Evaluating Reverse Mortgage Options Privately, with David Darling

0:02 So frustrating with all the technology today that when you want to get a simple answer as to what's the rate, what's the cost, what are my options I'm getting a home loan. And as a real estate broker, I fall for this trap all the time. You know, they ask you a question, then another, then another. Next thing you know, they're asking you for your blood type and your and for a urine sample just to get you basic information. And I think that shows the company's focused on profits, not service. I think more importantly it denies the customer the chance to learn about their options before they get started and pick a particular company. That's their purpose of doing it. Well, today we're really I'm really lucky to have in the area of reverse mortgages, which is so I think information heavy and so limited on number of people that actually prac- practice this business properly. I'm excited to have a guy today who's actually put together a fantastic piece of software that helps you evaluate your options without giving away all your personal information. Dave Darling he's a reverse mortgage modeling app builder. He also is with Capi Mortgage. David, thanks for coming on the call today.

1:02 Great to be here, Bill. Looking forward to it. So what caused you to say, "I'm going to become a computer programmer and put together this app?"

1:10 Frustration. How drunk were you? Earlier we have to keep giving up our personal information you know, our phone number, our email address just to get a little snippet of useless information from the big software developers or you know, lead capturers. And I feel like I don't want to do that. And so I want to be able to give somebody some good quality information without forcing them to give up anything that's personal. And that way they don't feel like they're getting pushed into anything. It's a no pressure conversation versus a sales pitch.

1:46 You know, my mentor taught me in business that the amount of money you get paid is based on the value you create for other people. And so if you have to kind of grab the personal information before they know what's happening that kind of tells you that the stage is set for a relationship that's going to be one-sided. They're going to look to take from you.

2:02 Right. And I feel like my obligation is to educate. And if I educate well enough, people see me. And I think the missed opportunity by lenders today is they can addition for free. If they just let people go on the website and ask questions and give them answers, most consumers would probably fall in love with the first person that gave them the correct answers.

2:19 100%. When the lenders force you to put in your date of birth and your this, your that, like now I'm applying for a loan at this point. How much more do I have to do to see if I qualify? So, let's talk about your program in particular. And I will say that just for just for, you know, I'm not involved in this program in any way other than I find it fascinating. And for those of you who know me on this podcast, my mission in life is we should be doing as an economy 10 times reverse mortgages as we are now. Either 10 times the people should have who own homes free and clear should have a reverse mortgage, at least look at the tool. They all should look at the tool. And if they looked at the tool, we'd have a bunch more people who would have access to equity and live a better lifestyle or more effective retirement program. And people buying for cash should at least look at the tool. And many more would buy with a reverse mortgage rather than cash. And so, Bill, I had this talk with Dave. Go ahead.

3:09 I would add to that, if I may, anybody that's looking to buy an annuity that is over 62 years old should also look at a reverse mortgage as an alternative to an annuity. And anybody that's over 62 that's looking to get a home equity line of credit should look at a reverse mortgage as an alternative to a HELOC.

3:30 100% of both those. And I think that again, the proper language is should look at it. The problem is how do you look at it, right? Now, you can call that 800 number that's advertised I you know, when you watch a football game, there's some guy who's my age saying, "Hey, call me and we'll help you." and you know, I'm just not a big fan of that. I mean, I'm just I you know, I'm not against the company as such. Different channels, but the idea that I'm going to call some call center in the Philippines and they're going to with some automated robot chatbot ask me questions to solve my financial problems is crazy. I want to do a professional. That's why I started this podcast was to meet the best of the best and make them available. But then how do you from there get answers to questions? So Dave was nice enough when we spoke, he sent me I'll just show you a quick little email. And it was kind of cute. And you've been invited to Griff, which is name of software. Now in my case I'm a partner and I'm not really a partner. I don't do them, but he was nice enough to kind of give me the back room look at the software package and so I was able to go online. And then it comes to this product. So talk about okay, I have this, what should I be looking for here? What's my initial reaction going to be? Now again, in my case you sent me the version as if I was referring customers to you with this product. In this case I'm not really, but imagine I'm a consumer or I'm coaching consumers with this product.

