Reverse Mortgages with Dennis Cooper
Donna Stancel: Hello, everyone. I'd like to welcome to the Senior Life you Discovery Podcast. And, today we have Dennis Cooper, the Senior Vice president of the HECM [00:01:00] Division of Federal Savings Bank.
You're located in St. Louis, aren't you?,
Dennis Cooper:
Yes, I am. Been here for about 40 some years. Native? Well, practically a Native at this point, but I actually grew up in Pittsburgh. Very similar town.
Donna Stancel: I'm a native of St. Louis myself. Tell us a little bit about your background.
Dennis Cooper: Well, as I said, I was born and raised in Pittsburgh. Went to school in western
Pennsylvania, graduate school, and, I'm sorry, Thank you. College in Western
Pennsylvania, graduate school at Kent State. Joined the Air Force. Spent four
years in the Air Force. Figured out I don't like standing in lines and don't
like taking orders from other people. So, after four years I got out. I went
back to Pittsburgh. Took a job with an insurance company. And spent about years
with doing employee benefits. They sold their business to another company.
Actually, that's what brought me to St. Louis. I had been promoted to the home
office as director of sales. One of my jobs was to [00:02:00] decide where we were going to open new employee benefit offices. I spent two weeks in R and D trying to figure out where there was a market share we didn't have. Went into my boss's office and I said, okay, we should open an office in Birmingham, Seattle, Washington, Charleston, West Virginia, and St. Louis. And, I want St. Louis. He looked at me very strangely and he said, Do you know anything about our history in St. Louis? And I said, No, I couldn't find any history in St. Louis at all. And he said, Bob tried to open the 60s. Bob was our regional director in Los Angeles, very well thought of. And he failed. And then we tried to open the seventies and that man failed. You know, he was, I said, no, I don't know who he was. And he said, that was me both Bob and I failed.
But what makes you think you're going to succeed? I said, well, I have a personality. So about two weeks later, I was in St. Louis trying to open an employee benefit office and stay there until they sold their business to another insurance company and finally acquiesced to be going to financial planning, which I did for about 10, 12 years. [00:03:00]
Thought I was going to retire early and figured out I can only play golf twice a week. So I got involved in this magic thing called reverse mortgages. So that brings you up to date.
Donna Stancel: So all the financial services background, is that what prepared you for doing reverse mortgages?
Dennis Cooper: I'm one of those people that have a philosophy that everything you do in life prepares you for the next step in life. And I, I honestly believe that the financial planning history certainly prepared me for using a financial planning tool that's wrapped in a mortgage label. So yes.
Donna Stancel: So how long have you been doing reverse mortgages now?
Dennis Cooper: About 15 years.
Donna Stancel: So, you've got a bit of experience. Yeah, I’ve always heard if you find something that gives you joy, that is your niche.
Dennis Cooper: Yeah,
Donna Stancel: You're certified to market, these reverse mortgages all over the country?
Dennis Cooper: All 50 states. I work for the Federal Savings Bank, which is certified in all 50 states, which makes me certified in all 50 states.
So, I've done them in about 17 states. Still looking for the other 33.
Donna Stancel: How does the reverse mortgage differ from a home equity line of credit?
Dennis Cooper: I'm glad you asked. If you do a conventional mortgage or a home equity line of credit, you borrow X amount of money from the bank, and each month you're expected to make a payment, and each payment, your balance goes down. With a reverse mortgage, or actually the technical name for the product is a home equity conversion mortgage. [00:05:00] You borrow X amount of money from the bank, but you never have to make payments. It's up to the borrower. And if you don't make payments, interest accrues and the balance goes up, just the reverse of a conventional mortgage, hence the nickname reverse mortgage. But we we refer to it now as a retirement line of credit? It's probably the best home equity loan that a senior, someone 62 years of age or older, can get. There's a number of reasons for that. One. As I said, the borrower decides whether to ever make a payment or not. Two, it's lifetime. It's not a 5 or 10 year HELOC. It's on a 15 or 30 conventional mortgage. Three, it's fully insured to protect the heirs. So the heirs can never owe any money on the reverse mortgage, even if the balance is upside down at the end. The other nice thing about it is if you choose the line of credit, which is one of the options, We guarantee the unused portion of the line of credit will grow by 7 to 8 percent right now. And there's something called the rule of [00:06:00] 72. If you can get a 6 to 7 percent increase in your money, in 10 years your money doubles. So if you started out with a 100, 000 line of credit and you didn't tap into it until 10 years, age 72, you'd have a 200, if you could put that off until age 82 You'd have a 400, 000 on that credit.
So people refer to reverse mortgages as the last money you should spend. It may well be the last money you should spend, which I don't personally believe, but it should be the first money that you initiate and monetize the value of your home so you have those dollars later in life.
Donna Stancel: How long have these reverse mortgages been around?
