Tim Nelson, reverse department manager at VIP mortgageis a 35 year veteran of the mortgage industry and has focused exclusively on reverse mortgages for the past fifteen years.
Nelson recently sat down with us HousingWire‘s Reverse Mortgage Daily (RMD) to share perspectives on what it was like to transition from a professional in the reverse mortgage industry to a client. He acquired his own Home Equity Conversion Mortgage (HECM) once he and his wife reached the legal age of 62.
In this second part of the interview, Nelson discusses some of the more specific aspects of making the transition and how he sees potential use cases for the loan as part of a retirement plan.
Intensive revelations, but fine for a professional
In previous discussions RMD has had with reverse mortgage lending professionals-turned-clients, some have indicated that the intensity of financial disclosures can be a lengthy and arduous process. When asked about it, Nelson wasn’t bothered by it, but he can see how people less familiar with pre-closing processes could find the need for endurance and patience.
“I have been in the mortgage industry for 35 years. I know the mortgage industry can be difficult with some of the processes and documentation, but I think it’s more frustrating for the layman who isn’t aware of all the pages required.”
Sometimes bank statements at certain institutions are left blank on purpose. Despite no information about them, even those pages should be included in a document package because they are often numbered, he said.
“I just know I have to add that stupid page because it’s page five of 105 and even though it’s blank, I know I need it,” he said.
The underwriting requirements for many government loan programs are also frustrating, Nelson points out, and are not exclusive features Federal Housing Administration (FHA) rules for the HECM program. Being aware of the requirements in advance helped him manage any feelings of frustration.
It’s all about the line of credit
When asked about his retirement strategy and how his HECM loan plays into that, Nelson explained that the standby line of credit was a key factor in the decision to ultimately take out the loan. The data shows that Nelson is far from alone.
According to the FHA’s recently released annual report to Congress, the vast majority of reverse mortgage recommendations in fiscal year 2024 – 93.6% – used the standby line of credit as their preferred payout method. While there are a total of five payout options available to HECM borrowers, all other options combined were taken by less than 7%.
“The main reason we did it was we wanted to get that line of credit in place as quickly as possible so that that growth factor could kick in,” Nelson said. “Because when you look at a repayment schedule and see what that line of credit does over a period of 10 to 15 years, it’s amazing what that growth factor does and the liquidity position it puts you in.”
This is especially true, he said, by the time many borrowers reach age 80, when the expenses they incur often begin to change.
‘Self-insurance’ via credit line
Nelson and his wife Mary moved into their current home in 2020 and call it their “forever home.” After the line of credit has leveled itself out, it adds a level of security to protect against expected expenses later in life.
“Our goal when we bought this house was that when she turned 62 two years later, we would get a reverse mortgage and grow the line of credit,” he said. “So when we get to be 80 or 85 years old and we have that significant line of credit available, we’re insuring ourselves a little bit of the long-term care policy that would normally be so expensive.”
Long-term care often requires retirees to draw from their portfolio to cover high costs, but the line of credit helps insure themselves against these costs and any additional expenses that may arise, he said.
“As needs and additional costs continue to arise, we have the liquidity to not have to dip into the retirement portfolio,” he said.