4:51 How am I going to use this product going forward? I think you'll be challenged honestly if you don't have a high you know, a moderate level of sort of a numbers orientation, put it that way. So this product is not for everyone. But I would feel like it's simple enough to where it can provide valuable information to the vast majority of people. So the landing page you're looking at here answers a few just sort of teaser questions. I want to look at a reverse mortgage, but if I get one, what happens if the rates go up down the line? Or what happens if I want to make voluntary payments? And why in the world would anybody want to do that? What if my property value goes down? So all of these questions are answered by you in the process. So obviously you click on the get started. And we're going to ask for quite a bit of information on this page. None of it's personal. If we ask for enough information, we can give you quality on the back end. If we just ask for three pieces of information, you're not going to get quality. You're going to just be in a lead capture situation. So, Bill's already scrolling through for a 70-year-old with excellent credit and a $1.8 million home in a single-family residence, two people in the home. They do not have any HOA association there.

6:19 And estimated square feet is about 2,200 square feet. And they do not own any other properties. Monthly household income is estimated at $10,000 a month. And the checking or savings account easy access $50,000. In taxable retirement accounts, another 50. It looks like that's all. Do they have a current mortgage or not? We're going to put in the mortgage balance if they have one. $200,000. What's your monthly payment? How many years left? 21 years. So, they got it when the rates were really low.

6:53 And it looks like property taxes and insurance are included in that $1,800 a month payment. Taxes are $5,000 a year. Homeowners insurance is $2,000 a year and they have no HELOC. As I said, quite a bit of information, but it took less than a minute and a half to put in that information.

7:13 Now, it's nice that this is all one sheet, whereas we go on these online services, you click, and then depending on your connection, I have a pretty fast computer, split second or two, the next page, the next page. And also here I along the way I can see all the way down, you know, what you're asking for me up front. Sometimes you feel like when's it going to stop? In this case, I knew where I could where I could get to.

7:31 How deep is the rabbit hole, right? Exactly. So, I don't want to get too deep. Now, are you saving this data for Is this going to some service or some marketing company? What's happening with this data once you put it in cuz it's anonymous.

7:42 It's sitting on my website, so I don't know who this person is. I imagine if I you know, was a pure tech genius, I could probably figure it out somehow, some way, but I'm not motivated to do that. I have no interest in that.

7:56 And this is your product. This is not something that somebody else that some Chinese AI company promises not to steal my data.

8:05 Correct. It's just crazy where we live. And I only mean to laugh at this very serious issue, but spend serious money on the site where the data is stored. I don't believe that any site is 100% secure, but I do my best to keep it as secure as possible. And even if somebody hacked into this particular entry, how are they going to find you? You know?

8:27 You know, I use Google for all my business and all my data saved on Google. And I have to say, I have a personal account as well with Google, but I have a business account for Google. All the business stuff goes there. All the business emails, everything's connected there. I have to say, if Google gets hacked, we're all screwed.

8:39 That's right. Really? Yep. Okay. So, now what does this tell me? This tells me what? My loan balance here. Oh, this is if I was to do a reverse mortgage.

8:50 If you do it a reverse mortgage and you make no changes to the assumptions down below, this gives you sort of a visual representation of what your loan balance will look like in the future. That's the green slice. The blue one is your home equity in the future. And the yellow one is a little bit harder to see that one line, that's your line of credit. Similar to a home equity line of credit. Money you can access if you want it.

9:16 Okay. So, in this scenario with a mortgage balance currently of 200,000, we're talking about doing a reverse mortgage for how much? I don't even see it. How much How much is the loan we're doing?

9:33 Okay, you don't see it yet because I want to kind of stay it 30,000-ft level first. Okay. If none of these numbers make sense, then there's no real reason to kind of dive deeper. But, the There's two ways to look at these numbers. That chart above, and then here, if you want to see more of a specific where am I going to be in 14 years? It sort of defaults to 84 years, because according to the Social Security Actuarial Tables, that's when you're going to die, in 14 years. So, if you did this, your property your 1.8 million property would be worth about 2.8 or 2.7. Your mortgage balance now would more than double to 488. Your equity now, from 1.6, would climb to 2.2. So, you'd have a nice $600,000 increase in equity. You'd have a positive cash flow impact of about 190. That represents the principal and interest payments you're no longer making. You add the two together, and you have a net positive impact of over $800,000. And at age 84, if you needed in-home care, and you wanted to tap into it at this line of credit, you'd have over half a million dollars waiting for you.

