THE
REVERSE NOVEMBER 2010
HUD
review
The HECM Saver and Salvation
!
A parable on ML 2010-34 and NRMLA ethics advisory 2010-01 Fed Kamensky and Joel Schiffman
can 2010-01
Ethics advisory
it save the industry? $
MetLife Bank
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All loans are subject to property approval. Certain conditions and fees apply. Mortgage financing provided by MetLife Bank, N.A., Equal Housing Lender. © 2010 METLIFE, INC. L0310092581[exp0311][All States][DC] © UFS
Technology. Training. Support. All from one reverse mortgage company.
TRR11.10 “Moving Forward in Rever se”
FEATURE - pg 18 The HECM Saver and Salvation A parable on ML 2010-34
HUD
and NRMLA ethics advisory 2010-01
12
Everything that’s old isn’t new again!
What? No, this is not a typo — let me explain.
Challenges to Reverse Mortgage Servicers
Joel Schiffman
The key to a successful REO sale process in the reverse mortgage world is the ability to move quickly
Darren White
27 The Trifecta
can
Ethics advisory
Jorge Villar
24 REO Presents Different
Fed Kamensky and
!
he Future of Reverse T Mortgage Lead Generation
it save the industry?
The ideal vs reality syndrome
David Bancroft
28 CRMP: History Behind the Designation
A certification that demands the respect of professionals, government officials and the confidence of seniors Karen Keating
30 Taxation on Foreclosure –
2010-01
Part II
A rise in foreclosures brings further tax
05
Editor’s Note
37
Directory
Is it Stuffing or Dressing?
08 Industry Stats August 2010
James E. Veale
The Wake-Up Call
Information at your Fingertips
06 Ask the Underwriter
consequences
34 Opinion Piece
36
Senior Moments
Making a difference
38 The Last Word
A New Direction, A New Look
Mark Sisco
THE
REVERSE review
Information at your Fingertips I’m so pleased with our November
16745 W. Bernardo Drive Suite 450 San Diego, CA 92127
issue! We’ve made small changes and improvements throughout
and I hope you appreciate them
just as much as we do. Once again it was such a pleasure working with all of the contributors this
month; I constantly look forward to
information that is sent my way and later turned into yet another great issue of The Reverse Review.
Emily Vannucci Editor-in-Chief
Our industry is small and we strive to reach each and every one of you
Publisher Aman Makkar Editor-in-Chief Emily Vannucci Copy Editor Kersten Wehde Creative Director Traci Knight
with the stories and latest news that matters. It is our goal to deliver the most up-to-date information and
drive the debate within the industry, whether it’s online or within the publication.
With that said, we are thrilled to welcome Brett Varner as News
Editor of ReverseReview.com. I
believe his efforts and ideas will turn
National Accounts Manager David Peck Printer The Ovid Bell Press Advertising Information phone : 858.832.8320 e-mail : advertising@reversereview.com
our website into one that is visited by you every day.
Until next time, we hope you enjoy our November issue!
Subscriptions and Editorial Content phone : 858.217.5332 e-mail : information@reversereview.com website : www.reversereview.com
© 2010 The Reverse Review, LLC. All rights reserved. The Reverse Review, LLC is a California limited liability company and is the publisher of The Reverse Review magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, The Reverse Review, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127
Is it Stuffing or Dressing? A reverse mortgage program with a different name
L
Ralph Rosynek Later this month, families across the
the Thanksgiving turkey. This bird is
information, choices and clarity for parents
for another year of events, blessings and
ahead of its preparation and weeks
costs with limited resources. The reverse
nation will sit together and give thanks
plenty that have enriched their lives. A sign
of this commemoration begins as dishes are passed with outstretched hands from guest to guest, offering a variety of elements to
the dinner that need no introduction. There
the subject of conversation for weeks thereafter in the review analysis stage. This bird has instilled fear, mystery,
stories of achievement and failure, and a
tremendous amount of misconceptions and
or relatives facing rising housing and living mortgage conversation will be laden with
misconceptions, misinformation, fears and tales of successes and failures.
misinformation.
Similarly, at our company reverse mortgage
stuffing or dressing?
Perhaps the greatest support for the
the reverse mortgage product. Bottom
Word definition leads to little resolution on
Turkey Hotline. These dedicated women
is one thing I have always wondered: Is it
this fact. Both words are used to describe a delectable mixture of ingredients that,
when combined with meat or poultry in one of a variety of methods, ultimately
takes the dining (or eating) experience to a higher level.
Thanksgiving holiday is the Butterball
(and, I would imagine, a few good men)
put themselves out there as an education
and training resource each holiday season
to counsel first-timers engaging the “bird” task. Year after year, they seek to dispel
tables, we find a descriptive dilemma for line: It is a reverse mortgage program
with a different name, and – similar to our
stuffing and dressing issues – the end result is a mixture of loan features and option
ingredients providing a senior borrower with an enhanced set of choices.
rumors and provide clarity and ease.
The recent addition of a second set of
The confusion of what to call a side
No doubt as families gather this holiday
HECM Saver, has yet to be fully developed
preparing the main focus of the dinner,
include how best to provide the right
dish is not nearly as challenging as
season, meal conversation will probably
alternatives for the HECM program, the
in many areas of our industry, as well as in the consumer sector.
Bottom line: It is a reverse mortgage program with a different name, and – similar to our stuffing and dressing issues – the end result is a mixture of loan features and option ingredients providing a senior borrower with an enhanced set of choices. 6 | TRR November 2010
One of the main purposes of the new
The reduction in upfront fees will be
As with the HECM Standard, positive
seeking to limit or reduce costs based upon
the risk to the FHA insurance fund because
continuing education and training for both
product is to provide choices to borrowers needed or desired loan objectives. FHA designed the HECM Saver as a second
reverse mortgage option for the purpose
of lowering upfront fees and loan closing
costs, for homeowners who want to borrow a smaller amount than what would be
available with a HECM Standard loan.
accomplished while substantially lowering the principal limit or amount of money
available to a borrower under the HECM Saver is reduced. Borrowers will receive approximately 10 to 18% less under the HECM Saver option than they would receive under HECM Standard.
information delivery combined with
the HECM Saver and Standard needs to be provided to originators, borrowers,
lenders and counselors as a key component to assisting senior borrowers as they make comparative choices when seeking a reverse mortgage.
