we were talking a little bit before the podcast about how you are going to basically look at it through an investor lens. But maybe you can go into what a reverse mortgage is and how people can utilize them.

Okay.

Yeah. General, features of it. You got to be over 55 years old as a borrower. These are for primary residences. I'll get into ways that it can be used for investing, though. And generally, the way it works is it's a loan just like others, except that it doesn't require monthly payments after you start.

Oh, wow.

So where that can help is with income qualification, or if there is a cash flow, or sorry, a cash-out need that you would like. So again, yeah, we can go into how investors can utilize it, but that's generally it. It's a loan, just no monthly payments.

Perfect. Yeah. And it's kind of like the old grandparents' loan. They want to tap into their equity that they're sitting on. They're tired of making these payments if they are. And then they just basically, do they get paid from it? Is that like an option? That's what I just—

I mean, there's 3 general ways. Yeah. So The one that's most primarily pitched, if you see a commercial on TV, is taking cash out. Some people though, they just want to eliminate their existing mortgage payment. Like they already took a cash-out loan years ago and they're now looking at retiring or they're 75 and they've been retired for a while and they're just like, why am I doing this anymore? Third way would be actually using a reverse mortgage to purchase a new primary residence. So that's what I spend a lot of time talking about with people is how that can kind of fit into an overall, an overall plan for retirement.

Okay.

We went a little bit too fast.

Okay.

Shawn, can you like maybe give us a little bit of background on yourself, how you got started with this? You know, just basic, basic information about yourself.

Okay. Yeah, I've been doing reverse mortgages for about 20 years. It's a family business for me. Very first client we ever had was a close family member. And for her, it was just having money to be able to enjoy this retirement that she had worked so hard for. And so having an existing mortgage payment was kind of, impeding that. So it was one of those situations where, yeah, eliminating that payment, taking that stress off of her shoulders, uh, was a solution for her. Um, since then, yeah, I've done probably over 2,000 reverse mortgages. So there's, there's very few people in the country that have that level of experience.

Mm-hmm.

I've run a department before of other loan officers, and now I work for Mutual of Omaha as a sales manager. So Again, just doing the same thing that I've always done.

Okay, nice. What are your thoughts on the old reverse mortgage there, Joe? When are you going to get yourself one?

I'm not— I don't plan on getting one. But anyways, I think it's a great idea. Also depends on your age. Also depends on the timing of the market as well. This is honestly, for me, like if I'm going to, you know, recommend this to somebody, this would be the time to get it because the market is so high. And the loans are based on the price of the home currently, correct?

Correct.

And then it's also based on your age. Obviously, if you're 55, they're not going to give you as much as if you're 95.

Correct. Yeah, it's, it's kind of like the same way that an annuity would be calculated. It's the older you are, the more we can lend to you. Because, I mean, there's, there's something implicit there. It's like the life expectancy isn't as long for somebody that's already older. But we try to give the client the benefit of having more, maybe a shorter runway, if you will.

Yeah.

But, but, yeah, the, the character of reverse mortgage borrowers has definitely changed over years. '90s, it was people that were like Silent Generation, Great Depression types that were, you know, they were like 90 years old and they were finally tapping into it. As the time has gone by, it's become more of something people use while they're in their 60s or late 50s and for more purposes than I think originally people thought it could be used for.

Well, now I have a problem here too. All that equity that I am a This is my parents'. That's supposed to be coming to me. Do you ever hear that? Do you ever run into that?

That does enter conversations, you know, kids having, and it's a reasonable concern, is like, what happens to that equity? And I mean, it's important to remember that's still their parents' home.

Right.

Primarily. And, you know, it's their parents that made that investment.

Right.

Some of the ways that people use them is to pay for in-home care. I would say that's, that's a pretty undeniably good reason for using the loan. Because eventually, like, you'd have to be paying for that care yourself out of your own pocket if you were trying to take care of your parents.

So—

How about that, Brian? You take care of it. Have a good one.

First off, that would be the first point. And then secondly, you know, it all depends also on home price appreciation. If home prices are still going up, it's not necessarily the case that like all of the equity is going to be gone or that it's going to be impacted too much. It just depends on the market.

Right.

Alex, let me try to answer your question. Okay. Because I just got off a cruise ship and this topic came up because the average age on the cruise ships that I go is around 70. And we're sitting with a couple and he said, yeah, I'm on my ski trip. And I go, what do you mean you're on your ski trip? And I go, yep, that's what I tell my kids. I am spending my kids' inheritance. Oh no. He says, I go skiing a lot. So I'm spending my kids' inheritance. So that pretty much answers your question.

That's fair. Yeah, maybe the kids can, you know, make their own income and, you know, start contributing.

That's frequently like what we'll see too, is the kids are already kind of dialed in. I would say, yeah, if the kids are relying on occupying mom and dad's home when they eventually pass, then that might be something that's a little bit more of a concern. Studies that I've seen on how people actually respond to that question, like only 33% of people actually list like concern over how much money they're giving their kids as being like a real driving factor. And that doesn't matter whether they're going for a reverse mortgage or not going for a reverse mortgage.

It's just—

Interesting. People in general. So I think there's just, there's other ways to pass on wealth besides just the value of your primary residence.

Okay. So let's talk some numbers and hopefully you can answer the question. I'm not going to hold you to it, but, you know, let's say if I had a house that was $1 million, how much would your company loan me? Obviously it's by age as well.