10:43 Got it. And you can change the number of 84 to change your time horizon. If you went to a lot of Grateful Dead concerts, and you're never going to make it to 84, you bring it down.

10:54 I never saw a Grateful Dead concert, but at the same time, We all have a little bit of fun along the way, right? I don't know. Okay. I did something here. What did I do? Did I go forward? Next.

11:09 Oh, no. Just don't go next just yet. Let's go back. Because the blue numbers down below the chart Go back, Dave Andrew. Okay, I'm sorry. I'm not very good I'm not a very good customer here, Dave. I'm sorry. I'm too fidgety to do this. Okay, there we are.

11:20 You're fine. Now, all of these numbers are based on my default assumptions. And the most important default assumption is probably what is the property value appreciation rate. So, that's box number three up above in blue. Now, just click on that box, the text, and it shows you that I default to the historic average rate. The yellow square shows you what the actual rate for reverse mortgages has been since the program was created back in 1990 when Ronald Reagan signed the bill. To the right of the yellow box is the assumed rate to make predictions on what your loan balance will be like and your line of credit will be like in the future. That would be your growth rate. And you see, you have options to change that. I'm sorry, that's the interest rate. That's not the property value. But, let's stay with that. Property value is just down below. I default to 3%. Yeah, you clicked on 2%. Leave it at two. And now, let's scroll down. As you remember before, you had an equity increase of much more than the 200,000 you see now. Because before your property value was expected to go up at 3% a year, we dropped that down to only 2%. So, therefore, you're going to have less equity in the future than you would if it was at 3%.

12:46 Make sense? Hey. Well, as it might otherwise. All it means is that I Oops. Oops, can you hear me? Okay, I'm sorry. My picture went out. So, all this means is that if the housing appreciation slows down, yeah, the house isn't worth as much, and I'm not getting as much equity on the back end. But, that said, the still better off not making payments, and I have an equity line of credit being created.

13:15 And you still have more equity at 84 than you do now, even though you are not making any payments. Wow, that's interesting. So, your heirs would still inherit about 1.8 million of equity.

13:26 Fantastic. So, then we look at the interest rates, which was in that yellow box up above. So, scroll up. And that's the initial interest rate. Now, let's go to I don't know, just pick one of the other options. The 10-year reference rate. And then click in any white space. And you can see how the 10-year rate is a little bit higher than the initial rate. And that's normal in a normal economic environment. And what this will do is it will predict how much of a loan balance you'll have in the future, and it will also predict what your line of credit balance will be in the future. So, you can look at

14:02 This is This line's changing from where we were before to where rates were assumed to be Yeah, right now we're around 6% or so.

14:11 Okay. And so, with the 10-year 10-year is a little bit higher. It's a little bit over 6% right now. Does that do to our situation? Okay, so it means your loan balance is a little bit higher. Therefore, your equity is a little bit lower. Instead of over 200,000 of additional equity, you got 175.

14:28 But if I take out another home line of credit, I'd be higher still the rate as well. So, it's almost 700,000 dollars. That's right, because it grew at a higher rate, so almost 700,000 dollars.

14:39 And so, the additional available line of credit available 609,000 dollars at 8.84. Right.

14:47 Got it. So, now let's don't change anything there. Let's now go to consider making voluntary payments, number one. Before we put any numbers in, let's remember that right now, according to the input, you're committed to making payments for another 21 years.

15:04 On my current mortgage? On your current mortgage. So, if you wanted to make some voluntary payments, why in the world would anybody do that on a reverse mortgage? Well, the obvious reason is you're going to either slow down the rate of growth on that loan, or maybe level it out on interest only payment, or actually reduce it depending on how much you feel like paying. The unknown or the unfamiliar aspect of it is every dollar you pay goes into that line of credit. So you can pull that money back out of the reverse mortgage at any time in the future. And that money in the line of credit is growing at a very attractive rate. Compared to what you'd get in a money market account or a bank. And it's insured by the US government. So let's just test it. Right now we've got just under $700,000 in our line of credit at the age of 84. Want you to type in a voluntary amount that you would just want to run through and see what would happen if I paid, I don't know, $300 a month. Okay, that's a little aggressive. $2,100 a month.