This mortgage option significantly lowers
HECM borrowers may opt to receive funds
So which is it, Saver or Standard?
mortgage insurance premium (MIP) that is
request fixed monthly payments that are
Unfortunately, the folks on the Butterball
live in the home. Funds are advanced to
to help us arrive at a resolution to this
costs by almost eliminating the upfront
required under the HECM Standard option. For HECM Saver, the initial MIP is 0.01% of the maximum claim amount (MCA), and it is collected at the time of loan closing. For
HECM Standard, the amount of initial MIP will continue to be 2% of the maximum claim amount (MCA), which is also
collected at the time of loan closing.
as a lump sum, establish a line of credit or disbursed for as long as they continue to
the borrower and interest accrues, but the outstanding amount does not have to be
repaid until the borrower dies, leaves the home or sells the property. At that time,
if the balance due on the loan exceeds the
line this season aren’t going to be able
question (but I wonder what they do the other 10 months of the year?!)
Happy Thanksgiving.
value of the home, FHA insurance pays the difference.
November 2010 TRR | 7
INDUSTRY SUMMARY
August Endorsements Retail and wholesale volumes
Retail Endorsement Growth
18.2%
A broader recovery with more lenders experiencing growth
Wholesale Endorsement Growth
5.99%
August wholesale results are in, and as we’ve seen in past months,
retail/direct lending in the reverse mortgage market continues to lead
wholesale/broker volumes. Total volume for August was up 13%, with retail/direct up 18% and wholesale/broker up just 6%.
Total Endorsement Growth
12.96%
Last month we asked why the volume recovery has been so narrow since
* Figures Above Reflect Change from Prior Month
Trailing Twelve Month Endorsements
May, primarily benefiting just three major lenders. As we discussed in last month’s report, July volumes were higher than May for only five of the
top 10 lenders. This month we see a broader recovery, with seven of the
top 10 lenders experiencing volume growth since the industry’s low point in May. Even more encouraging, the largest lender in our business saw a
nice 12-month high in August, moving back to 2,000 loans for the first time in 16 months (April 2009).
While that might be small comfort to anyone whose compensation isn’t
10,000
tied to Wells Fargo’s performance this year, our industry can benefit from
8,000
the success of large, visible brands, as we’ve seen time and again in recent
6,000
history.
4,000
A few other lenders stand out in this month’s report:
2,000
s
0 Retail
Wholesale *Numbers Represent Months s
RETAIL
WHOLESALE
8
3,903
6.03%
5,567
9
4,081
4.56%
4,692 -15.72%
8,773 -7.36%
10
3,836
-6.0%
3,901 -16.86%
7,737 -11.81%
11
3,954
3.08%
4,326 10.89%
8,280
12
3,171 -19.8%
4,450
2.87%
7,621 -7.96%
1
3,124 -1.48%
3,890 -12.58%
7,014 -7.96%
2
2,783 -10.92%
3,038 -21.9%
5,821 -17.01%
3
2,692 -3.27%
2,813 -7.41%
5,505 -5.43%
4
2,465 -8.43%
2,086 -25.84%
4,551 -17.33%
5
2,900 17.65%
2,404 15.24%
5,304 16.55%
6
3,358 15.79%
2,521
4.87%
5,879 10.84%
7
3,969
18.2%
2,672
5.99%
6,641 12.96%
40,236
8 | TRR November 2010
6.12%
42,360
9,470
6.08%
7.02%
82,596
Security One Lending appears to be on the comeback trail as well, also showing their highest volume in 11 months.
TOTAL
UNITS CHG% UNITS CHG% UNITS CHG%
TOT
Genworth continues its healthy recovery from May, with growth of 250% and its highest volume since September 2009.
9 10 11 12 1 2 3 4 5 6 7 8
s
The race is heating up for second place, with MetLife gaining ground on longtime industry leader Bank of America (and,
previously, Seattle Mortgage). MetLife’s growing retail presence and continuing wholesale strength puts them within shouting
distance of No. 2 overall. BofA leads by more than 3,000 loans for the last 12 months, but if both lenders turn in identical totals in September, MetLife would still shrink the gap by 24%.
John K. Lunde is President and Founder of Reverse Market Insight, Inc., a performance data analysis and consulting firm specializing in the reverse mortgage industry. RMI clients include eight of the top 10 reverse mortgage lenders plus investors, servicers and vendors to the industry. 949.429.0452 | www.rminsight.net
contributors
Jorge Villar is the creator of SeminarSuccess®, one of the most successful seminar marketing programs in the country. Since 1995, Jorge has overseen the growth of RME to one of the industry’s most prominent organizations, reaching $30 million in sales annually. RME’s direct mail lead-generation programs have been responsible for 300,000 seminar events for more than 7,000 sales and marketing professionals.
Fed Kamensky is an associate
with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. 202.628.2000 | kamensky@wbsk.com
Ralph Rosynek has been
The Reverse Review Ask the Underwriter for more than two years. He is an industry HECM consultant and trainer, leveraging many years of executive and owner skills and knowledge in the reverse mortgage space including HECM Direct Endorsement credentials. Ralph is currently a seated Director for NRMLA and co-chairs the Professional Development Committee. 708.774.1092 | rrosynek@yahoo.com
10 | TRR November 2010
Joel Schiffman is a member
with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. 949.798.5570 | schiffman@wbsk.com
Darren White is Vice President
Lisa Slay, Owner/Manager of Senior Voice, LLC, brings more than 30 years of experience in management, operations and customer service to the company. Lisa has held the position of administrator and human resource manager in the home health care industry and currently holds the position of COO in the reverse mortgage industry. 512.879.3542 | l.slay@seniorvoice.us
David Bancroft, Founder and former President of Omni Reverse Financing Inc., is an industry expert in the origination of reverse mortgages, FHA and VA government loans. David founded Omni Home Financing in 2002 in order to specialize in government lending and is now one of the largest originators of HECM reverse mortgages in the country. 949.355.4653| davebancroft@cox.net
Virginia Davies experienced 30-plus career years in human resources, customer service and the arts before joining the reverse mortgage industry. She has embraced corporate life as the fulfillment of her creativity goals, managed throughout her employment at a Fortune 500 company in Santa Clara, CA, and her personal business ventures in Atlanta, GA, as owner/ manager as well. 512.879.3542 | v.davies@seniorvoice.com
Karen Keating is a partner at Tradition Title Agency. To provide the lending professional clients with the highest level of advice about reverse mortgages, Karen achieved the title of Certified Reverse Mortgage Professional (CRMP) from NRMLA. She holds the distinction of being the only person affiliated with a title company to achieve this designation. 631.328.4410 | www.traditionta.com
Mark Sisco is the RSD with
James E. Veale is a Senior Vice
Brett G. Varner is the newly appointed News Editor for www. ReverseReview.com. He has served the mortgage industry for 10 years in leadership capacities in sales, marketing and operations. His unique and knowledgeable perspective is focused on developing useful content and strategies in a forum of open and lively debate. brett.varner@reversereview.com
for Default/Foreclosure/REO/Claims at Reverse Mortgage Solutions Inc. in Spring, TX. Darren heads up RMS Asset Management Solutions (RAMS), which handles the disposition of REO properties for itself and other companies. RMS provides private-label sub-servicing, as well as a state-of-the-art reverse mortgage loan origination system. dwhite@rmsnav.com
President at Security One Lending, Inc. Jim is also a California CPA and real estate broker with a master’s degree in business taxation from the University of Southern California.