Correct.

So let's start out at the 55-year-old. How much would you loan a 55-year-old? Again, you know, just an estimate. How much of that $1 million would you loan a 55-year-old?

So the easiest way I have to explain it for this kind of situation, take the person's age and then subtract 30 from that. And that's roughly going to be the percentage that we can lend to you on day 1. Again, with the understanding that you don't have to make payments on that until the day, like, you pass away and the home gets sold or it gets refinanced into some other kind of loan. So back to your scenario, someone who's 55, yeah, that might be 25% of the home value that will extend to you on day 1. But you're going to be living for a long time without having to make payments. So those, those skip payments is money that's staying in your pocket that's not having to go out and service a debt. But somebody who's 95, for example, they're still getting like 65% of whatever the current market value of that home is, and they can use it for whatever purpose.

And has that changed over the years? Because I thought it was way higher than that. Maybe—

It used to be a little bit more aggressive. A, with lower interest rates, those percentages go up. Also, the way the program has evolved over the years, what we found as an industry is if you extend too much on day 1, it makes it much more likely that there's less equity left for the heirs or that the bank has to then take over the home. So by changing it, by making it more conservative on day 1, Yeah, it doesn't provide as much value here and now, but it protects everybody else down the road. So that became more of a consideration and the reason for the change.

Okay. Yeah, because that's what I remember is the banks were being very aggressive and they were loaning, you know, 60% or more. And what was happening is, you know, we were at the top of the market. And then, you know, these are loans that you can stay in there for the rest of your life. And if the market dropped in half, you know, yeah, there goes all the equity. But—

But you kind of called a maximum, like in, like, hypothetical terms. Like, what if somebody gave you more money than the home was actually worth in the future? It's like, yeah, it's almost like you got the benefit from selling, but, you know, way, way earlier down, and the extra benefit of getting to stay in that home too. So, right, it's, it's one way of looking at it is that it doesn't necessarily have to be a risk for the client. It can be a risk for the bank, certainly.

Yeah, no, no one cares. That's my point. Yeah, it could be a risk for the bank. Yeah. And I think that's why they changed the formula.

Yeah, they're like, wait a second, wait, wait a second.

It's like, there's nothing left here. We have to take this property back and there's nothing left.

It's not the business that we're in. You know, it's like, as lenders, we're in the business of lending money. We're not in the business of owning homes.

Right.

And it's very expensive. You don't get as good of a return at like selling that property as a bank as you would as like as an individual. So it's— that wouldn't be a good business model to run it the way that I think some people think of it, which is like, Bank is trying to take the home or something like that. It's just, it wouldn't make sense to run a business that way.

And I also met on my cruise, probably your worst nightmare.

Oh no.

She turned 100 years old.

Okay.

On the cruise.

Yeah.

Yeah.

What a bank steal that would have been. Could you imagine if she was, you know, 55 or even 60 and got a reverse mortgage on her house, which she has been living there that long.

Yeah.

Yeah, she's like, there's no, I don't know if there's any equity left.

Well, yeah, it's funny. Like the oldest client my mom ever helped was 110. Wow.

Yes.

Yeah, that was the second time she had done a reverse mortgage. First time she was 102.

Wow. Really?

Yeah, so I mean, think about it. If you had put aside savings for your entire life, are you planning for living like 60 years or 50 years past retirement? Who's who's planning for that? I am.

We are, yeah. But you know what I mean?

Yeah, yeah, yeah. Average age, right? Or average lifespan being what it is, it's like, you know, sometimes there you can't plan for everything and life happens. And so sometimes it's it's that. But uh huh.

And so what are the rules as far as when you know the borrower passes away? Because I think those have. Actually changed as well. So what are the rules from, you know, the point of view of the heirs who are looking to get this equity? What are those rules?

Good question. So one of the— I'll start off with one of the things that changed. So it used to be the case where a reverse mortgage was made to a borrower. And so sometimes what would happen is, if you had a younger partner, because it's an age-based calculation, some people decided, hey, we're going to drop my younger spouse off the loan calculation so we get more money. But you can see that the problem in that is that if that older spouse passes away, then the younger one is left in a position where they had to repay it right then and there. So the government changed the rules on how it's governed. So it's not a choice anymore. We account for whoever the youngest spouse is. And even if they're not a borrower, because you can have a younger spouse that's younger than 55.

Mm-hmm.

We already have calculations built in for that. And so although they might not be able to access the cash-out money themselves, they still get that right to occupy the property, provided they still continue to keep up with property taxes, insurance, HOA, same as if they own the home free and clear. Those are always going to be requirements.

Yeah, but if, if, you know, 55-year-old is marrying a 25-year-old, you're not going to give them a lot of money on that.

Yeah, exactly. I, I have not seen one that aggressive.

I was gonna say, he— you do a lot of business in Newport. What's the biggest, like, age gap that you've seen?

Uh, I saw 80/40.

Really?

80/40. Yeah. Oh my God, she was only a few years older than me, and I was like, did I get that date right?

Like, oh yeah, I was like, that's exactly—

I just couldn't believe it.

But, uh, I guess And that's a guarantee for, you know, the 40-year-old that she can live there for the rest of her life as well. I mean, she's not gonna get a lot of money, but, you know, the guarantee is you're not gonna kick me out of this house. I don't need to make payments anymore.