Dennis Cooper: They've actually been around about 42 years. Reagan, and it's probably the one federal program that I believe in most. It's a very well designed product that has evolved over time to become truly, uh, one of the best assets of [00:07:00] seniors. If you think about it, probably the majority of Americans, their largest asset is their home. And unfortunately, the Children of the Depression and the Children of the Children of the Depression all think you have to pay off your mortgage before you retire. It's a castle that you have to think about. It's nothing more than an asset you've accumulated in your life. There's no reason why you shouldn't monetize it. Simply like you do a 401 K or 403 B.
It's money you've earned in your life and you put aside. So
Donna Stancel: What are some of the misconceptions about this? I've heard about reverse mortgages myself for years, but I understand that they've changed over time.
Dennis Cooper: Oh, a great deal. Well, actually about 42 years ago, the first reverse mortgages, the lender's name was on the title. So, if something happened to the senior, they couldn't pay their property tax or something. The lender actually had a right to take over the house. [00:08:00] That lasted about six months until he figured out what a bad idea that is evolved over time to the product it is today where the, obviously the lender's name isn't on the title. One of the misconceptions seniors seem to think is somehow the lender's gonna take
their house. Nothing could be further from the truth.
The lender will work with the senior to stay in the home as long as possible. Not because they're nice people. It's simply because the longer you stay in the house and don't make payments, interest accrues and the lender is going to make more money. The other, the other question the seniors have is, well, it's more expensive than a conventional mortgage. And I agree, it is more expensive, but it's a fully insured loan to protect your heirs. Have you ever gotten insurance and not paid for the insurance?
Donna Stancel: And you lost the insurance if you did.
Dennis Cooper: Yep.
Donna Stancel: So, you’ve talked about seniors. What about if it's a husband and wife and [00:09:00] one outlives the other? How does that work out for them?
Dennis Cooper: Oh my goodness. It used to be everyone on the title and everyone in the reverse mortgage had to be age 62 and I'd get these calls from gentlemen who just turned 62 with a 42 year old wife thinking that was a good idea. As it turns out, it wasn't that good an idea because in order to do a reverse mortgage on the 62 year old, you'd have to eliminate the wife or the spouse. Who was younger from the title and then from the reverse mortgage. And as odds would happen the older person would go first and the younger person was left holding the bag. About nine and a half years ago, HUD came out and said, as long as one person is 62, you can do the reverse mortgage and the other person isn't kicked out of the house. The reverse mortgage isn't called on the younger person. So it's, it's a viable product, even if the. spouse is younger than 62. So they can stay
Donna Stancel: So, they can stay home?
Dennis Cooper:
Yeah.
Donna Stancel: And that stays in effect until what? They'll pay until they pass
Dennis Cooper: Pass on?
Exactly. Well, the events, the reverse mortgages in force until the home is no longer your primary residence. That's the key. I love telling stories. One of my favorite stories is I was contacted by a man in Kansas. He told me, I know I can get a $60, 000 modular home for $40, 000 because it's in foreclosure. So we did a reverse to purchase. I'll get into that later, but we did a reverse to purchase and I showed up with a while. I provided a check for $25, 000. He provided a check for $15, 000. He purchased a $60, 000 modular home for $15, 000 of his own money. About two years later, he contacted me and said, I put a new roof on, I built a garage and I put fence around the house and I painted inside and out. I know it's going to appraise for $80, 000. I'd like to do a reverse [00:11:00] to a reverse to purchase. We did that. It did qualify at $80, 000. At closing, I gave him a $15,000 check. So in essence, he owns an 80, 000 modular home. with only sweat equity in it. About two years later, this was back before they made the change to the reverse mortgage product. About two years later, he contacted me and said, I want to bring my wife into the reverse mortgage to protect her in case something happens to me. Well, I didn't take a commission on the third one. And at closing, I gave him a check for $1, 500. He thinks I walk on water at this point.
Donna Stancel: Oh,
Dennis Cooper: About two years later, he, she calls me and says, you know, he passed on what happens to me. And I told her nothing happens. Do you stay in the home as long as you want because you're on the title and on the reverse mortgage. So it was a perfect scenario for a reverse using the product the way it should be used.
Donna Stancel:
Another question that I have is, what about real estate taxes and homeowners insurance? How does that play into how these work?
Dennis Cooper: That's
typically the responsibility of the individual doing the reverse mortgage.
Those are two of the requirements. Now, it's possible you can establish an
escrow account called a life estimate set aside if the client wants that to be
taken care of. But typically it doesn't make sense to hold money back that they
could pay in the future on their own. So, I mean, we can deal with that one way
or the other.
Donna Stancel: What
happens if something changes in their life and they decide that they need to
move?
Dennis Cooper: If you
had a home equity line of credit on your house and you had to move? You'd have
to pay it back. The same thing's true of a home equity conversion mortgage. If
you decide that's no longer gonna be your primary residence, you would sell
that property, pay back the reverse mortgage and walk away with the excess
equity.
Donna Stancel: Uh, is
there any chance that they would ever be [00:13:00]
underwater on that?