West Star Reverse Mortgage and is the driving force of the retail sales and the training group of the reverse mortgage division. He holds a California Broker’s license and several other origination licenses and is an accomplished speaker, with over 18 years in the mortgage industry. 949.922.7859
November 2010 TRR | 11
The Future of Reverse Mortgage Lead Generation
Everything that’s old isn’t new again! What? No, this is not a typo — let me explain.
A Jorge Villar
As the fog of the recession slowly rises and the housing market emerges from the ice
age that’s had a virtual death-grip on home values, seniors are quickly reconsidering a reverse mortgage.
As a direct marketing professional
with more than 30 years’ experience in
generating qualified and motivated leads for sales professionals, companies and
organizations, I have a unique perspective to share with you.
“Everything that’s old isn’t new again!”
By this I mean that the reverse mortgage sales professionals who fall back on the
marketing philosophy of the past (“Because we’ve always done it that way”) are going to fail. Why? Because the landscape has
changed dramatically over the past three to five years. Only those who recognize this and adjust their marketing mind-set will
be successful in the long run. Here are five keys to your success!
1
Personalization: You Never Get a Second Chance to Make a First Impression!
The past is the past: over and done with.
fake checks, yard signs and small
newspaper inserts are over – done and
gone! I can save you the expensive lessons. Do it right for that sensitive audience.
The past I’m referring to is the old ways of generating reverse mortgage leads. When
you invest in direct marketing, if your mail piece is not personalized – no matter how good your offer is – it’s going to look like junk mail. Now, by personalization I’m
not referring to addressing the envelope.
I’m talking about having your prospect’s
name, even their city or town and relevant payout charts, throughout the mail piece.
Very few mom-and-pop printers can afford the kind of printing technology to do
that. But personalization is critical. Think
about it from this perspective: Would you
respond to a mail piece with the salutation “Dear friend”? Or even worse, “Current resident”?! With that salutation, what
would you think about a company that was asking you to consider discussing
one of their most valuable possessions: their home? To start creating trust and credibility, go with an image and a
“Hallmark-like” look in the mailbox.
12 | TRR November 2010
The days of using cheap flyers, postcards,
Everything that’s old isn’t new again! By this I mean that the reverse mortgage sales professionals who fall back on the marketing philosophy of the past (“Because we’ve always done it that way”) are going to fail.
2
Capitalize on What the Big Banks Have Done for You
get “belly to belly” with those prospects.
within a 7- to 12-miles radius of your
major financial institution received bailout
in your market have little or no trust
Oh, and given the fact that almost every
market. The consumers (your prospects) of big companies (again, think of the
They have spent big money to set you up
money or went out of business due to
industry knows how much money the
a qualified reverse mortgage prospect
and advertising. Their TV commercials
You have a unique opportunity to take
DVD explaining everything anyone
doing to educate your prospects, but you
The good news is that there are proven
With baby boomers entering retirement
help them embrace exactly what a reverse
and trust” factor with your prospects.
can expect these companies to continue
can help give them the peace of mind they
help you? Well, if there’s one universal
“belly to belly” with a prospect?
nicely. Anyone in the reverse mortgage
poor investment decisions, do you think
big banks have invested in marketing
is going to trust one of the “big guys”?
included famous actors pitching a free
advantage of what the big companies are
wanted to know about a reverse mortgage.
need to be the face of the person who can
and qualifying for a reverse mortgage, you
mortgage can do for them financially. You
their advertising efforts. So how does that
so desperately want. So how do you get
truth in sales, it is: People buy from
people. A senior homeowner isn’t going to get a reverse mortgage because of a
3
It Takes a Neighborhood
“compensated celebrity spokesperson.”
If there’s one thing that’s proven true in
their interest. Now they will meet with
economic times, it’s the reality that you
like and trust. That means you have to
from the homeowner prospects that live
However, that marketing will surely pique
recent history, especially during turbulent
a local professional they want to know,
will make the majority of your income
bailouts of everything from major financial institutions to the government). If you’re not there to fill that trust-gap vacuum, your competitors will be.
ways to build what I call the “know, like It’s called neighborhood marketing. In a nutshell, neighborhood marketing is providing prospects a way to respond
to your direct mail marketing in a way that’s comfortable for them! Over the
past five years I identified six types of
responders that live within that 7- to12-
miles radius of where you work. They are: event responders, one-to-one responders, phone responders, Internet responders,
lead responders and centers-of-influence responders. g
November 2010 TRR | 13
By far, “event” responders make up the
on gaining their trust. Only after you’ve
they met with weren’t able to qualify for a
Through 300,000 direct mail promotions
with you privately at your office or at their
with a marketing company that has years
majority of your neighborhood market.
established that will they agree to meet
in 15 years, we discovered that senior
home. That is permission marketing at its
prospects want to meet with you either
best! What can you expect from marketing
one-on-one in a neutral, social setting, or
at dinner events? On average, those that
at an event surrounded with lots of people
mail 6,000 invitations are getting between
just like them in a safe neighborhood
location: yes, a restaurant. Marketing
dinner events – and it’s a fact that dinners continue to out-pull breakfast or lunch events – continue to generate the most
60 and 120 qualified seniors to show up.
