Why it could make sense for your reverse mortgage borrower to bring cash to close

Didier Malagies • June 20, 2023


In February of 2022, the 10-year treasury rate was at 1.74%. Now, just 15 months later, it sits at 3.54%. For a 65-year-old borrower, this results in a principal limit reduction from 48.2% to 37.8% (using a 2.5% margin), a 22% decrease. Loans that were previously in the money are now out, requiring borrowers to bring cash to the table to pay off their existing liens and close the loan.


For many, the notion of coming up with additional funds sounds like a non-start-deal-killing-transaction that will never get done. But what if bringing additional cash to close is a good investment, providing access to the many options that come with a reverse mortgage? How might we help our clients to intelligently assess that decision? 


For starters, we should agree that retirement (or “financial independence” as we would prefer) is largely a function of cash flow. We can “retire” when we have enough “stuff,” producing enough income, that it exceeds our expenses. So how big of a pile of money do we need to meet our expenses?

There’s a commonly accepted, though often debated, formula that one can safely take 4% from investments without running out of money. That would suggest that with $1 million dollars invested, you could expect $40,000 in income from your investments. (You’ll end up with less if your investments are in a retirement account since income tax will likely be due, but we’ll save that for another conversation.)


The math

Ryan Ponsford

So, what does this have to do with bringing cash to close on a reverse mortgage? It comes down to helping our borrowers understand the value of not having to make mortgage payments. Here’s the math:

Let’s assume your client needs an additional $20,000 to close on your reverse mortgage. If your principal and interest mortgage payment is $1,500 per month, that’s an annual expense of $18,000. So how much do they need to have invested to generate $1,500 per month? At a 4% withdrawal rate, they’ll need $450,000 saved to generate $1,500 per month!


How do they get there?

  • Annualize their monthly income: $1,500 x 12 months = $18,000
  • Divide by their withdrawal rate: $18,000 / 4.0% = $450,000

Does it make sense for them to invest $20,000 to create a cash flow increase equal to a $450,000 investment? Looking at it that way, it could.   


One other perspective to consider, with a $1,500 per month payment, $20,000 represents less than 14 months of payments. Could they come up with 14 payments to never have to make a principal and interest payment for as long as they live in the home? They might be able to come up with that. (Thank you, Dan Mudd for that one!) Of course, they are still responsible for property taxes, insurance, and abiding by the terms of the loan.


Are there other considerations? Of course! You should account for the impact on the borrower’s other holdings, market volatility, inflation, income tax considerations, future access to liquidity, the compounding interest on the loan, and what will be left over at the end (to name a few). Everyone is in a unique situation requiring an understanding of them, not just what you’re trying to sell.


The bigger picture

Income planning for retirement is not a simple equation. In a recent conversation with a financial advisor, he made a valid point. When a client asks him how much to allocate to a 401k, traditional and/or Roth, the response requires an understanding of cash flow, retirement planning, investment planning, college planning, estate planning, risk management, insurance, taxes, and possibly much more.

There’s a bigger picture to consider and those looking to include home equity in retirement planning ought to become familiar with the many implications of your advice. Become a student of your craft, consider the many ways that cash flow can be managed, after all, this is the name of the game in retirement planning.

And accessing home equity, specifically through a reverse mortgage, could be one of the most misunderstood and underutilized strategies in retirement planning today.


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AI to AI and what does that mean for me in the mortgage business