So long as you can keep up with those bare minimums, you know, the taxes, insurance, HOA, those, you know, if you can keep up with that, you'd still have to keep up with that even if you didn't have a loan.

Okay. So what happens when, again, the borrower passes away? What's, what's the story with the heirs? How much time do they— can they move in? take over that, you know, payment, nonpayment status, or what happens?

Yeah, it's different from a regular loan, which, like, regular loans can carry, like, an assumable-on-death kind of clause to them, meaning you could, if you just keep up with those payments, the bank's not going to really care. But with reverse mortgages, because they are age-based, it starts the repayment process. And so they have 2 choices, well, 3. They could refinance it into some other kind of loan. Some people, their parents never actually borrowed much from the reverse mortgage. And so that's a, that's an easy fix for them. Second would be they can sell it. And the third would be they just say, you know what, this, there's not enough equity or it's underwater. This isn't worth it for me. I just want to hand over the keys and just be done with it. For people that are selling, there, there's an initial 30-day window where you just have to alert the servicer. What is, what is your choice? Are you going A, B, Or C, rent, or sorry, refinance, sell, or they call it a deed in lieu, just handing over the keys. From that time period, the bank has a deadline where we have to have that all finalized, like with the first deadline of 6 months. That deadline could be extended though 2 times for 3 months apiece, giving you a grand total of about a year to execute on that plan.

That was always my understanding, is you had about a year before they got really serious. Yeah, they get you out.

And, you know, it's, it's important. There's been a lot of training on this in the industry, too, on how to communicate this, is that deadline is for the lender, not for the client. And so the lenders can actually move quicker than that if they're not getting responsiveness from the client. So it just depends on who your servicer is. how much staffing they have to be able to work with the families and make sure that that is pain-free as possible within the regulations that we have to follow.

I have a client that her mother passed away. Her— she had a living trust. They had a reverse mortgage. And it's been almost a year And they're starting foreclosure proceedings.

Okay.

Because one of the siblings decided to sue the other sibling because she got written out of the trust.

Classic.

And so, you know, in that case, they, they have had it extended a couple times, 30 days, because what they want to do is either refinance or take some insurance proceeds and pay it off. But they're running up against the deadline, you know. So, you know, in your experience, how willing are these lenders or the servicers willing to extend it a little bit more till she resolves this situation?

Yeah, it also depends on like what kind of product they selected. FHA is the primary like guarantor of most reverse mortgages out there. That's the federal government. And so because it's a federal program, they have to be kind of strict with You know, how to set rules, you know, to prevent against fraud or abuse and all that stuff. So— Fraud?

In the federal government? Come on.

No, it's been proven. That's debunked.

Yeah.

So it's like they're, they're a little bit more strict. With a private reverse mortgage, the servicer is much more willing to come to the best outcome for everybody. And so they do have more flexibility. You kind of brought up a good point. If things get tied up in a court, That's kind of outside our control. And so what I always recommend to my clients, and I have one that's doing this right now, get your home in a living trust, right? Because the last thing you want is, you know, mom or dad has passed away, so the reverse mortgage served its purpose, but we can't dispose of the property or do what we want to do with the property, 'cause now we got to go through probate. And here in California, I hear that takes like 18 months.

Yeah.

So—

It is in a living trust. The problem was that, You know, like most things out there with siblings is that mom, before she passed, wrote Alex out of the living trust.

Yeah, the bad sibling.

Yeah. And so I'm on the living trust and I'm trying to sell this now. But Alex hired an attorney and put a lis pendens on the property, which means I can't do anything until that's resolved.

Yeah.

And they know that. And so I've been telling my client, I says, you know, negotiate with Alex and try to get a deal. And I'm not paying Alex a dime. He doesn't deserve anything. Okay. Yeah.

You know, again, it's like one of those things where it's like, it's not really in the reverse lender's control that happened. You know, we're trying to get through it the same way you guys are or your clients are. Yeah, I haven't seen that one before. Where it's stopped? Because everybody knows it's like every month that goes by, it's like there's interest charged on that loan.

Yes, no, yeah. I mean, the bank's not going to lose on this deal. That's what I'm kind of asking and trying to get to the point that, you know, even if they extended it out another year to resolve this issue, it's like they're not losing, you know, they're still getting their interest every month for that.

Unless it was a short sale situation.

No, no, no, not at all.

I'm just saying like a way that a bank could lose on this. Yeah, no, no.

Like I heard this situation before. Yeah, yeah.

Like, saw a property, they got their reverse mortgage just before the financial collapse.

Yeah, there you go.

So we were talking about—

Yeah, exactly.

You know, they got a high value and then property values dropped right after that and they've recovered since, but it just set off the initial calculations by so much that now they were, the bank was gonna be taking like a $500,000 loss on the loan. So, and again, that's not a loss to the client, that's just the bank has to write that off.

Correct.

Yeah, correct.

Yeah. And that's kind of what I was talking about earlier, that, you know, timing is, is very important, right? Like right now, you know, probably a good time if you want to get a reverse mortgage. This is a great time to get one. Yeah.

Yeah.

Don't, don't let the market values fall because obviously you're going to get less. Uh, now, you know, if they're way up there and the market falls, oh well for the bank, good for you.

Right.

Yeah, you'd be capitalizing on a lot of like the recent home price appreciation that's happened since COVID And there's always a chance to revisit the numbers. A lot of people don't know you can refinance a reverse mortgage.