4
consistent flow of qualified reverse
mortgage prospects. These face-to-face
dinner events will help position you as
the “local expert” on the subject. They will come to the event to hear you speak, get
updated, and be reassured about reverse mortgages. They are not coming there to
be sold anything. When you’re in front of your event attendees, your focus must be
BONUS IDEA!
The Devil’s in the Data!
Given the fact that there are specific
requirements to qualify for a reverse
mortgage (age and equity), your mailing list is critical for the success of any
direct marketing campaign. I can’t tell
you how many horror stories I’ve heard
from brokers who were ecstatic with the
response they got from a mailing they did with a local print or letter shop, only to
reverse mortgage. Please be sure you work of proven experience in this market and
are up-to-date on the regional differences in LTV lists. While the list companies are doing their best to keep up with home
values, there are only a handful of direct marketing companies that can counsel
you on issues surrounding the right list for your campaign. One more thing: If
your marketing company won’t tell you
who they rented the mailing list from, be
afraid! Visit them; do not do mailings with them because of a sharp-looking website or because you can save a few pennies-
per-piece. There are a lot of cheap shops
out there that just want to make a buck. Do your due diligence.
find out that almost all of the prospects
5
Passive Prospecting
Remember when I mentioned phone responders? Well, we’ve seen an increase in the
number of prospects who will participate in a conference call on reverse mortgages. I call it passive prospecting because a homeowner’s conference call gives many prospects the
security of remaining in the privacy of their home while still getting the information they need before they decide to move forward with a reverse mortgage. True, this will require
a bit more follow-up on your part, but remember, the concept of neighborhood marketing is to provide prospects with the means to respond in a manner that’s comfortable for
if there’s one universal truth in sales, it is: People buy from people.
them, not you. There are a lot of homebound seniors in your neighborhood who own their home outright. Who’s going to help them understand how a reverse mortgage can help them: you or your competition? These conference calls are designed to feel and sound
almost like a local community radio show. You mail out invitations asking them to dial in at certain hours and folks can listen in to a reverse mortgage interview with a local and trusted expert: you.
I hope this information has been helpful. Let me leave you with these final thoughts.
First and foremost, marketing is an investment, not an expense, and you should treat it
like one. When you learn and understand the proven marketing formulas, you will make more money and live a happier business life. You can ask me anytime. It worked for me,
a Mexican who came to this country when I was 17 and discovered the power of effective
direct mail marketing. After 25 years, I can finally share my experiences to help those who want to learn better ways to market. It’s all about being personal with folks, and in my world it starts with how you look and what you say in their mailbox.
14 | TRR November 2010
Looking for a few good Loan Officers
Reverse Mortgage Texas / USA Copyright 2010
November 2010 TRR | 15
16 | TRR November 2010
The launch of the new HECM Saver, MIP and PLF change, and new counseling protocols.
November 2010 TRR | 17
Th e H ECM Sav er an d Sa lvation A parable on ML 2010-34 and NRMLA ethics advisory 2010-01 Fed Kamensky and Joel Schiffman
O
n September 21, 2010, following a summer of lethargy, with reverse mortgage
volume down more than 30% from the last fiscal year,1 the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2010-34 (ML 10-34) implementing a new HECM product: the “HECM Saver.� The HECM Saver had been anxiously awaited and is viewed by industry leaders as the single most promising opportunity for reversing the downward slide in industry volume since October 2009. 1. According to ML 10-34, the two programs must be identified as separate and distinct initial mortgage insurance premium (MIP options).
>>
18 | TRR November 2010
HUD !
Ethics advisory2010-01
% ML 10-34 rEquires HECM lenders & counselors to use a
special formula November 2010 TRR | 19
S
Shortly thereafter, on September 30,
HECM case numbers assigned on or after
as the lower of the appraised value, the
abuse in marketing the HECM Saver as a
select either a HECM Saver or a HECM
for the home (for HECM for purchase
2010, in recognition of the potential for
refinancing option for existing, traditional HECMs (now referred to by HUD as the
“HECM Standard”), and to safeguard the industry from the evils of “churning,”
the National Reverse Mortgage Lenders Association (NRMLA) issued its Ethics Advisory Opinion
October 4, 2010, senior borrowers may
Standard option. In addition, ML 10-34 implemented changes in the following
Monthly MIP (the mortgage insurance
calculating the initial MIP in HECM
monthly to HUD) for both HECM Saver
determining initial and monthly MIP; refinance transactions; setting new reduced HECM principal limit factors and a reduced
Advisory 2010-01).
effective interest rate
floor; providing guidance
This then is a parable of
for managing the existing
the saver and salvation.
pipeline of HECM loans;
What is the HECM
and utilizing correct
Saver, and will it prove
and updated HECM
to unleash a whole
loan documents and
new market of reverse
disclosures.
it save the industry? Just as importantly,
All existing program features associated
industry with salvation from the sin of
under the HECM Saver. This includes
will Ethics Advisory 2010-01 provide the “churning”? Can it save us from ourselves? While the future remains cloudy, this
article provides an overview of the most
significant HECM program change since HECM for purchase, and the ethical
limitations associated with its offering in a HECM to HECM refinance.
to the borrower under the traditional
HECM product. ML 10-34 thus coined
new product names for the two HECM programs that are available to senior
borrowers: HECM Standard and HECM Saver.
In a nutshell, the HECM Saver is a second
FHA-insured HECM option that essentially carries no initial MIP. Effective for all
payment plans (tenure, term, line of credit, modified tenure and modified term);
adjustable and fixed interest rate features: and all interest rate indices (CMT and LIBOR).
previously increased the monthly MIP for “traditional” HECM loans (i.e., HECM
Standard) from .50% to 1.25% pursuant to Mortgagee Letter 2010-28, effective for all
case numbers assigned on or after October 4, 2010.
Initial MIP Calculation for Refinance Transactions
must provide for an initial MIP. As a result,
counselors to use a special formula
of initial MIP due at loan origination in connection with refinance transactions.
This formula applies to both HECM Saver and HECM Standard options.
Refinance Formula: 1. N ew MCA X new initial MIP (%)
= New
MIP
2
for the HECM Saver, HUD announced
that the initial MIP will be 0.01% of the
maximum claim amount (or MCA), which is collected at the time of loan closing. For
2. Old MCA X old initial MIP (%)
= Old MIP
For HECM Standard, the initial MIP will
Subtracting the result of (2) from the result of (1) yields the MIP amount owed to HUD
also collected at the time of loan closing.
