Jenny rang me off our Facebook advertisement on reverse mortgages.
She spoke to a few lenders and brokers before she called.
She said to me after saying “Hello,”
“I don’t think you can help me.”
She then went on…
“I live on a 16-acre block, 16 km from the closest town.
I have a $150k loan with St George and want some extra cash for travel and a new car.
My house is worth $1.1m, and I’m looking for a total of $350k.”
I then went on and asked her age.
“I’m 69 and still working. My husband, Larry, is 78, and he’s on a part pension from Centrelink. We get $245 each every fortnight from Centrelink”.
She was probably right. I’m not sure if I could help.
I’m saying this not because of their age, income, or location but because of their land size and land use.
The other thing about reverse mortgages is that because no servicing is required in the assessment, they won’t assess whether your income is sufficient to meet your proposed liability, and they limit the loan value ratio (LVR) based on your age.
She’s the youngest living in the house, so the LVR is calculated based on her age. At best, it would be $319k – less than they wanted.
Given the property parameters – size, land use, location – the lender will take a haircut off the LVR, potentially reducing their loan amount to $287k. This is assuming the property is acceptable in the first place.
While I was pretty confident that the lenders wouldn’t accept their property collateral, I asked a few more questions as though we were doing a standard forward mortgage – where she worked, her occupation, their income, liabilities, and expenses.
It all sounded very promising. Last week, we approved another client in a position similar to theirs.
I said, “Jenny, your land size is my biggest concern. I will contact a few reverse mortgage lenders to determine if your scenario would be acceptable. I will also contact a few standard forward mortgage lenders to see if they would consider your application.”
Jenny responded, “Jason, don’t worry about the standard forward mortgage lenders. I prefer them because of their lower rates, but we cannot service our debt. I work as a mortgage lender for a bank. I ran the servicing calculations like I would for my clients; the loan wouldn’t service. I also went to St George, and they said all we could borrow was $10k on top of what we currently owed. Jason, don’t waste your time, our loan will not service.”
At that point, I was 80% sure the loan would service, and the security would be acceptable. We can prepare an exit strategy that is acceptable to the bank. I know we can make this work—maybe not the full $350k they’re after, but at least $300k if I’m being conservative.
I told Jenny, “Alright, you know what you’re talking about, so I won’t waste my time. I’ll call the reverse mortgage lenders and get back to you in the next two days once I have more certainty about your scenario.”
In 5 minutes, I reviewed two lender policies and confirmed the security wasn’t acceptable. One has a cap of 5 hectares, and the other has a cap of 10 hectares. So, I rang up another lender I know can be more flexible with policies if it makes commercial sense. Initially, he was OK with the land size and location; however, considering the risk, he had to reduce the loan to $150k. Then, as we spoke more about the scenario in detail, he pushed back, saying with all the factors stacked up together, this is not something they will accept. Within 30 minutes, we were sure that Jenny and Larry wouldn’t qualify for a reverse mortgage.
Based on my recent approval for a similar client, I ran the scenario past a few major and second-tier lenders. The results were promising. I rang Jenny to deliver my findings about reverse mortgages. She wasn’t surprised, as she had spoken to several other brokers before she rang me. I then shared my findings about standard forward mortgages.
“Jenny, based on our brief discussion, a few lenders are showing promising results. I need to go through your documents to confirm my calculations.”
Jenny didn’t sound very convinced but went along with me anyway. She sent me the supporting documents I requested. After verifying and running our numbers through the calculators again, we confirmed it worked. I rang her to say that it was worth a shot. If they’re happy to proceed, they must sign a few documents. We’ll run a credit check and send the application to the bank for assessment.
At this point, we haven’t gone through their bank statements and credit reports. There are many ways to conduct an internal assessment. The way we run it, we don’t maximise operation efficiency because that may not work in the client’s best interest (more on this in a separate post).
Before I sent the paperwork for their signatures, I asked: “When we run the credit reports and go through your bank statements, will they show any adverse account conduct? And will there be surprises like living expenses not matching what’s declared or any late payments?”
Jenny assured me that their loans were all paid and there were no defaults. She may have forgotten a payment or two, but they were all paid when the reminder SMS came in.
I ran the credit checks and reviewed their bank statements with their assurance and consent.
And OMG!
My first response: I was deflated.
How could a home lending manager miss so many repayments?