Yeah, I was going to ask that.

Yeah, so if you want to, if rates get better, that's going to help your calculations. You're going to be a little bit older, home might be a little bit more. And so everything's kind of working in your favor to dial it in. Better. So, but yeah, right now I've kind of noticed that with my own clients, it's kind of like a sweet spot where we've gotten to a pretty stable footing with where the Federal Reserve is at and home values, again, like you mentioned, are—

Yeah. So what are the interest rates for reverse mortgages?

It's kind of hard to do that on a, on like this kind of format because it is—

You can do it. Just, just give us, just give us your rate right now. Lock us in.

Yeah.

I'd say—

Estimate.

Estimate.

Yeah.

So generally with FHA, those are going to be about what you're used to seeing if you follow mortgage news daily on conventional rates.

Okay.

It's going to roughly be that.

Okay.

With our private reverse mortgages, because there's a lot of layers in terms of making that product possible, those are going to be similar to like your non-QM, your kind of out-of-the-box deals. So anywhere from like 2.5% to 3% higher than Conventional loans. So that's kind of where we land is—

And is that due to the qualification of the borrower?

Not, it's not like a loan-level selection. It's more because I've had this explained to me. So we have to engage an asset-based, like, lending institution that doesn't service customers. They just service other banks. And so they provide the liquidity that we then can extend through this product, the private reverse mortgage. And so they charge their own portion of that rate, which is why it ends up being higher than conventional.

So for me, you know, I have a stellar FICO score. Why would I go with anything other than an FHA loan? Why would Why would I be thrown into a non-QM loan, which is going to— you're going to charge me 2 or 3% more?

So number one would be that the private loans also allow for loan amounts up to $4 million. So those are your jumbo clients. 2 would be if you live in a condo that's not FHA approved. FHA has their own approved— like if you live in a condo, you have to meet FHA requirements in order to get FHA financing.

Right.

Not a, I mean, it's becoming more of a challenge lately.

Yes.

With condos and getting FHA approval.

Yeah.

Because you have deferred maintenance and the reserves aren't as much as they really should be.

Yeah.

So the risk of a special assessment's coming up. So those would be the 2 biggest use cases.

Okay.

And in terms of how the borrowers use them, average starting balance for an FHA borrower It's about $225,000. That's their day one loan amount. For those private reverse mortgages, it's about $650,000.

Ah, okay.

So they typically, maybe they have an exist— they're like 75, 80 years old and they still have a million dollar mortgage that, you know, maybe they helped their kids out with. Maybe they helped their kids buy a house, you know, and took cash out 10, 20 years ago and they're still paying that off, so. Um, that's, that's kind of the basic is—

Got it. No, no, that's a great answer. That's, that's— yeah, that's what exactly what I was looking for. Yeah, that's a great answer.

Okay.

Yeah, no, that's awesome. That's a great answer.

Yeah.

So Stephanie jumped in the chat and she said, Sean, just for me, please compile a list of your single male clients. I'm like, oh, I don't know if that's legal or ethical, but moving on. Anywho, Yeah. So I guess let's turn it over to how investors could, I guess, even use this or what, what should they do if they come across this?

Yeah. So I think the, the most straightforward answer to that is although the reverse mortgage has to be on your primary, again, you can use the funds for whatever purpose. So if you have a free and clear home and want to take cash out to buy a second home, an investment, That is a way that I've seen people use this.

Mm-hmm.

Another way would be if you're using the purchase variation of reverse mortgage. I've seen people use it to buy a duplex. And so they're renting out, let's say, the second level and they're occupying the first. You can make voluntary payments on a reverse mortgage, so it doesn't actually have to result in a rising balance. And so those people end up just taking the rent and just using it to pay the interest.

It's a good idea.

That is a good idea.

Yeah, it's a good idea.

It, um, it helps move the 40-year-old into the other one. So a 3rd option, um, if they have a line of credit product, and, um, again, it's probably best if like they're, are they starting off and they're free and clear. But that's an open-ended line of credit, meaning you can use it up like a credit card and pay it down, use it up again, pay it down. If that's something you want to do with like flipping homes or investing in real estate, maybe that's your source of funds to get started, to get that down payment for those other properties. And then as you process those and sell them, you just pay down the loan balance again, start from, start from scratch, like start over again.

That's another good idea.

There you go. See?

Another good idea.

Joe's not tapping into his equity at all.

I am.

Oh, you are? Okay.

Oh yeah. But I just have a regular HELOC.

Right.

Yeah. Not an old person.

Come on.

It's young. I mean, like, I'd say 60, 64 is like the average age. It's gotten a little bit older. Maybe it's 67 now for FHA. But yeah, a big difference between a HELOC and a reverse mortgage line of credit is, again, these are for life. So FHA, you could use that until the day you die. Private reverse mortgages have a 10-year window, kind of like HELOCs. So, and then those get cast into a repayment phase where reverse mortgages don't. So, oh, one more thing too. Since a reverse mortgage is not a personal liability, it's a liability against the property. They don't appear on your credit report. So why is that important?

Good information.

Yeah.

If you're qualifying to use financing on investment properties, they're going to look at your overall debt-to-income ratio. DSCR loans, maybe not. But if they're using your personal income to qualify, You're kind of dropping your primary residence off of those calculations. So you are more qualified to get a loan on one of those investment properties because you're not having to consider where you live.

