Reverse Mortgages with Steve Somerman of PRMG

0:02 Welcome to the Reverse Mortgage Podcast. I'm Bill Gross at Bill Gross Probate and we do this weekly to interview top producers in the reverse mortgage field and vendors and leaders to help explain the product. And I think as a real estate practitioner for over 37 years, one of the most misunderstood and underutilized tools. I'm really excited to have today a guy who actually goes back as far as I do. When I started in the mortgage business back when dinosaurs walked the earth, I think in 1986 in Dianark, California, met Steve Summerman who's gone on to become one of the top producers in the business for a long time and really excited to have him give us his insights on reverse mortgages. Steve, it's always great to chat with you. Yeah, it's been a long time. As people said when we got in the business after we were there for 20 years and didn't leave, we're older than dirt. Yes. And yeah, we're both of are testaments to longevity, I think. So, let's talk about reverse mortgages. How did you get into that particular product and what is it about that product that you find good for you to offer your customers? Well, I got into reverse mortgages about 10 years ago, and it was after the wonderful fallout of 2006 and 7. And I went a couple of directions and an operations perspective and then got back into loan origination. And I picked up reverse mortgages. One, because it's it I found it to be a real interesting mortgage option for seniors.

1:31 And being a senior myself and you know 72 it gave me the opportunity to understand it in being in that industry and being that age. So it fit well with the age group that I wanted to talk to and it lent to the opportunity of making more sense about the product and program than if I was 25 years old explaining it to somebody. When I was and you and I both started the loan business and when I was in the loan business I got involved in what I would call the first iteration of verse mortgages and there was a lot of abuse of the product at that time it wasn't so well regulated and there a lot of people who are using them solely to finance very expensive annuities with high commissions to kind of double dip and so I think ever since then customers and financial professionals have been probably properly concerned careful and yet I think as a result the product has never really been as fully as accepted as it could be. What do you think are the most common misconceptions about reverse mortgages that consumers have that when you educate them, you help open them up to? Well, first of all, a reverse mortgage is it's changed a lot since really 2017 when they really upgraded the guidelines to it and it more likens itself to a forward FHA loan as a reverse mortgage is an FHA loan covered co governed by HUD. And I think the opportunity of the reverse mortgage and the myths are it belongs to you. It's a mortgage that you take out. You take title to it. It doesn't belong to the bank. It doesn't belong to an institution. You hold title to it. If you have a trust or a will, it goes to your heirs. So I think the biggest myth is that it doesn't go to the bank and the bank owns your lo home. Okay, number one. Number two, people think that the reverse

3:36 Mortgage it is burdened with tax liability. And a reverse mortgage basically is taxfree money. It's equity in your home like a cash out refi. And you can use the money to sit there and extend what I call your financial engine. In other words, if you get a reverse mortgage and you get a line of credit and you use a lot utilize that line of credit, but then you have got stocks, bonds, 401k, IRA, whatever. You let that financial engine continue to build and use the money from a reverse mortgage until you have to reach out to those and you avoid capital gains and you basically have the utilization of funds that belong to you to use that as you need them without having to tap into things that may cost you tax liability. But go ahead. So there's actually kind of three different pieces of the puzzle on a reverse mortgage. Just for the listeners, there's kind the line of credit. There's the cash you can take out a lump sum. I guess also there's payments you can take payments monthly, but the equity you can take out. And there's kind of having both available. So let's talk about those three. Why should somebody who has a property with tremendous equity consider getting a line of credit? If they don't need the money, why should they get it a line of credit now using reverse mortgage concept? Well, I think you have to look at where we are as seniors. Number one, we're lasting longer. The la largest demographic in 2030 is projected to be people over the age of 62 as far as owning homes. Okay? Because we're living longer, we're owning our homes longer, we're more established. Our children or our children's children are struggling to be homeowners as you know. So the opportunity I is that additionally the opportunity

5:42 Of a reverse mortgage is medical benefits. And there was a study done in 2010 and then I looked it again in 2018 and I looked it again in 2021. And the 2010 study, which was a Boston College study, said that the average senior will need over $200,000 in retirement outside of Medicare to sit there and support their lily to living, you know, living expenses. And when you consider that and let's just say you're 70 and you know you take 200,000 at 70 you're talking about what 200,000 divided by 70 you're talking about 14,000 bucks a year. You know, in a study that I just got that I used at the Anderson School of Business yesterday, you Tuesday at UCLA, it said that the average senior around 65 years old needs about $5,000 a year in expenses outside of Medicare. At 85, it's $10,000. Wow. So, where's that money going to come from? Okay. When the average person across the United States, and I'm talking about everybody across the United States that's a senior, when the average amount of funds available to a senior is about 80 to $90,000, m you know, we're where in other tax brackets or other opportunities, it can be up as up as high as 250, but the average is about $87,000 a year. $87,000 in savings.