This formula replaces the guidance on
an average MCA of $250,000, under the
HECM Saver the initial MIP will be $25. continue to be 2% of the MCA, which is Thus, under the HECM Standard, an
average MCA of $250,000 will require an initial MIP in the amount of $5,000. The
term “maximum claim amount” is defined 2
20 | TRR November 2010
loan balance. As a reminder, HUD
(provided below) to calculate the amount
purchase money and refinance); all five
By statute, all FHA-insured loan programs
amount that would otherwise be available
an annual rate of 1.25% of the outstanding
all HECM transaction types (traditional,
The purpose of the new HECM Saver
smaller amounts than the maximum loan
and HECM Standard will be charged at
ML 10-34 requires HECM lenders and
Initial and Monthly Mortgage Insurance Premiums
for senior borrowers who wish to borrow
premium that accrues to the loan and paid
with the HECM Standard are also available
Introducing the Saver: ML 2010-34 program is to lower upfront closing costs
loans).
areas related to HECM lending:
2010-01 (Ethics
mortgage borrowers? Can
national mortgage limit, or the sales price
12 U.S.C. § 1709(c)(2)
calculating initial MIP HUD previously
provided in Mortgagee Letter 2009-21 (ML
09-21). All remaining guidance provided in ML 09-21 continues to be in effect.
Refinance Examples ML 10-34 provides several examples for calculating the initial MIP due on HECM refinance transactions:
HECM Saver to HECM Saver: New MIP: $250,000 x 0.01% = $25 Old MIP: $200,000 x 0.01% = $20 MIP Amount Owed to HUD: $5
HECM Saver to HECM Standard: New MIP: $250,000 x 2% = $5,000 Old MIP: $200,000 x 0.01% = $20 MIP Amount Owed to HUD: $4,980
HECM Standard to HECM Standard: New MIP: $250,000 x 2% = $5,000 Old MIP: $200,000 x 2% = $4,000 MIP Amount Owed to HUD: $1,000
HECM Saver to HECM Standard: New MIP: *$200,000 x 2% = $4,000 Old MIP: *$250,000 x 0.01% = $25 MIP Amount Owed to HUD: $3,975
HECM Standard to HECM Saver: New MIP: $250,000 x 0.01% = $25 Old MIP: $200,000 x 2% = $4,000 *MIP Amount Owed to HUD: $0 * If the new MIP is less than the old MIP, the amount owed is zero.
* If the new MCA is less than the old MCA, the amount owed can be greater than zero.
Note that when a borrower refinances a HECM Saver loan with a HECM Standard loan, the initial MIP authorized by ML 10-34 may exceed the amounts currently authorized under the HECM regulations (see 24 C.F.R. § 206.53(c), providing that in a refinance transaction, the initial MIP may not exceed 2% of the maximum claim amount). HUD indicated that it will amend the HECM regulations to reflect this adjustment.
>>
Reduced Principal Limit Factors and Interest Rate Floor
proceeds available to HECM borrowers
ML 10-34 expressly provides that
value ratios), and partially offset the
effect of higher monthly MIP and more
may convert to the HECM Saver. With
ML 10-34 reduced principal limit factors Standard loans effective October 4,
the calculation of the principal limit.
are available on HUD’s website at:
floor, HUD has arguably made a product
hecmhomelenders.cfm. HECM lenders
generous by some (relative to cross-
the amount of loan proceeds available
property’s value will be less than the loan
at loan origination (higher loan-to-
that apply to HECM Saver and HECM
conservative principal limit factors on
2010. The new principal limit factors
By lowering the effective interest rate
www.hud.gov/offices/hsg/sfh/hecm/
with loan-to-value ratios considered too
use principal limit factors to determine
over risk – or the risk that the collateral
to HECM borrowers. A reduction in the
amount upon maturity), even more so.
that less loan proceeds will be available
to a HECM borrower at loan origination.
Existing Pipeline of HECM Loans
However, as part of ML 10-34, HUD
For all HECM applications with case
rate floor” for all HECM case numbers
3, 2010, HECM lenders have the option of
Lenders use the effective interest rate
monthly MIP and using the “old” 2010
principal limit. HUD has reduced the
for such pipeline HECM applications, the
This change, while prevailing mortgage
MIP of 2%, a monthly MIP of 0.50% and
floor, will ironically result in more loan
table/expected rate floor.
principal limit factors generally means
borrowers with pending applications a reduction in the effective interest
rate floor, which, as previously noted,
effectively increased loan-to-value ratios for the new HECM Standard, some
pipeline traditional HECM applicants might conceivably opt to convert to
the new HECM Standard (with lower principal limit factors and higher
monthly MIP). HUD has clarified in
separate informal guidance that HECM applicants with case numbers assigned
on or before October 3, 2010, may convert to either a HECM Saver or the new HECM Standard.
has also lowered the “effective interest
numbers assigned on or before October
Thus, borrowers with pending
assigned on and after October 4, 2010.
closing the loan with the “old” initial and
on or before October 3, 2010, may convert
floor to calculate the borrower’s initial
principal limit factors. In other words,
effective interest rate floor from .50 to 5%.
lender may close the loan using an initial
interest rates remain well below the 5%
the fiscal year 2010 principal limit factor
applications and case numbers assigned from a HECM loan that uses the “old”
MIP rates and the “old” 2010 principal limit factors/expected rate floor to a
HECM Saver or HECM Standard loan
that uses the new MIP rates and the new
2011 principal limit factors/expected rate
>>
floor. However, for these
November 2010 TRR | 21
pipeline conversion loans, HUD has
indicated that applicants must be provided a disclosure or disclosures illustrating the HECM product choices then available
through the lender, i.e., the HECM Saver, the HECM Standard, and the traditional HECM loan that is based on the old
MIP rates and the old 2010 principal
limit factors/expected rate floor. HUD
has indicated that lenders may provide
separate HECM Comparison Worksheet
printouts to demonstrate initial mortgage
insurance premium pricing options under the traditional HECM, the new HECM
it the industry? save can
Each of these new disclosures must be
Handbook 4235.1 REV-1 and amended in
lenders must ensure:
10-34 states:
included in the FHA case binder. Finally,
1
Standard and HECM Saver The three same worksheet.