I'm sold.

Yeah?

Yeah.

You just have to be 55.

Yeah, I gotta wait a little bit. But well, Lauren's dad was looking into it and I just, for whatever reason, always thought, I guess just basic level, okay, he's going to eat up all of his equity and then this common thing that we hear.

Yeah, yeah, yeah, yeah.

No, exactly. So you kind of just, you opened my eyes to it about it could help because he's older, doesn't have a ton of savings, but he does have his house. And so, I mean, it could be a good way to tap into it. And then it's in Orange County. So with the appreciation, it could maybe keep up with it.

I don't know.

Yeah, that's the thing is like when I actually show people that amortization calendar, and we always go with a conservative like 4% home price appreciation for official disclosures. But, and a lot of times even with those like conservative amounts, they're still ending up with more equity than when they started. It all just depends on how you plan on using it. If you, if you have a lower loan balance, then at the start, then chances are you're going to still have a lot more left over at the end. And it's— I understand it as it's rare in California for it to be a situation where there's no equity left just because of how home prices have performed.

Yeah.

Yeah.

Does he need the money? Yeah.

And then I was like, Joe brought up like, it's his money, so let him.

Yeah. But does he need the money?

No, he would just maybe get rid of the payment. So he has—

Because is that a pain point?

Yeah.

Something I would say too is that Harvard, uh, I think it was the study on aging, there's a, there's a study at Harvard that was done and it found that the month that people got rid of their mortgage payment, their medical expenses suddenly jumped up by 25%. And so What does that tell you? It's— is it likely the case that they suddenly got sick the very same month that they paid off their mortgage? Or is it probably more likely that they were suppressing what they should have been spending on healthcare the whole time because they had this debt? And so I look at it as there are some people that don't necessarily know how much they're sacrificing simply to meet some lender's deadlines on, hey, pay us now, pay us now, pay us now. It's like, you can, you can pay us early if you want to. You can make those voluntary payments, but nobody's requiring it. It's whatever fits your, um, your lifestyle needs at that particular juncture.

Yeah, I would say if he needs some money, do it. But is he the one that owns the yacht?

No.

No. Okay.

The other dad.

Got it.

Yeah.

I was gonna say, if he owns a yacht, he doesn't need the money. But yeah, you know, if he needs the money or you guys, you know, need to take care of him, then that would be a good reason to do it as well. You know? Yeah.

Because he was looking—

All right, just tell him to go skiing.

That's what I'm saying. Yeah.

Just go spend it all. Just go skiing.

Something I would look at too is you know, do a basic debt-to-income ratio for him and see like, okay, how much are you making? How much are you spending on the home and all your credit card debt? And like, take the income, cut it in half. If his outlays on all of his expenses that way are more than 50%, he's kind of like, he's gonna feel that pain.

Mm-hmm.

You know, it's like without really knowing it, we all kind of have these, unspoken allocations for how much we spend on different things, whether it's the housing or the healthcare or food and all that stuff. So that's how I would look at it is how much is going out the door just to cover that most basic need of shelter and stuff like that.

Yeah.

Okay.

Tell them to call Shawn.

Yeah, no, we will be. We will be. Absolutely.

Yeah.

Oh, now that I know, You know, more about it. We've looked at properties, like maybe some were in foreclosure. And so, you know, you pull up the property, says there's a reverse mortgage on there. So we're just like, okay, move on. This doesn't work for us as like flippers, as investors. Is there anything like an investor can do if they see that they have a reverse mortgage on the property? Is there anything an investor can do? Like, what, what's, what are the options at that point?

Well, the, the first thing I would also like to say about looking at those title records is that with reverse mortgages, what we record as a loan amount is not what the client borrowed. We record 1.5 times the home value at the time that they started that loan. So let's say you have a scenario you're looking at where you think the home is worth $1 million, right? And they've got some recorded loan amount for, I don't know, $1.2 million. That means that when the client got the loan, $1.2 divided by $1.5, or 1.5, is $800,000. Now, of that $800,000, it's not like— because we talked about the loan percentages, or we're not lending 100%. They probably borrowed like $300,000, $400,000. So to put all that together, take whatever that recorded number is. If you really want like rough and dirty math, then just divide that by 3. And that's probably what they borrowed when they started the loan.

Okay.

So they may still have equity in there.

So yeah, there's probably still going to be some. It's not going to be like you're taking on a short sale. necessarily. So that'd be the first thing is don't just get scared off by what the recorded amount says. And then secondly is like, yeah, there is time. It depends on who the seller is and how willing they are to play ball with the sales price.

But—

Yeah, usually not. They're not ready to play ball.

Yeah.

They don't like our prices that we offer.

Yeah.

At least Joe's prices.

I'm kind of curious about that. So from your perspective, I guess what would scare you off from wanting to talk to them?

I just see reverse mortgage and we're like, ah, never mind. Because we've taken over people's mortgages, like sub-2 and all that kind of stuff.

Oh yeah.

Yeah. But Yeah, I, I just—

it's more risky. Yeah, you know, to do, um, probably never find out because regular banks, I, you know, they don't care unless you're getting— they're getting their, their mortgage payment every month. But with a reverse mortgage, they don't get anything every month.

Yeah.

You know, so I don't know if they do it a little bit more due diligence and check if the title has transferred in somebody else's name. I don't know if they do all that stuff or not.