7:21 Well, when that savings is gone and you're sitting on a house that's free and clear, right, and you have medical issues, where is that money going to come from? Because I'll tell you what, your kids aren't going to come up with it, right? You know, so you have to look at the opportunity of what a reverse mortgage can do. Not only for to enjoy your golden years, but for the pitfalls and the challenges that you face as you grow older with the high cost of medical expenses today. That the credit line of a reverse mortgage or a lump sum from a reverse mortgage fixed rate loan can provide you with the necessary funds to sit there and help protect you and provide you with those necessary dollars that are going to sit there and help you live longer. So, the line of credit portion of a of a reverse mortgage then gives you access to it as you need it and draw out on it. Correct. Where the fixed rate is a lump sum. So most people want the credit line because when you look at the fixed rate lump sum you're only getting 60% of the value where on the lump sum you get where on the credit line you get more and you want to basically utilize the reverse mortgage for as much money as you can get from it in a credit line and once you get the lump sum you're done where on the credit line it has a line of growth. So, for example, today we're at 6 and 5/8 on the note not note rate. With the MIP, it's 7 and 8%. Well, the growth rate is also 7 and 8%. So, if you have a $200,000 credit line and you don't touch it for a year, that annual is going to go from 200 $214,000. Okay?

9:06 So where you have a fixed rate that is taking the money and giving it to a financial planner or sticking it in the bank and taking it as you need it, you're getting a considerable larger amount of money with the credit line. And you and I both in the more been in the mortgage business long enough to know that the one the one month CMT fluctuates up and down, but over the course of the last 20 or 30 years, it's more down than it is up. And when you tie that to a margin of two and 38%, you know, being in the sixes isn't too bad on top of the mortgage insurance of a half a percent. Well, yeah. And I think it's probably tough for the average investor to average better than 7% as far as, you know, leveraging the line of credit to investment. But there are people have certain things that they can get a better rate of return on. I have a certain part of my business where we get a better rate of return. We advance money on probate cases and we get we average a much bigger yield than that and so it makes sense to pull as much as I can and put it into the fund to get back you know an annual rate return of 20%. So for those seed of access to funds whether it be lumpsum or line of credit it's a way to access those funds for investments as well. Is the reverse mortgage recourse or non-reourse?

10:26 Somebody has a mortgage, they buy a house, let's say it's a non-neourse, meaning if you buy a house and then for some reason goes down in value, they can foreclose, but you don't owe the difference in California. If you refinance, you're subject to recourse, though in reality, not so often. How does it work on a reverse mortgage? All reverse mortgage loans, including the jumbo proprietary loans, are non-reourse loans. It's a big advantage. So what that means is the appraised value or the loan amount whichever is less is what is what gets paid off. And part of the recourse feature is they reduce the mortgage amount by 5% to give the heirs the funds necessary to refinance or sell the home. So it is a so a non-reourse loan allows you to sit there and have a very good safety net of let's say what happened back in 2006 and 7 where prices plummeted. Well, you could have a mortgage loan of 700,000 and a home value of 500,000. And when you pass that 500,000 value is going to be sustainable to sit there and dispose of the property for the heirs minus 5% for closing costs or however they want to do it. And the rest is forgiven. That's why you have the mortgage insurance premium of 2% on a reverse mortgage and the half a percent u annual mort monthly mortgage insurance premium funds are utilized to sit there and give the protections of making it a non-reourse loan. Nice. Thanks. Let make a quick break here for just to tell people where we're at. Really lucky to have today a longtime friend.