16:14 If I paid the same now, I would I should be in the same position. So let's see you know No, cuz the 1,800 is principal, interest, taxes, and insurance. So you should really just think about principal and interest only. 500 Yeah, 500 is a good number. Let's just go with that. Now scroll down. And that line of credit is now

16:37 802. Something only went up by a little bit. Your equity went up a fair amount. Cuz you're slowing down the growth in the loan balance. Below it was Before it was below 200, now it's over 286. Your line of credit was 700,000 and change, now it's 800,000 and change. That just shows that it's going into the line of credit and increasing your line of credit, which you can clearly see on the chart. In your 90s, you'll have access to over a million dollars.

17:18 Well, wouldn't it be nice to be 90? What's better? Be 90 years old or to have a million Depends on what kind of shape you're in at age 90.

17:26 I'm 67. I can't imagine what 90 looks like, but okay. Well, let's we'll play this game. We'll go along with this. Just a short interjection about the line of credit.

17:35 Okay. If there's a crash in the property value market and that $2 million home is only worth $500,000 when you're 90 years old, you can still pull out the full million dollars out of the line of credit.

17:50 Yeah. Yeah. Yeah, and even if it took you upside down, it's non-recourse on the HECM loan, so that you're not responsible for shortage if that's what ends up happening.

18:01 Exactly, and your heirs wouldn't inherit more in that extremely unlikely rare scenario because they'd inherit the million dollars in the bank. Yeah. Wow. Okay, I'm sure you could just hear be endless with Go down this rabbit

18:16 That's That's right. But I think it's important to know that Okay, so what if instead of making a payment I was to get money out? What does that look like? So, we're still drawing.

18:28 This is where I mentioned earlier you're thinking about an annuity. Correct. Instead of giving an insurance company $200,000 in order to get an annuity, what could you do here? So, if you wanted to get monthly payments immediately for 10 years, the max you could pull out would be a little over $3,000 a month.

18:50 What does that look like? Okay, click on yes, and we scroll down. So, now you see a much higher loan balance because we're giving you $3,000 a month for 10 years. That's a lot of money, and that's being added to the loan balance. Your cash flow has a severe increase in impact. Half million dollars more. You've lost quite a bit of equity when you're 84. You're still marginally above, you know, in terms of positive impact because you've got a higher cash flow than you've lost in equity. Most people when they think about this, they're really thinking about, "Okay, what about the last 3 years of my life? If I need cash flow to cover in-home care or something like that." So, maybe instead of starting immediately, you know, I'm 67 now, maybe I wait 15, 18, 20 years, something like that.

19:44 I said 13 cuz I said it. Okay, 13 years. And then, how many years? You know, usually you don't need it more than three, but you can put in four or five if you want to be a little bit more. There, you'd have access to $12,000 a month.

19:55 Wow, there's your home health care money. So, again, the house goes up by the value of the house goes up by the mortgage balance goes up, which means more of your equity is being used, but still you have substantial equity.

20:11 Right. And at the end of that period time, when we said 13 years, you start collecting What was it? 13? What was the number again?

20:20 $12,000, $12,600 and change. Yeah. Right there in the middle of your screen. Perfect. Yeah, there you go. $12,600 and change. Which in 10 years now is probably worth about 15 bucks, but that's a That's a whole 'nother discussion.

20:36 And some people might say, "Well, only give me 10 grand cuz I want to still have money in the line of credit in case I need to pull some money out right away." And this is theoretical. I mean, you don't have to You're not committing to get that money out 10 years from now. You can change your mind 10 years from now and say, "I don't need it. Maybe your business better, your investments do better, maybe you hurt somebody."

20:56 Exactly. And even if you I think it's just happening do that, and instead of, you know, locking in the 3 years, you call us up after 6 months and you say, "I don't want the money anymore."

21:07 Okay. We'll ask you to fill out a form and sign it and send it back and we stop paying you and it all goes back into the line of credit. Is this something that you would send to a customer doing their own or something you would do with a customer like we are online walking them through the scenarios or in their office or their home on an iPad or something where you can do it with them?