So there would be an alert, like, for servicing. If, um, if title transfers, then that, that triggers a repayment, right? So that loan would be called, and it— whatever the loan balance would, you know, is— would be how it is.

And that's why I say move on, because it's a little bit more risky than just a regular loan, because the, the regular banks aren't checking, like, every day if something's transferred. All they check is, did we get our Rent payment or, I mean, our mortgage payment this month.

Right.

That's all they check. Yeah, we did. Okay, move on.

It's, you know, I've heard conversations about whether assumable loans is going to be— that feature is going to be extended to conventional in the last couple of months. Currently, to my knowledge, it's still only FHA and VA loans that allow that.

Correct.

It gets a little bit more complicated, as I understand it, in the secondary market, like When you're changing out, you know, because we look at what is it, character, capacity, collateral, and credit, or, um, maybe I forgot a C, but the 4 C's of credit. And, um, so yeah, when you're swapping out the person, you know, not every product allows for that. But do you know FHA and VA?

Yeah. So yeah, they do, they do. And there's rules with that because again, it's FHA, so The government always has their rules, you know, right, to go by. So yeah.

Yeah, I guess this is the best scenario would be if somebody inherited it and they had that year and it's in a living trust and there's still enough equity that you could just buy cash at that point.

Yeah, I mean, as long as the, the lender or the, the government, whoever's servicing at that point, as long as they get paid out I mean, they can accept lower amounts in some scenarios, but generally it's when it's already a short sale.

Yeah.

At that point where they're willing to even consider that.

Right.

Otherwise it's just, yeah, you borrow.

Yeah, 'cause they don't want the property back. You know?

They don't.

They don't. They really don't. They don't want it back.

I was looking at like when it actually falls all the way through and the government takes it on because maybe the reverse mortgage borrower didn't have any kids. There's nobody to leave it to. I mean, their execution on the broker's price opinion is like 66, 68%. So it's like they're not, they're not getting nearly what someone would if they were actually making the purchase.

Yeah, see, that sounds like my offer. 66, 68. I go up to 70 actually. So there you go. I'm a lot better than that.

Yeah. And that kind of reminds me, I have a video that I want you to check out where this guy figured out a way to get around Ooh. The lender. I want you to let me know if this, if this is real. So take a look here.

How to beat the Weasley banks.

Oh, there we go.

And take their money and defeat a reverse mortgage. Firstly, have the person that has had the reverse mortgage given to them write you a 100-year lease. If they're not related to you, that's all you need to do. If they're related to you, simply put it under the name of a business or a money-making hobby that you don't even need to have registered in the state that you're in. It's that simple. And then that property will be yours For the 100 years to lease, sublease, or rent to anybody else.

Boom! Take that.

Okay. Um, well, like, as I mentioned, like, reverse mortgages are for a primary residence. So I mean, for someone to be writing a 100-year lease, that already violates— like, they were in violation from the start of making that. I mean, I'm not an attorney.

You're telling me that guy's lying?

I don't know where that was. Was he on a boat?

He did look like a captain.

Um, I, I would just think that like, that's, uh, like basic fraud. Like, I don't know, just you couldn't have written that contract in the first place, uh, at least from an— as an amateur. Like, I, I don't know what he's really talking about.

Well, you don't know maritime law. That's the problem.

There we go. Blah, blah, blah.

I don't think the contract is the problem or the length. It's that he hasn't been to the dentist in a long time. And you're gonna believe that guy? Come on. It's like, if he's doing this because he's recommending it—

The old 100-year lease.

Yeah, he'd, he'd be like, uh, yeah, I need to go to the dentist. You know, it's like, no.

Yeah, I, you know, it's, it's— I don't know why, like, if that was to happen, if like, if that— if his perspective was to be believed, it's like, you do understand these are made for like older people to be able to live in their house. Yeah, like, yeah, one person kind of tanks it, it ruins it for so many other people. Like, I don't know how much you want to do that.

It just seems like so weird. Moving on.

That was just a cute video. I thought I was like, what is this?

It wasn't cute either.

Yeah.

All right, check this one out.

Had a head-scratcher yesterday. It's amazing what goes on in the real estate industry sometimes. We got a call from a panicked borrower who was working with another lender, and they were about a week away from closing, and they got a call, sorry, your loan has been denied. They paid for the appraisal, home inspections, earnest money. They've done everything that they should have done. to get to that point. It took us about 5 minutes of reviewing their application, their credit, their income, and their assets to know that they didn't qualify to buy this house, and they never should have been pre-approved to begin with. But yet that lender gave them a nice shiny pre-approval letter that said, you're ready to buy a house. Well, they weren't. So who you work with really, really matters. How cool and shiny does your application look online, or how low of a rate you can quote If you can't close the loan, it doesn't matter.

That one is just because we've been— yeah, just a general sort of loan officer thing because we've been getting buyers like, you know, putting offers in on our flips and then it comes down to about like a week before they're supposed to close and then all of a sudden we find out that they're not qualified. So why do they do that?

Well, pre-approvals are going to be anything that we can know without knowing a property. Like once you know a property, Then that becomes an actual approval. That's just starting with the basics, right? So, um, if it was something to do with insurance or the inspection, like, that's what I would think would cause a denial. Um, unless you really just didn't do your job, like if you didn't pull a credit report when you should have pulled a credit report, like, um, from our perspective.