12:12 Literally, I've known him 1986. That's years. 39 years. Yes. It's 2025. Yeah. 39 years ago. He and I both were kind of starting the same business in the same area. And I called the guy who was your I think he was your area manager at one point though I'd met you before him. And I remember I called him he sent me an email about something. I said, "Hey, I'm looking for somebody who knows reverse mortgages real well." And he mentioned your name. I said, "I know Steve Somerman. I knew him before you were in the business." So, I've known Steve for quite a while. He's with PRMG, which is, Paramount Residential, one of the largest mortgage companies in the country. Very well known. He's the branch manager, I guess technically the sales team lead in the Crown Office, but services reverse mortgages all over California and I imagine through a c company throughout the country. And there's his contact information as well. So, I'm glad to have him on the call today. And this is the Reverse Mortgage Podcast. I'm Bill Gross. We do this and have updates every week, but we also have a Facebook group if you want to come in. We'd love to have you. We're kind of just getting this started. I've done the same thing in my probate group where if you have reverse mortgage content you want to post, if you're an attorney or a loan originator, feel free to post your content there as long as it's related to verse mortgages directly. Or looking for referrals for either attorneys or lenders or real estate agents, feel free to post those that information there as well. So, to get back to it, reverse mortgages we're talking about with Steve Somerman. Le one of the most common problems I get into as a probate related real estate agent are people who took out a mortgage, often reverse mortgage, and they at some point put a took a property out of a trust because it was easier, forgot to put it back in the trust, somebody dies. Now you have a whole probate potential problem, particularly here in California. So, one question I have is, can somebody who holds their property in a trust take the reverse mortgage and still keep the property titled in the trust?

14:08 I would suggest, and I'm not an attorney, that if, and it lends to exactly what you just said. I tell people, if you don't have a will or a trust that can pass your property on to your heirs and you pass on, you're stuck with probate. And what is it? Eight and a half percent of the proceeds go back to the state of California. Could be more. Could be more. Could be a lot more. It's brutal. You think a trust or a will is going to cost you? 12- $1,500 to do a simple trust or a will. Maybe 2,000. But you know what? It's a heck of a lot less than what you're going to deal with probate. And let's look at what happened in the COVID years with probate, right? I mean people, it took people two years almost longer to sit there and get through the probate courts because they were so backed up because of what happened with co It was crazy. I had I had like 20 escros waiting for court approval that all canled with no date in sight. Now it turned out they got rescheduled most cases three six months later. But it was a nightmare working through all that. So if but if you already have a if you already have a trust can you do a the mortgage and keep the trust or do you need to I do a lot of I prefer to do the re reverse mortgages in the trust in the name of the trust or we have a living will it always works out better and I prefer to have them take title in the trust because it gives the heirs and the senior the safety net and the comfort knowing that their assets protected.

15:39 Yeah. If you if you can have a reverse mortgage originator who says you have to take it out, call Steve because really there's to take it out and put it back in is inherently a risk. Well, it's a risk and you're giving the wrong information. It's bad signals. That's somebody you shouldn't be working with, unfortunately. That's 100% 100%. And second, I, you know, I'm a little bit on a campaign. I'm not sure you know about this, Steve, but I do Probate Weekly and I also do estate planning weekly where I really encourage everybody who owns a house in California should have an estate plan. Most commonly, that's include a trust. Almost ex almost all will have a trust if you own property $500,000 or more. And so it's important if you're going to do the reverse mortgage, do it at the same time. Don't let hold things up. Move quickly. Get the trust done. Get the reverse mortgage done at the same time because that way your mortgage is recorded with title insurance in the trust rather than finishing the first mortgage and doing it later. Now, if you're already doing the mortgage, yes, do it later. But ideal is to keep it in the trust, get the first mortgage done and have the tall insurance on it. And then the other thing I always encourage people is if you have a trust, make sure you get your insurance updated to include the trust as well. Especially, we're finding in California, insurance companies are trying to find ways to weasel out of polic of payoffs. And one is by saying, "Hey, we made the policy to Joe and Mary, not the Joe and Mary trust." and they're trying to test that legal. I think they'll lose, but why give them a chance? Make sure if you have a property, make sure you get insurance either in the trust or get the trust as an additional insured. Yeah.

17:07 And that's a simple phone call. Simple phone call. There's no excuse not to do it. In fact, to back to your point, Steve, if your attorney doesn't tell you to do that when you do the trust, you got the wrong trust attorney. I'm telling you, because it costs nothing and it's a little bit of extra safety. He could make the argument it's not necessary. Well, nothing's necessary for everything goes right. It's only necessary when something goes wrong. When all of LA burns down, let me tell you something. These insurance companies will look for any reason to delay. Yeah, no doubt about it. So, you know, one of the questions I would have I know that when people had reverse mortgage helocks, lines of credit during the meltdown and the properties went down below the value, the value probably went below the balance of the mortgage that people were protected. The in essence the reverse mortgage equity was safe in the hands of the homeowner and the mortgage company couldn't do anything about it other than you know sell the property at some point and get what they could out of it is the same with fires as long as you have proper insurance in case I imagine it's the same case that it's just another having the access to the money would you know if you took the money out it's yours what if you have a line of credit do the do the mortgage companies cancel lines of credit when the homes burn down I imagine they must at some point well I know well I'm not sure about that But I would say that the line of credit remains intact as long as the person is still living in the home as their primary residence and they've not and or they've at least lived in the home one day in the last 12 months, for example. Wow.