21:24 I'd always do it with them. Yeah. But I've also built this as you mentioned earlier you were invited as a partner. So imagine you are a financial planner and you have a client in your office. You can do the same thing with them without involving me.

21:38 Well, I think the nice thing there is they don't have to know the whole scheme. Right. They just have to get down the game plan. Right. What they need from the customer. Do they need monthly payments or do they need them starting in 10 years or whatever all that is?

21:49 Right. They're the professionals who can estimate interest rates. They can estimate housing appreciation in their market to their satisfaction. And then I imagine they just give you the summary what's saved in the software somehow.

22:02 Right. Then now you can sit with customer and either they offer them that option or maybe other options that are better than that with the financial planner's approval. Maybe it's different loan programs they qualify for or something like that.

22:15 Absolutely. And you know, we have the discussion about of your assets, which are the ones that are most important to you in terms of leaving in a legacy. If you have three kids and they all live far away and none of them really want the house, they're just going to sell the house, well, that's an important piece of information financial planner to make a good retirement plan.

22:35 This is like a great tool for financial planners I think to bring this discussion this tool into discussion and what it really means cuz you can ask you can guess a lot of things, but here you're really breaking down to based on these assumptions here's what's really going to be available and here's when we're going to need it and we can break glass and get money sooner, we can put money away if we don't need it, but this is kind of the game plan we have starting and then take this, send it to you or you see it online and you know, they've got that from a client and you going to get that done for them. Correct. Okay, what's the next button?

23:07 Next button, now we've looked at charts visually. We're going to look at numbers. The numbers that were behind the chart. Before we get to the numbers down below, there's just some verbage to kind of answer some questions. What are the benefits perceived? Good cash flow, good line of credit. Option to get annuity style payments, things like that. Then down below we have some of those numbers that you're looking for on at the very beginning. You know, if we do this, what are the fees involved? There's three different fees, FHA, lender origination fee, and miscellaneous things like title insurance and escrow and so on. And then all those charts below on the first page were built using these numbers here below. So here you see those monthly payments in the middle of your screen. The monthly payments to the borrower. And then we see the annual expectations for equity and loan balance.

24:06 That's What if you That's 12,600 * 12. Got it. That's right. Got it.

24:16 And Wow. The initial loan balance that really now you have a complete picture, nest of bolts. Every part of this is what's happening with this Assuming this is the plan you want to you that you want to attempt to achieve or shoot for.

24:30 Without giving up any personal information. So then there's one more next. And this is okay if you want to have a conversation and really get going, you have the option of giving up some personal information here so we can reach out to you. If you don't, but you want to share this with your financial planner, with your children, whomever, you just click on the blue text there and you download or PDF of what you created. Let's see what happens. That's a lot of info.

25:12 It is. And I'm guessing cuz you have some nice formatting. There we go. So, here's the results. Yeah, it's a 6.25

25:22 Exactly what we just looked at. Yeah, phenomenal. So, this is something that you could take and send your financial planner, send your child, send your accountant, send your attorney, send to whoever you

25:30 Or your spouse. You did this conver- you know, did this once without the spouse. They were golfing or whatever. Don't do that.

25:38 The door's closed. Don't do that. I'm a big talker when the door's closed, I have to tell you. I'm a big talker. Okay. So, okay. So, and so, this is a great run-through. And I think, you know, for those who watch this, hopefully you bear with me. I wish I could have control of the software when I demo something cuz I feel like I know what my audience is looking for. So, couple questions. Would you Do you have this available online for your, you know, retail customers? When a borrower comes to you, do you send them to this, or do you have this online somewhere where somebody can do this? Or

26:11 I'll send them a link if I think it's appropriate. You know, I'll always have an opening conversation first. You know, what are you looking for? What have you heard about reverse mortgages? What's your current situation? Are you better off selling, you know, different conversation like that. If the result of that conversation leads me to believe that this would be beneficial to them, then I normally would invite them to a Zoom like this or some sort of a, you know, a meeting where we can both look at the screen together. And we go through what you and I just went through.

26:40 Where you control I'm a big fan and they just look at the screen. Yeah. And I'm a big fan of face-to-face meetings. So, if they're not within a reasonable driving distance, and reasonable is pretty wide in my view. I'm happy to jump in the car and bring my laptop out there. And I think that's counterintuitively a very efficient way to approach the reverse mortgage. Because after that session, if they really want to move forward, I have a look at the house, and I've got a better idea what I think it might appraise for.