I don't think these people are doing their jobs. And I've always said, um, Why? And not so much in your case, but why does not a lender say, Alex, come here, sit down, this is everything I need, A through Z, let's get you through all this stuff so that nothing like this happens at the end of the day, right? But they don't.

You know, and not every loan officer has really been battle-tested. You know, there's, there's new, there's new people in the industry, and right, like, purchase is definitely That's a grown-up game. You know, you don't want to be making a mistake because there are penalties for people and it sets back the sellers if you fall out. And then now they've got more days on market. So it's like, yeah, just, I mean, that's kind of more a process thing with the loan officer. Did you pull their credit?

Yeah.

Like, we don't have necessarily like FICO score requirements or debt-to-income ratios aren't as stringent as other loans because we don't have a payment. But, um, yeah, I mean, you got to check the person's history and then make sure that they actually have enough for the down payment. And like, if you've verified that stuff, there shouldn't be anything other than property.

For example, what Alex is saying is if I had a person over 55 put an offer in on one of my properties and they say, we're going to buy this with a reverse mortgage. You would be my first call because I would want you to do what's called a cross-qualification. And I don't know if you do that or not.

Yeah, I can do that.

But that's— you would be my first call because I'm not going to believe the person that he says, yeah, this guy's qualified, because I know you. That's the relationship that we have. And I'm going to say, here, tell me the truth at the end of the day, whether Alex is qualified for this loan or not. And then I'll accept the offer. 'Cause if you don't tell me, yes, he's good to go, then I'm not gonna accept it. And what I always tell people that do cross-qualifications, lenders that do cross-qualifications for me, is that you have to be able to pick up this loan if something happens at the last minute.

Yeah.

So you better make sure that it can get done. And if it can't and you can't pick it up at the end of the day, We're not working together anymore.

Right.

Yeah.

I mean, I, I had a client that just closed before Christmas and, um, our pre-approvals come through. I think I got it like within 3 or 4 hours. Um, so that was pretty quick. That was faster than I was expecting it. I mean, they typically quote us 48 hours just to cover operations. Um, but we were clear to close and this was with Thanksgiving, like within 10 days. And then some inspection thing happened that Contract canceled. So we go back into it. And if it hadn't been for a delay on the appraisal, would have probably hit 10 days again. But we got it clear to close again in 15. And that's again pretty rare for the reverse mortgage industry. Like, I think it's just— I chalk it up to how many purchases I've done. I think I've done over like 200, 300. So yeah, it just, it just takes a good application. To really avoid so much.

Yeah.

And the underwriters.

And doing your due diligence.

And the underwriters.

They always blame the underwriters.

Oh yeah.

Yeah, well, that's easy. Yeah, blame the underwriter. Who's that? Yeah, the girl that's sitting next to me at my desk. She's my underwriter over here. Yeah, and she's going like, don't blame me, it's not my fault. Okay.

All right, we got one more video here.

If you inherit a property with a reverse mortgage, things are gonna be different than if you have a regular mortgage. With a reverse mortgage, the mortgage company is going to, upon learning of the death of the mortgage person, immediately call the loan, immediately start the foreclosure process, immediately start to try to get paid. That is just the nature of the reverse mortgage. The way the reverse mortgage works is the owner of the property is making an agreement with the mortgage company that the mortgage company's gonna supply them with money, and at death, the mortgage company's gonna get paid that money back. If you inherit a property that has a reverse mortgage, you have really have 2 options. Option number 1 is you can sell the property. The proceeds that are owed to the reverse mortgage company will be paid. You'll get the rest. You can refinance under your own name. And same thing, the reverse mortgage company will get paid at that time and everything will be good. But you cannot just keep paying. They will start the foreclosure process. If you need help with that, an attorney can help you. That's it.

See ya.

Yeah.

And we kind of covered this a little bit. I mean, there's official processes and official names. Yeah. Like it may start off with Or it might be the process of foreclosure, but it's not like a foreclosure sale happens right then and there. There's that 30-day window. Just communicate with us. What do you want to do? It's, it's tough. And actually, there's a lot of training that has gone on in the industry again on making sure when your parents are setting it up to begin with, to have the kids listed as an authorized contact so that the servicer can actually talk to you.

Oh, nice.

We have—

Great idea.

We have financial privacy rules Yes. We can't just go sharing information with whoever, even if it is a kid. Like, unless your parent has authorized us to talk to you, it becomes really challenging. And we want to work with people, but that would be a key thing is making sure your parent lists you as an authorized contact and able to discuss loan details as well. Not just if you want to go the third level and let's say it's a power of attorney that's been used on the file. Exactly. Like, thinking about all those things for, you know, thinking about the end of the loan just as much as the first, the beginning of the loan, I think is super critical.

Do you, it brings up another question. Do you collect living trusts?

Yep.

You do? Okay.

Yeah.

That's great.

It's different than a lot of other loans too, because here in California, a lot of loans will just require something called a trust cert.

Yeah.

It's like a one-page summary.

Correct.

The problem with reverse mortgages is it doesn't verify, like, necessarily everything that we need to know.

Yeah.

Which is critical for, like, who are we lending to? Like, who are the beneficiaries of this trust? That's kind of it in a nutshell. I don't know the super details about it. I just know that we have to ask for the whole thing.

Yeah.

All amendments.

You should. And then the other thing is, how do you, as a reverse mortgage lender, find out that the person has passed?