Lenders who do not offer the HECM Saver are not required to provide a comparison product printout for the HECM Saver on pipeline conversions from the traditional HECM to the new HECM Standard. In addition to the new product comparison worksheets, lenders should also provide: • A revised Good Faith Estimate • New Truth-in-Lending Act disclosures (as applicable) • New TALC (total-annual-loan cost rates disclosure) • Anti-Churning disclosure for such pipeline conversions
That they use updated HECM loan
Replace Section 1.7 with:
and new 2011 principal limit factors/
indicated on the attached payment plan
documents showing the new MIP rates expected rate floor (see “Changes to
products need not be displayed on the
HECM Loan Documents,” below).
2
That all HECM loans offered to a senior provide a bona fide advantage (see
“Introduction to the Salvation - Ethics Advisory 2010-01,” below).
ML 10-34 also clarified that if an applicant does not convert to a HECM Saver or a
HECM Standard, the lender does not need to change the principal limit calculation
1.7. Principal Limit means the amount
(Exhibit 1) when this Loan Agreement is
executed, and increases each month for the life of the loan at a rate equal to the sum of
the applicable monthly interest rate charge, plus one-twelfth the annual MIP. The
Principal Limit is calculated by multiplying the Maximum Claim Amount by a factor
supplied by the Secretary, which is based on the age of the youngest Borrower and the Expected Average Mortgage Interest Rate.
or provide additional disclosures to the
Certain additional changes that are not
proceeds will not change.
nevertheless be advisable. For instance,
Changes to HECM Loan Documents
Agreement provides in part that monthly
borrower because the amount of loan
In ML 10-34, HUD reiterated its long-
standing policy that lenders are required to adapt their HECM legal documents as necessary to ensure compliance with program requirements. HUD also
reminded lenders that they are permitted to make the necessary and appropriate modifications to the HECM legal
documents to ensure compliance with FHA requirements as well as other federal, state and local laws.
expressly identified in ML 10-34 may
Section 2.13 of the model HECM Loan
MIP shall be calculated as provided in 24 CFR Part 206. This reference will need to
be changed to also make reference to ML
10-34, which describes the new MIP rates for HECM Saver and HECM Standard
loans. Lenders should also ensure that
their disclosures for HECM Standard and
HECM Saver loans (particularly the Truthin-Lending Open End Important Terms
Disclosures) reference the correct initial and ongoing MIP rates and the correct formula for calculating the upfront MIP on HECM
to HECM streamline refinance transactions.
ML 10-34 goes on to provide specific
Finally, the HECM Saver and HECM
HECM Loan Agreement, originally
separate and distinct initial MIP options.
changes to Section 1.7 of the model published in the HUD HECM
22 | TRR November 2010
Mortgagee Letter 2010-07. Specifically, ML
Standard programs must be identified as Accordingly, lenders should review
their application and closing HECM loan
Anticipating these issues, Ethics Advisory
test for demonstrating a bona fide advantage
provided to borrowers refer to the correct
standard embodied in the Code of Ethics
18 utilized the Five-Times Threshold in a
document packages to ensure that materials HECM product. HECM lenders are strongly encouraged to consult with their counsel and compliance personnel to assure
compliance with applicable federal, state and local laws.
Introducing the Salvation: Ethics Advisory 2010-10 The purpose and intent of Ethics Advisory 2010-01, as stated in the advisory itself, is to, “inform and restrict the choices
NRMLA members may make as they offer both HECM Saver and HECM Standard loan products to consumers, including,
in particular, the opportunity to refinance
such HECM loans with additional HECM loans.” In announcing
2010-01 reminds NRMLA members of the requiring that any loan products offered to consumers provide them a bona fide
advantage (Rule 107). Importantly, Ethics
Advisory 2010-10 presumes that a bona fide advantage will not exist when a HECM to
HECM refinance transaction occurs within
six months of the closing of the prior HECM. For HECM to HECM refinances that meet this seasoning requirement, the advisory goes on to provide that the principal
limit for the new HECM must exceed the
principal limit under the old HECM by at
heightened sensitivity to inappropriate
refinancing and the
adverse impacts this had, not only on
individual borrowers,
but also on the overall perception of the
industry and the HECM program. Potential
refinancing activity
has not only drawn the recent attention
of policy makers and industry leaders, but also of secondary market investors
concerned that a wave of refinancing activity
spurred by the HECM
rate floor on the new HECM Standard,
might increase prepayment rates of existing HECM portfolios.
whether an applicant may opt out of new
counseling in a HECM to HECM refinance
transaction. Nonetheless, Mortgagee Letter
2004-18 is the most relevant guidance HUD
has published bearing upon these issues. For this reason, the Five-Times Threshold was
adopted by NRMLA as an appropriate safe harbor for demonstrating that a bona fide
advantage has been afforded the borrower in a HECM to HECM refinance.
important caveat. For HECM to HECM
the clearest but not the only means of
(the “Five-Times Threshold”), with one very refinances where the sum of the note rate and the mortgage
In ML 10-34, HUD reiterated its long-standing policy that lenders are required to adapt their HECM legal documents as necessary to ensure compliance with program requirements.
of the expected interest
of the factors for the purpose of determining
Finally, the advisory emphasizes that
insurance premium
Saver, or the lowering
different, but related, context, namely, as one
least five times the total cost of refinancing
Ethics Advisory 201010, NRMLA cited
under Rule 107. Mortgagee Letter 2004-
rate (the “accrual
rate”) under the new HECM is less than
the accrual rate under
meeting the Five-Times Threshold is
demonstrating a bona fide advantage to the borrower. Depending on the unique factual
circumstances presented by the transaction, Advisory 2010-01 suggests that NRMLA members may be able to demonstrate
compliance with Rule 107 in other ways.
the old HECM, lender
Clearly, the HECM Saver and ML 2010-34
be deducted from the
catalyze growth and appeal to different
paid closing costs may cost of refinancing for
purposes of calculating the Five-Times
Threshold. For HECM to HECM refinances
where the accrual rate
under the new HECM is higher than the
accrual rate under the
old HECM, lender-paid
closing costs may not be deducted from the total cost of refinancing for
purposes of calculating the Five-Times Threshold.