Dennis Cooper: It's a
possibility. I mean, if you, if you're in the home for 20, 25 years, which
isn't impossible today, you do a reverse mortgage at 62, 25 years would make it
87. It's quite possible you might have to leave at some point, but it's, as I
said, it's a fully insured loan so that if the loan is upside down, all that's
owed is 95 percent of whatever the house can be sold for. Let's, let's use an
example. A $200,000 house, I lend a hundred thousand. 25 years later. Somehow
the loan balance has grown to 250, but the house is still worth 200. The heirs
would sell the house for 200, they'd owe 190. The difference between the loan
balance of two 50 and the one 90, the heirs pay comes from the insurance that's
bu dilt in.
So people thato the reverse mortgage have the money tax free.
The heirs can't lose money. And the lender ultimately [00:14:00]
makes all the interest that's owed, either from the heirs or from the heirs and
the insurance.
Donna Stancel: It
sounded like, since you were talking about somebody who had a modular home,
that this might be, is it applicable to all sorts of homes?
Dennis Cooper: Really
modular homes duplexes, triplexes, fourplexes townhomes, the only thing we
really have trouble with are condos in condo associations that aren't FHA
approved. That causes us some problems.
Donna Stancel: So, what
about somebody who's buying a new home? Can a reverse mortgage be reused for
somebody who's getting into a home for the first time?
Dennis Cooper:
Oh, definitely. Basically, as I alluded to about nine and a
half years ago, HUD came out and said you can use a reverse mortgage to
purchase a home. In the past, people who owned a three story house had knees
like mine, didn't like going up and down the steps all the time.
They'd sell that and create a [00:15:00]
bucket of money. And they wanted to buy, say a 200, 000 villa at around 70. I
can lend 50%. So I show up at closing. For a check with 100, 000, the client
shows up with a check for 100, 000. They purchase, move into, and live in a
200, 000 villa, having paid 100, 000, and never have to make a mortgage payment
as long as either one of them lives in the home. I told that
story to a retired Vice President of HUD here in St. Louis. His
reaction was, Huh. About four days after that, he called me and said, instead
of that 200, 000 bill you were talking about, my wife and I put a contract on a
400, 000 house. At the time I was able to give them more than 50%. I showed up
at closing with a check for 253, 000. He showed up with a check for 125, 000.
They purchased, moved into and live in a $400,000 house, having paid 125 and
will [00:16:00] never have to make a mortgage
payment as long as either of 'em live in the house. Why would you buy real
estate any other way?
Donna Stancel: How much
equity does someone have to have in their home in order to get a mortgage?
Dennis Cooper: If
we're talking about using the reverse mortgage on their current home, we have
to have at least enough to pay off their current mortgage or lien. The reverse
mortgage has to be the only lien on the house. So 51%, 52%, somewhere in that
range.
Donna Stancel: So,
say for instance somebody had a house that was 400, 000 value they owed $375,
000 on it. That would work?
Dennis Cooper: How
much was the house worth? 400,
I don't think that would work because we're not going to give
them $375, 000 on a $400, 000 house. That's a, that's, that's a little over and
above. Now, this is a ludicrous example, but if they had a $400, 000 house and
they wanted to eliminate [00:17:00] the monthly
payment and they showed up with maybe $175, 000 of their own money, So that we
could pay off the $375, 000, you could do a reverse mortgage.
That's an extreme example that I wouldn't recommend anytime.
But say they, they owed $10, 000 more than what I could actually provide with a
reverse mortgage. And they decided they wanted to contribute $10, 000 to it. We
could pay off their mortgage. And if they were paying $1, 500, $2, 000 a month,
obviously it will work out that in, you know, a year. They'd be ahead of the
game from that point on. They wouldn't have a mortgage payment. So, the product
is incredibly flexible and there's a lot of things you can do with it. Does
Donna Stancel: Since
the homeowner that goes into reverse mortgage doesn't make a house payment.
Does their credit rating have anything to do with this?
Dennis Cooper: Well,
we're more concerned about their credit history than we [00:18:00] are their credit rating. Potentially, we can go a
little lower than a typical conventional mortgage can, but we want, we want to
do a reverse mortgage with someone who's going to stay in the house and be able
to pay their property tax and their homeowner's insurance in the future because
the lender wants them to stay in the house as long as possible.
So, the way they've paid their bills in the past is a little
more important to us than the actual credit score.
Donna Stancel: Okay, you
you mentioned something called an HECM purchase. Could you go over that again
and tell us how that works?
Dennis Cooper: Okay.
Dennis Cooper: Yeah,
HECM is a home equity conversion mortgage. It's a technical name for the
product that's referred to as a reverse mortgage. In the past, someone wanted
to sell their current house, buy a villa. They had two choices. They could sell
that?
previous house. Create a bucket of money and use that bucket of
money to buy outright the new villa, or they could use part of that [00:19:00] bucket for down payment and that have a
mortgage payment. But any financial planner worth a salt will tell you, you
shouldn't use all your liquid capital to purchase a home because you're burying
your liquid capital in a house that really doesn't provide for you during
retirement. And nobody at 62 years of age or older wants to have a mortgage
payment. So utilizing the reverse mortgage to purchase the home allows the
individual to hang on to a lot more money in that bucket of money that they
have for other things and at the same time not have to worry about a mortgage
payment. okay,
Donna...