Typically, I'll get a call from a family member if it was if it was my.

Okay, so if Alex doesn't call you because I passed away for a year, you're never gonna know.

Oh, you're you're talking about the lender as opposed to like me as a yeah yeah yes the lender the lender the lender.

So you've you've you've you've given me the loan, okay? And so like you're you know one step away from everything. So now a lender has it and a servicer has it.

How do they know when I So, um, there's 2 things that I think happen, um, and one is that we issue what's called an occupancy certification annually, um, to make sure that the person is still alive and living in the home. And so there's like a 2-month window where you have to respond to it. So I also advise people, if you're going on a very long vacation, hey, make sure you let us know, kind of like how you let your credit cards know before you're going to Europe or whatever.

Mm-hmm.

Let us know that you're going to be out of town because because if we don't get that back, we're thinking that you passed away or something happened, or that you're in a nursing home or something like that. Moving to a nursing home is the same as passing away. Like, you're no longer occupying that property.

Mm-hmm.

So, um, so that would be one way, is the occupancy certification, which is under penalty of perjury, you know, to the federal government that you're still living there. The second is, I, I think this is what happens, there's some kind of Social Security death roll that validates anybody who has a Social Security number, like when they pass away, programs that need to use that are supposed to— it's kind of like a kill switch or something like that. It turns the whole thing off.

I would think that would be the most common sense, but I don't know that they're doing that. But I would say that'd be the most common sense. Yeah.

Well, because on your death certificate, and the reason I know this, sometimes you have to prove that someone's passed away, like a spouse that is on title, and we have to prove that they're no longer here. And their Social Security number, I think, is on the death certificate. So that, that must have gotten registered with the county. But yeah, those are the 2 ways, I think.

Yeah, I know. And I've heard— not heard, but I've known that. And this is not something that I recommend. But, you know, when people want to take over title to a property, they file a death certificate With the county recorder's office. And that's just another way of triggering that I died, which I don't ever recommend because—

We'll just bury you in the backyard and then keep on going.

There you go. Yeah. But that's another way I've heard where people make that mistake and they file the death certificate because they said, we were told this is what we were supposed to do. When really you shouldn't be, because they want to, they want to know. The system wants to know. Absolutely, because they're going to reassess your property taxes.

It triggers everything. Oh yeah, absolutely.

So yeah, there was, there was one time where I had to prove that somebody was alive. For some reason it had shown up on their credit report that they passed away, and it's like, no, no, no, I'm still here.

Like, yeah, yeah, that, uh, 2-month thing you were talking about, is that just a letter that goes out? Or is somebody knocking on the door saying, hey Joe, are you in there? Are you still alive?

It's, that's like a last resort kind of a thing.

Oh, okay.

So, okay. There's, they, FHA enabled also online verification of that as well. Like in the most recent, I want to say 2022, 2023.

Yeah.

So now if you log onto your online portal, You can fill out the occupancy certification there too.

Got it.

But yeah, again, it's penalty of perjury to the federal government.

Oh yeah, we're really concerned with that, aren't we?

Yeah.

Oh yeah, yeah, yeah, yeah.

All these politicians that have homes, they're like, we don't want you lying in D.C., but they're represented out here in California and they claim that as their primary. Don't get me started. Yeah, don't get me started.

But you can't do that.

No, absolutely not. Yeah, I've got one primary and it's here.

Yeah, that's right.

Uh, the third way, maybe too, is if the family was proactive and said, hey, you know, just wanted to let you guys know as a servicer, hey, Dad passed away.

Yeah.

What do we need to do next?

Yeah.

Um, I think that's probably more like, most likely in situations where the initial conversation was also quarterbacked by the children trying to provide in-home care for Mom and Dad. So That would be, I think, a third is the family just initiating.

Yeah, makes sense.

Don't tell anybody.

I know, just let it ride. I mean, just let it ride. Weekend at Bernie's.

Yeah.

You know, we have proof. The last president was in the office for 4 years and he was really not even there.

Could have been a hologram. Yeah, we know.

We don't know. We got the auto pen going, you know, just throw it under the auto pen. It's fine. Okay. Moving on from politics.

Okay.

Because I'll be here all night.

That's right. Well, this was very informative. Thank you so much, John. This is, this is great. How can people reach out to you if they're interested in a reverse mortgage?

Uh, my cell phone number is 714-875-7979. That's the best way to get me. And yeah, those initial conversations, it's really less about numbers and more just kind of learning about the person. Like, what's led you to this point? What kind of emotional landscape are we navigating? Is this like an urgent or is it kind of just like a regular issue? And then, yeah, follow up like next day with numbers kind of a thing based on what the results of that conversation were.

So.

It's not just a one-size-fits-all kind of product.

Perfect. And then you're local here in Orange County?

Correct.

Yeah.

Right now, I think I'm ranked number 5 in Orange County in terms of production. Um, and so, yeah.

Nice, man.

A lot of, a lot of work out here locally.

Yep.

Well, we'll get your numbers up as soon as this thing hits YouTube.

That's right.

Yeah, we'll get your numbers up.

I'm really thankful for you guys to invite me here. So thank you.

Absolutely. Appreciate it. Thank you so much. And yeah, thank you guys for joining and we will be back here next week.

Next week.

All right. See you on the next one.

Take care. If you want some more advice on real estate investing, reach out to us one-on-one.