By Didier Malagies • August 28, 2025
1. Getting Leads from AI AI can help you find and qualify homeowners who may be interested in a second mortgage (home equity loan or HELOC). Common approaches: Predictive Analytics – AI models look at property values, loan-to-value (LTV), credit trends, and household income estimates to flag homeowners who may be equity-rich but cash-flow constrained. Behavioral Targeting – AI scrapes signals from online behavior (searches, social media, property sites) to identify homeowners exploring refinancing, debt consolidation, or home improvement. List Enrichment & Scoring – AI takes raw lead lists (from credit bureaus, title data, etc.) and ranks prospects by likelihood of conversion. Chatbots & Virtual Assistants – Automated lead capture on websites or ads, qualifying borrowers by asking pre-screening questions 24/7. 2. Using AI in the Mortgage Process (Second Mortgages Specifically) Once a lead is captured, AI can help streamline: Prequalification – Instantly running soft credit pulls and property value AVMs (automated valuation models). Risk Assessment – AI models assess borrower income stability, equity position, and repayment ability faster than traditional underwriting. Automated Marketing – Personalized drip campaigns (emails/texts) tailored to where the borrower is in their decision cycle. Compliance Guardrails – AI tools scan communications and ads to make sure they meet RESPA, ECOA, and fair lending rules. ✅ Important Note: Regulations are tightening around AI in lending (bias, transparency, fair lending laws). Any AI-driven lead-gen or underwriting must remain compliant with ECOA, Fair Housing Act, UDAAP, RESPA, and FCRA. Do you want me to map out an AI-driven workflow for generating and closing second mortgage leads (step by step with tools you could use), or do you want a higher-level overview of companies already doing this? You said: Customers are finding thru AI and I am getting them second mortgages thru AI ChatGPT said: Got it — you’re saying customers are finding you through AI (likely through AI-driven search, recommendations, or even chatbots), and then you’re also using AI on your end to help them get second mortgages (home equity loans or HELOCs). Here’s how that usually plays out, and how you can structure it: 🔹 How Customers Find You Through AI Search + Recommendation Engines Borrowers ask tools like ChatGPT, Google Gemini, or even lender chatbots about “best second mortgage lenders.” AI-driven SEO tools route them toward your website or ads. AI-Powered Marketing Predictive ad platforms (Google Ads, Meta, programmatic ads) use AI to match your services with homeowners who are likely equity-rich. Smart drip campaigns + automated SMS/Email nurtures keep them engaged until they’re ready to apply. Conversational AI (Front Door) Website chatbots or virtual assistants pre-qualify by asking: “What’s your home value?”, “What’s your current balance?”, “What’s your income?”. These instantly filter serious borrowers from casual shoppers. 🔹 How You Help Them Get the Loan With AI Lead Intake & Pre-Screening AI pulls in property data (AVM: Zillow/Black Knight/CoreLogic) + soft credit pulls. Instantly calculates Loan-to-Value (LTV) and debt-to-income (DTI). Automated Prequalification If borrower has enough equity + meets credit standards → AI engine generates a prequalification in minutes. AI Underwriting Support OCR (document reading AI) extracts paystubs, W2s, bank statements → fills in 1003 automatically. AI models flag potential risk (income inconsistencies, high utilization). Personalized Loan Matching AI matches the borrower to the best second mortgage product (fixed-rate 2nd lien, HELOC, blended loan). Could even run “what-if” payment scenarios instantly for the customer. Automated Compliance & Closing AI scans communications to avoid UDAAP/ECOA violations. Auto-generates disclosure packages and checks for missing signatures. 🔹 Big Picture You’re essentially creating an AI-driven pipeline: Customer → AI finds you → AI captures lead → AI helps you qualify → AI supports underwriting → You close the 2nd mortgage faster. This model is gaining traction because borrowers want instant answers, and AI cuts weeks off the traditional process. tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329

When Fed says they may drop rates next month, what is really happening now

By Didier Malagies • August 25, 2025
Great question. Markets don’t usually wait until the Fed actually cuts rates to react — they move in advance, based on expectations. Here’s how it works: Forward-looking nature of markets – Bond yields, stock prices, and mortgage rates are influenced by what investors think will happen, not just what has already happened. If traders believe the Fed will cut rates in September, they start pricing that in now. Fed communication – The Fed often signals its intentions ahead of time through speeches and policy statements. If Chair Powell or other Fed officials strongly hint at a cut, the market will react immediately. Data-dependent – If new data (like inflation cooling or unemployment rising) supports the case for a cut, markets may rally or yields may drop months before the Fed makes the move. The actual cut – When September arrives, if the Fed cuts exactly as expected, the market reaction may be small (because it’s already “priced in”). But if the cut is bigger, smaller, or delayed compared to expectations, that’s when you see sharper moves. 👉 So to your point: yes, the market already reacts now to a possible September cut. By the time the Fed announces it, most of the impact could be baked in.  tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329

As Social Security turns 90, what will its future hold?