The advisory cites Mortgagee Letter 2004-18
as the basis for incorporating the Five-Times
afford the industry new opportunities to market segments. Just as importantly,
NRMLA, with its publication of Advisory Opinion 2010-01, has played a timely and
very important leadership role in providing guidance to the industry on appropriately
managing the risk of inappropriate HECM to HECM refinances. These tandem
announcements, the ML 2010-34 and Ethics Advisory 2010-01, can provide savings to
HECM borrowers while providing a clear
path to salvation for lenders from the sin of “churning.” Prudent lenders will take heed of both.
This article provides only an overview of some of the federal and state laws and regulations that may affect reverse mortgage lending, marketing and finance matters. Although the practice of Weiner Brodsky Sidman Kider P.C. is national in scope, attorneys within our firm do not actively practice law in all jurisdictions, and these materials are not intended to and do not provide legal advice. Because of the generality of this article, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
Threshold and its adoption as a bright-line
November 2010 TRR | 23
REO Presents Different Challenges to Reverse Mortgage Servicers The key to a successful REO sale process in the reverse mortgage world is the
U
ability to move quickly Darren White
Until recently, real estate owned (REO)
However, two things have happened
their loan amount never gets cut, and they
mortgage lenders didn’t have to think
REOs a big issue for reverse mortgage
is no liability on their part. But now houses
property issues were something reverse about much. The majority of reverse originators sold their Home Equity
Conversion Mortgages (HECMs) to Fannie Mae, which handled any REO sale issues. Under normal conditions, there usually
aren’t many REO properties in the reverse
mortgage world anyway. In the past, there has been plenty of equity left after the
borrower dies or vacates the property. For example, for a borrower age 62, there is
typically only about a 50% loan-to-value
ratio on the property. The reverse program was designed with this cushion, enabling property values to rise.
that now make foreclosed properties and servicers. With Fannie Mae withdrawing
as a player in the reverse sector and Ginnie Mae advancing, there has been a shift
never need to pay back the money – there
are worth less and servicers must deal with REOs.
from Fannie Mae to Ginnie Mae’s HECM
Even for those with past REO experience in
themselves now bear the responsibility and
different process in the reverse world; we
(HMBS) program. As a result, issuers
risks associated with managing the REO process, a sea change for many of them. In addition, as we well know, home
prices are falling and continue to fall,
which makes handling REOs particularly
the forward mortgage market, it is a very call it a “niche within a niche.” If you try to handle REO in the reverse world the
same as the forward market, you will lose money.
challenging.
Because of these differences, there is a
The HECM program is certainly good for
expertise (companies such as RMS
borrowers. They get the full amount of
their loan even if the property value drops,
growing need for asset management
Asset Management Solutions have been established to handle this specialty line
of business and now are assisting other companies in this process).
...issuers themselves now bear the responsibility and risks associated with managing the REO process, a sea change for many of them. 24 | TRR November 2010
A Very Different Business The REO business is definitely one you want to turn over to professionals who understand the process.
How different is REO in the reverse mortgage world? There
are some similarities with the forward market, of course. For
example, document requirements are the same. But there are also some very different requirements, such as when you can take action and file claims with HUD, which guarantees HECMs.
The RESPA Challenge
The key to a successful REO sale process in the reverse mortgage world is the ability to move quickly once you obtain marketable title. You have six months to market a property before an appraisal-based claim is necessitated with HUD; you want to be able to sell the property as soon as possible. For example, unlike the typical forward mortgage REO property, where servicers are allowed some leeway on bringing prices
down, in the reverse market servicers and lenders can’t lower the price in order to dispose of the property. In the reverse world,
the lender or servicer is required to sell the property at its “as-is” appraised value.
Under HUD rules, reverse mortgage servicers have 180 days
to sell the house after the borrower vacates the property. The
servicer can’t sell the house above the as-is appraisal price. Under HUD guidelines most repairs are prohibited; any repairs above $2,500 must be approved by HUD.
The problem isn’t that the property hits REO; it’s getting
everyone to understand what the as-is appraisal value is. The
appraiser has to identify what needs to be done to get the home
up to specifications. If you don’t have the right value, you’ll lose money.
As a result, the appraisal must be very accurate and the appraiser has to know the HUD guidelines and not make any errors.
Furthermore, the servicer must understand the regulations in
order to preserve property values, and the servicer must follow the rules precisely as well as make sure the appraiser does too.
If the house is sold within the 180-day window, the government pays the difference between the actual sale price and the
Stricter RESPA rules, lower principal limits, a more complex FM1009 and other changes pose a serious challenge to our industry. Lenders will take on additional responsibilities and need to be meticulous while working with brokers. Brokers will lose all or most of the YSP and any mistake made in the GFE could cut into their origination fee as well. But there is also good news around the corner...
as-is price and for most expenses. For example, if the servicer is owed $100,000, and the house sells for $50,000, HUD will
write the servicer a check for close to $60,000, which includes an approximate $10,000 for his expenses such as the g
ReverseVision Inc.
3310 Pollock Place • Raleigh, NC 27607 www.reversevision.com (919) 834 0070 • info@reversevision.com
November 2010 TRR | 25
If you try to handle REO in the reverse world the same as the forward market, you will lose money
}
the house must be sold in 180 days. HUD
Increase in Tax and Insurance Defaults
investors are willing to go to foreclosure.
that are not sold within 180 days and limits
Besides the death of the borrower, there
and less well-known than the big banks and
real estate agent’s fee and the title fee. But doesn’t pay real estate fees on properties
foreclosure attorney fees to two-thirds of what it considers to be reasonable and customary.
The biggest loss if you don’t sell the house
within the required 180 days, is the amount of money you will lose; HUD won’t
reimburse the servicer for those added expenses. Basically, the servicer stands
to lose 10% of the value of the house if it doesn’t sell the property within the
180-day time frame. This 10% loss assumes no depreciation of the property.
The primary difference, then, is that
the servicer immediately experiences a
significant loss due to the sales costs. The reality is that the home probably was not
worth $50,000, and the servicer must bear that difference as well. Any expenses that are incurred after the claim are also the servicer’s responsibility.
If you don’t get an accurate value, or
document everything in your claim, you won’t make the grade. You must have somebody on your staff to document
everything according to HUD guidelines.