18:43 But as far as if the house burns down, I would say that the reverse mortgage needs to be paid off through insurance and then you're going to rebuild and get an or buy a new home with another reverse mortgage. Anybody listening to this, if you have a case where you had reverse mortgage or line of credit or a regular line of credit and the house burned down, I'd love to hear what the lender did. If they call the loan due and they're going to collect the payoff or they're obviously if you get insurance it's going to go first to the to the lender but in the meantime what happens and so if you happen to have any information on that please reach out to me give me an update I'm just trying to collect you bring up another point that you know is a is an advantage of a reverse mortgage where on a forward mortgage you have a home equity line of credit that you're making payments on and then that home line of credit is going to be good for what 10 years and then the payback is 20 Right? That's normal. Where on a reverse mortgage, your line of credit not only is forever until it's gone, it grows for the unused portion. So, you know, when you compare a HELOC versus home equity line of credit on a reverse mortgage, it's total opposite ends. Well, also the companies that were doing HELOCs, home equity lines of credit, you know, for normal ones 10 years ago aren't doing them today. So, they're not rewriting their loans. Whereas, like you say, if you have reverse mortgage line of credit is for the rest of your life. So, that is a big advantage. I really hadn't thought about that. And how uncomfortable is I've had customers call me, I'm sure you have as well, who, you know, after 10 years of line of credit, they're going to call it due. And the person's you know now 65 70 75 their finances are different like it's difficult to get the line of credit especially if the same lender is not doing them whereas the heal the reverse mortgage line of credit being the rest of your life is a is a tremendous one of the things that is cool about a reverse mortgage line a reverse mortgage period is in California because it's set up by the division of states in California

20:49 One person only needs $589 a month to qualify for a reverse mortgage. And th that $589 is determined by taking their in installment and credit card debt minus their taxes, insurance, and HOA dues on their home if they have HOA dues, property maintenance. All right. And then 14 cents a square foot by the size of the home. So if you have a 2,000 foot home, that's $280. Wow. As long as you have $589 left for a reverse mortgage, $998 for a couple, $1,30 for three people or more, you qualify for a reverse mortgage. In the forward mortgage world, yeah, you have to have a debt ratio at least at least today with DU. I if you're at a 44 front end and a 49 back end, you're going to get approved. But seniors don't have that kind of money. And it's difficult for them to sit there and afford that kind of payment. Right. Right. Right. Yeah. No, good point. One of the areas I think causes tension on reverse mortgages that's unfair to the product is what happens when the last of the couple or the you know the last person on the loan passes.

22:11 What happens to me not being the originator, having nephew do the loan, but getting the phone call is typically mom and dad live there, had a reverse mortgage, mom passed five years ago or dad passed and the second one passes and the child's living there thinking I can live here for free forever. I have a reverse mortgage. And they don't make payments. They pay the taxes. They pay the insurance. They don't pay a mortgage. And then at six months, they get a letter that they throw away or don't recognize the lender and they throw the paper away and throw the paper away. And one day the house is posted for foreclosure and they go, "That terrible mortgage company, they're terrible. They're foreclosing on me." No, that's not Yeah. And you know what? I talk this all the time. It's just the most amazing thing. They act like stupidity. What can I tell you? But well, denial is not just a river in Egypt. But what's cool about the reverse mortgage is this. When the last person passes that is on the reverse mortgage, you have technically 90 days to dispose of refinance of the home of the home, but you get three additional 90day periods, right, to sit there and refinance or sell the home. So technically, you've got a full year to dispose of the property, right? In one way, shape, or another, so that you can sit there and take whatever's left of the property and put it in your put it in your pocket. And frankly, as opposed to standard mortgage lenders who will lie to you on the phone and they're just want to forclose as fast as they can because they sold the interest to a foreclosing company and all they're going to do is forclose on you. My experience with the reverse mortgages as a real estate agent, when I contact them and send them the paperwork, show them in charge, show them we filed probate, show them we have letters, show them we're doing we're supposed to do, I've even had them continue to extend us, they're going to get paid, and as long as we show there's equity, as long as we show that we're doing make our best efforts. My experience is that the reverse mortgages are the few customer service facing lenders left in the world. And it but you got to