27:13 Right. And that's pretty important in terms of the overall numbers. The amount of documents that we need to process a reverse mortgage application is really pretty small. With my phone, I can probably take pictures of their documents, and that'll make it much easier for them. Down the road, they won't have to scan anything or upload or anything like that.

27:32 Right. Well, I can see where if I was a third-party financial the planner, accountant, attorney, family member valuing my parents doing this, you'd really be giving me a full picture

27:44 Detailed picture Absolutely. It's about. Phenomenal. Now, is this software that you're selling, or is this a software tool that you're using to build your business? It's a software tool that I'm building, and I have reached an agreement with Canopy Mortgage.

27:57 And so, the Canopy Mortgage loan officers are available and may use this software as well. I've not really allowed any other loan officers to use it. And it's mostly because this was relatively new, and it's great to have friends to run the beta testing and find what bugs are in there and tweak it up and that's what I've been doing.

28:23 Fantastic tool. I have to say, I'm I've met you. We walked through this before. If I may not have acted like it, I don't know my memory these days. But, you know, I'm just amazed at the breadth of options, the customization available. I think that's the key to this tool of the reverse mortgage. It's not just it's a reverse mortgage. You know, you can get a 30-year fixed rate. It's just a 30-year fixed rate. But, here it's like, "Well, what are your goals? What are you trying to accomplish? Let's tailor the right tool exactly what Let's not just grab you a screwdriver. Let's get you the right size, right length, right thickness, right you know, right head, whatever the pieces are to make this thing work. And I think it really does a fantastic job of that. Okay, so give me your Give me your feedback. You've done this how many times and what's what do people say when they go through this process with you?

29:08 I would say over 80% of the time I have a very positive feedback. The 20% of the time is it's a bit overwhelming and there's just too much information for some people at that stage.

29:22 Yeah. And so we just back up and we say, "Okay, let's get together. How about Tuesday at 3:00 in your home?" or something like that. And then we just slow down and let them walk through the questions and such. 80% of the time they've pretty much made their decision whether it makes sense for them or not. And for them it's just sort of walking through the process which, you know, most people have had several mortgages in the past and they know the process.

29:47 Well, I think that it is an overwhelming That's not overwhelming. It's a very substantial tool that requires I think some explanation and expertise and I think if you get it from my podcast, I believe we should be doing 10 times as many as we are. Part of it is, you know, past use of the product, part of it is the current originators not really committing themselves to the service. I can see here you've put a lot of work in. You really undone the whole I hate those online lenders. I can't speak about reverse specifically but in general forward mortgage lenders, the mortgage calculators where you get sucked down the rabbit hole. I could do a Saturday Night Live skit on that one, I think.

30:25 Yes, we could. Right? And it just speaks to their lack of customer focus because nobody would ever surely you need some information to give people scenarios like you're asking for, value of the house, your mortgage. You can't properly advise people without the basic anonymized information. And they want to move forward, I think you've done it in a very thoughtful way. So, David, I just want to thank you so much for sharing with our with our watchers today, Griff, product at Canopy Mortgage. I think for those of you who are joining us who don't have this, maybe you have something that's similar, maybe you need to work on something similar, maybe you need to talk to David about what you can do to work together if that's a if that's an option. But more importantly, I think my message is thank you for helping us raise the standard of service in this industry where if we're going to do more, we have to do better. And I think you really focus on the doing better part. So, thanks so much for your time today.

31:13 It's been a pleasure, Bill. Thank you. And if you want David's contact information down below, David Darling, [phone number], or [email address]. And the product in particular, if you want, I have a link here if you want to get more information from darling.rm scenario builder, reverse mortgage scenario builder.com. And you can reach out if that's appropriate. And again, David, thanks for being on. Truly appreciate your time. Essentially, this is the Reverse Mortgage Podcast. We get together every week, usually with an originator, and I think we did today. But wow, interesting software. Do you have something similar, something better? Share it with me. I'd love to get your feedback, questions, comments. Like this if you like it. Subscribe. Reach out if I can help @billgrossprobate in social media. And as always, make today your best day ever. Thanks so much.