By Didier Malagies • August 18, 2025
Here’s a clearer breakdown of what lies ahead for Social Security as it turns 90: 1. Trust Fund Depletion: A Real and Growing Threat 2025 Trustees Report projects that the OASI (Old-Age & Survivors Insurance) Trust Fund will be depleted by 2033 . At that time, beneficiaries would receive only about 77% of scheduled benefits. Social Security Peterson Foundation The Disability Insurance (DI) Trust Fund is expected to remain solvent through at least 2099. Social Security Peterson Foundation If OASI and DI were merged hypothetically, the combined OASDI reserves would be exhausted around 2034 , with roughly 81% of benefits payable at that time. Social Security AARP Other sources echo this timeline: some forecasts suggest insolvency might arrive as early as 2033 or 2034 , with 20–26% cuts unless reforms are enacted. The Week+1 TIME+1 The Sun Kiplinger investopedia.com 2. Contributing Factors to the Crisis Demographics : The worker-to-beneficiary ratio has plummeted—from 16.5 per retiree in 1950 to around 2.7 today—coping with an aging population and declining birth rates. The Sun investopedia.com Peterson Foundation Wikipedia Policy Changes : Recent laws like the Social Security Fairness Act (2025) that restored withheld benefits for certain groups raised payouts without funding offsets, accelerating depletion. AARP investopedia.com Reduced Agency Resources : The SSA saw significant staffing reductions—estimates suggest about 20% of field staff were let go —compromising service delivery. investopedia.com HousingWire 3. What Happens After Depletion? Benefits won't vanish—but if no corrective action is taken, they would be automatically reduced to the level sustainable by ongoing payroll tax revenue—approximately 77–81% of the current scheduled amounts. investopedia.com TIME AARP Peterson Foundation That represents a 19–23% cut in benefits. For instance, a retiree currently receiving $2,000/month would see payments drop to around $1,545–$1,600/month . investopedia.com TIME The Week 4. Solutions & Proposals to Preserve the Program Here are some of the leading ideas under consideration: a. Raising Revenue Payroll Tax Increase Tax hikes—from 12.4% toward 16% —could close funding gaps, though they carry economic trade-offs. The Sun The Week Wikipedia Bipartisan Policy Center Tax Higher Incomes or Remove the Earnings Cap Increasing or eliminating the taxable earnings ceiling, or taxing benefits/investment income, could improve funding. AARP Wikipedia Bipartisan Policy Center Kiplinger b. Reducing or Restructuring Benefits Reduce Benefits for New Recipients A modest 5% cut starting in 2025 could extend solvency only a few more years. AARP Means-Testing or Adjust COLA Lowering cost-of-living adjustments (COLA) or reducing benefits for wealthier retirees could help but are unpopular. AARP Raise Retirement Age Gradually Incremental increases to the full retirement age could yield sizable savings. AARP c. Structural Reforms & Investment Strategies Bipartisan Investment Fund (Cassidy–Kaine Plan) This proposal would inject $1.5 trillion into a separate fund that invests in stocks and bonds, aiming to generate growth over 75 years and preserve all benefits without resorting to general government borrowing. The Washington Post investopedia.com Brookings Blueprint Advocates a system that maintains core principles, ensures universal participation, and restores long-term solvency without expanding general fund use. Brookings 5. The Road Ahead: What’s Likely to Happen? Inaction isn’t an option—delaying reform would escalate the scale of necessary changes. Peterson Foundation The Week Kiplinger Politically, topics like benefit cuts, tax hikes, and raising the retirement age remain extremely sensitive. Successful reform will likely involve a mix of revenue increases, eligibility tweaks, and investment innovations , crafted in a way that spreads burden fairly and maintains public support. Some bipartisan pathways—like the Cassidy–Kaine plan—offer creative long-term strategies, but most require immediate bridging solutions (e.g., modest tax increases or cost adjustments) to prevent cuts in the next decade. Didier Malagies nmls212566 DDA Mortgage nmls324329 
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