So, I sent her their credit reports and rang her to find out what might have happened.
Larry was sick and needed frequent medical attention. They were in and out of the hospital, and she was stressed about his health. His legs were getting weaker, and his ability to walk was deteriorating. She had to prioritise his health; naturally, some repayments were forgotten.
“Why didn’t you set up direct debits?”
“I wanted to align repayments with our fortnightly salary and Centrelink incomes to pay off our loans quicker.”
She continued: “Larry is getting older, and we want to travel before it’s too late. This is why we are trying to get a loan to replace the car and buy a caravan, so we can travel around the country before Larry can’t walk.”
I believed their story. I said the assessor needs to know this. Otherwise, the loan will be declined based on the credit report and bank statements alone.
Jenny and Larry drafted a letter explaining their story, why they wanted the loan, what happened when the repayments were missed, and how they would mitigate and avoid making the same mistakes in the future. They also got a letter of support from their doctor explaining the situation.
While they were putting all that together, I also approached the non-prime and specialist lenders to see if there were hopes of placing the application there. I don’t want to because the interest rates and establishment fees will be higher. Additionally, with all the factors stacked together, the scenario wouldn’t typically fit within their risk appetite. They are already taking on the risk of possibly late repayments based on their past account conduct. They won’t take the risk of mature-aged applicants on Centrelink income plus a 16-hectare land in an area with a population of 153 people.
I returned to the drawing board and presented the scenario to the lenders again. The first criteria for my shortlist were land size, land use, and postcode. I then approached all of them with the account conduct and the applicant’s story. None of them could give me any confidence. They said, “It’s not for us, and I wouldn’t submit the application here”.
I called Jenny and Larry to deliver my findings. They were naturally devastated. I also advised that we don’t have any other alternatives.
“Jenny and Larry, how important is this for you? How much do you want this? The chance of success is zero if we don’t apply. And if we do, there is at least a 0.1% chance of approval.”
Jenny and Larry wanted this so badly that having one enquiry on the credit file didn’t make a difference. So they asked, “If everyone said no, where will we place this application?”
I told them, “My gut says Westpac for reasons I cannot explain. If anything, it’s experience and intuition.”
“Westpac it is then. We trust you, Jason.”
And so, we finalised the paperwork and submitted the application.
Westpac responds in two days. The following 48 hours were nerve-wracking for me. I answered every call and kept my eyes peeled for Westpac’s email. Finally, the assessor (Claire) called. When I took the call, I felt the same as when I submitted my first loan application over a decade ago.
She said, “I ran the numbers, read the letters, read your notes, and saw all the red flags you pointed out. However, I also agree with the strengths of the application you highlighted. I will run this through the system, and it will either approve, decline, or refer to higher credit. I need just one missing document, and once verified, I can run it through the system.”
I knew I had forgotten something when I submitted the application. I called Jenny, asking for the missing document, and said everything looked positive, but we won’t know until the assessor runs it through the system.
When Jenny sent me the required document, I verified it and sent it to Claire. It was after hours, so we had to wait until the next day before Claire picked it up again.
The following day, Claire called.
“Jason, the system approved your application. We will issue the approval advice shortly, and the loan contract will follow in 48 hours.”
This ultimately made my day, as I was not expecting approval. I was very tempted to call Jenny and Larry, but I held back because I wanted to see the approval letter before making the call. In my experience, anything can happen unless it’s in writing and the loan has settled.
The approval letter landed in my inbox. I dialled Jenny’s number and said, “Jenny and Larry, the loan offer will be issued by Friday. Get your pens and IDs ready because the branch manager will call you for an appointment.”
There was a long pause.
”Jenny, Larry, are you there?”
“Jason, are you sure it is approved? What are the conditions?”
“No conditions. It says here. Unconditional approval for a loan of $350k over 30 years at 6.2% for Jenny and Larry Parker.”
There was another minute of silence.
Then, through their voices, I could picture tears rolling down their eyes, yet they were grinning eye to eye.
“Jason, thank you so much. You have done so much for us. We don’t know what to say. We didn’t expect seamless approval in such a short period. We can move on with our lives; we can travel the country like we always dreamed of; you’ve made this all possible for us when everyone else said no.”
Jenny and Larry have signed their loan documents and are awaiting settlement. They expect it within the next week and will then enjoy their lives.
* names have been changed for privacy.