24:17 Communicate with them. You got to document it. You got to do your work. You give me a great idea as we're talking this through. Given the fact that you want to put a property in a will or a trust. Absolutely. If an if a senior gets a reverse mortgage so they protect their kids from stupidity. Yeah. They should have make an addendum to their will or their trust that upon my death, you have technically x amount of time to dispose or refinance of the property. All right? Or it will be foreclosed upon. And if long as you have that and they can actually read, that would be the protection that they need to remind them of what they need to do when your mom and dad dies and there's nobody left in the home. And the home has to revert to the heirs and the heirs have to dispose of the property. It's a simple you know another option might be that you that they appoint an administrator and if they don't do that when appointed time they're disqualified as administrator then the next sibling takes over because you don't want because too often the one sibling living in the house wants to live there for free forever can't afford really to move out but at the same time there's equity for the other siblings that they're due and that's where the fights come and you want to avoid that. So Right. Correct. Yeah. Fantastic. Well, look, see, we can go on forever. Obviously, it's very I can go on and on and on. You know me.

25:40 I love to talk and teach and train and it's what I love to do. So, what's the number one thing when you would speak to somebody, a financial planner or an attorney, who is helping their customer, what's the number one thing you would advise them regarding reverse mortgage? Maybe they have a they have equity. They own a house that's worth a million dollars. It's free and clear. What would you recommend them to do? What's the number one most common advice you give to those professionals or advising their clients? Get the children involved so they know what's going on. Because when you tell the kids that you're getting a reverse mortgage, whether it be through a lender, a financial planner, a trust attorney, or whatever the means of obtaining that particular this particular loan for, the kids are going to go, "What about me? What's going to happen to all the equity?" And there's nothing there's not going to be anything left. If you don't get the kids involved, you start sitting there creating a little bit of animosity and fighting a little bit of a war. You'll win the war. I always win the war. Okay? Because I say, "Hey, mom and dad have a medical emergency and it's going to cost them $23,000 and outside of Medicare, are you going to pay for it?" And nine times out of 10, they go, "We don't have that kind of money." Go, well, that's why they need the reverse mortgage, right? You know, you bring you bring them down to earth and you get off of the 50,000 foot level and now you're at the ground level and you say, "Hey, this is reality." Fantastic. So, I would say one, get the kids involved first. Number two, decide if it's a financial planner if you want to get a fixed rate loan and take the lump sum and give up part of that credit line that you don't get or you take the credit line and how much of the credit line you want to take out and utilize with investing with your financial planner to help grow your financial engine or do you want either I mean there's a credit line, there's a tenure which is a specific amount for the rest of your life.

27:42 There's installments. All right. So, there's and there's a mix and match, tenure and installments. So, I just did a presentation for a gentleman in New Jersey who wanted to see what it looked like if he took his mom's got a $500,000 home. It's free and clear and she takes 600 $6,000 a month. It would last for four years and 10 months. And then she'd still live in the home, but you know, she'd also be 99 because she was 93 when we started. Okay? Or the or the opposite of do you just want to put it all in the credit line, take what you need, let the credit line grow annually at 7 and 8%, which would be the same as the rate that they're at right now. Okay? And live comfortably as you needed the money, not you had to have the money. So, it's it comes to the denomination of how to use the funds for the specific reason. I prefer leaving it as a lump sum in the credit line and take it as you go because you can get it as quickly as a phone call to your serer. Hey, I need $10,000 wired to my bank. Can you please send it? Yes. Okay. It's on its way.

29:01 Very nice. Well, look, Steve, again, appreciate the chance to chat with you. For those who are listening, our guest today is Steve Somerman. He is the sales team lead in Corner, California, but licensed in 49 states, based in California, but works across the country, every state, I think, but New York, if I remember correctly. Known for a long time, one of the leaders in our industry, and just a really great guy. Has his phone number there, [phone number]. His email is Somerman pmg.net. One of the leading mortgage originator companies in the country and one of the longest serving mortgage originators and a longtime friend. Steve, thanks so much for your time today. I really appreciate it. Appreciate it, too. Thank you very much. Fantastic. And for the rest of you, again, this is the Reverse Mortgage Podcast. We do this every week. We interview top originators as well as professionals in the business of reverse mortgages. Click on the reversemortgageodcast.com for more information as well as see the other podcasts I do on estate planning on probate as well and real estate. I'm Bill Gross at Bill Gross Probate. As always, make today your best day