Those guidelines spell out everything, right down to how much HUD will reimburse
you depending on how high the grass is.
reverse world tend to be more anonymous
are other incidents in the reverse mortgage
therefore more inclined to do it.
subsequent foreclosure. In recent months
However, when a servicer does go to
number of tax and insurance (T&I) defaults
guidelines to the letter to make sure you
the borrower cannot or neglects to pay taxes
evidence that he did everything he could to
industry that can trigger a default and
there has been a substantial increase in the
foreclosure, you must follow the HUD
in the reverse market. This happens when
do it properly. The servicer must provide
and insurance on the property. In the reverse
prevent a default.
don’t escrow for taxes and insurance; the
Ultimately, REOs in the reverse mortgage
payments himself.
than they are in the forward market;
If the borrower fails to make his T&I
don’t follow HUD guidelines. The key to a
borrower on a payment plan, if possible.
mortgage world is the ability to move
world, unlike the forward world, servicers borrower is responsible for making those
world need to be handled differently
consequences may lie ahead for those who
payments, the servicer is required to put the
successful REO sale process in the reverse
If he then defaults on those payments, the
quickly.
servicer is required to begin foreclosure
proceedings, after first receiving HUD’s approval.
It used to be that foreclosing on a senior borrower filled servicers and investors
with dread because of the public relations headaches it creates. Large national and regional banks are particularly averse
to foreclosures because customers have
multiple accounts with them and fear losing them.
Lately the tide has been turning. Now
the carrying costs of holding defaulted properties are simply too high. With
property values continuing to fall, more
26 | TRR November 2010
Also, many investors and servicers in the
The Trifecta
The ideal vs reality syndrome David Bancroft
The RESPA Opportunity
The Trifecta, the Triple Lindy, the ménage à trois: all things three that are as memorable as your first fumbled kiss on a second date. I got a new top three and it is David Arquette, the DMV and the new rules
for counseling, all things wrong that we can do nothing about. See, the problem is that we have people making rules on subjects that have no
experience doing any of the things they are trying to fix. I call it the Ideal versus Reality syndrome: it would seem to make sense until found to be
inapplicable in the system. Like the David Arquette thing, this bumbling
extrovert thinks he is ideal for the more sophisticated Courteney Cox, but in reality we were all screaming “Loser!!” Another perfect example: Did you hear that the HVCC rule was eliminated on the forward side? You see, a month after releasing the new HECM Counseling Protocols, the
average time spent during each session has increased substantially and future costs to the borrower will go up… great. Like we need another obstacle in the way, another reason to have the borrower lose faith in us or one more “FIT” test that hamstrings success. We need things to be easier, more flexible, with extended time tables to meet all of the
personalities of our clients. See, some people don’t mind the process;
they think it is OK to spend well over an hour talking to a stranger about MIP, MMI and Amortization tables that go out 30 years. Ask personal
questions about income reserves, mental stability and if the client knows he can (shhhh) ask for a reduction on the origination fee. Read over
GFEs and costs while being asked if they have evaluated all the “other”
I have never been part of such forward thinking since “The Rock” did Tooth Fairy. I mean, c’mon, can we at least have somebody make a rule that has done one HECM loan? options.
ReverseVision's international team of software engineers, attorneys and mortgage specialists turn these challenges into opportunities. They build the tools that give their customers a competitive advantage. This is why over 6000 reverse mortgage specialists in over 600 companies rely on ReverseVision every day.
Here is my idea: At least make the counseling ordeal a prior to doc
requirement. Right, then maybe we can qualify home value and pray to
God that the underwriter doesn’t take a machete to the appraisal. Maybe we can find out if that lien on title has really been paid off or that the
Can you afford not to use ReverseVision?
HOA president will get back to us so we can help him get the complex approved. Why are we spending so much time upfront on a flawed
process when in reality there are far more poisonous venoms killing our deals? By the way, I have just left the DMV, 1 hour and 45 minutes after
arriving to renew my license I let expire. Here is the kicker – no BS – you
can no longer smile on your driver’s license picture and show teeth. As it was so eloquently said in The Hangover: “Thanks, Bin Laden.”
ReverseVision Inc.
3310 Pollock Place • Raleigh, NC 27607 www.reversevision.com (919) 834 0070 • info@reversevision.com
November 2010 TRR | 27
CRMP: History Behind the Designation A certification that demands the respect of professionals, government officials and the confidence of seniors
R Karen Keating
Record numbers of homeowners are using
Testing has developed more than 2,500
trying to address these concerns by adopting
planning. This is driving the need for
million exams, and maintained licensure
known as the CRMP.
reverse mortgages as part of their retirement qualified professionals who can explain
homeowner options and help them make more informed choices.
The National Reverse Mortgage Lenders
Association (NRMLA) is the national voice
of the reverse mortgage industry, serving as
an educational resource, policy advocate and public affairs center for lenders and related professionals. NRMLA was established in
1997 to enhance the professionalism of the reverse mortgage business. Their mission
is to educate consumers about the pros and
cons of reverse mortgages, to train lenders to be sensitive to clients’ needs, to enforce their Code of Conduct and Best Practices, and
to promote reverse mortgages in the news
programs, administered more than 1.2
and professional certification examination
the industry’s first professional designation,
programs for 125 occupations.
NRMLA has invested two years and
“We were intent on creating a certification
the credential. The process has been guided
that is rigid enough to demand the respect of professionals and government officials, and the confidence of America’s seniors,” says
Peter Bell, NRMLA president. “On behalf of
the entire membership, we congratulate our designees, all of whom have demonstrated a deep understanding of the product
hundreds of thousands of dollars crafting by the highly experienced staff at
Orlando-based Professional Testing, Inc., who have collaborated with a dedicated group of volunteers with expertise in operations, origination, processing, underwriting and servicing.
and an eagerness to continually pursue
Two years may seem like a long time, but
distinguish them as having demonstrated
through designation, one that would not
additional education. Earning the CRMP will superior knowledge and competency in the area of reverse mortgages and dedication to upholding the highest ethical and
NRMLA wanted to adopt a well-thoughtbe easy to obtain and would challenge
even the most seasoned veterans. There are companies and loan officers operating in
professional standards.”
our industry who probably should not be;
The Certified Reverse Mortgage Professional
When you talk about hot topics, few are
do not act in the best interests of their senior
Independent Certification Committee
mortgage loan originators at this time. We
will separate the dedicated professionals
in the voices of the consumers who call
reverse mortgage business can be sustained.
media.
(CRMP) designation was created by an comprising members of NRMLA that
administer the program while working in
concert with Professional Testing, Inc. Over the course of three decades, Professional
28 | TRR November 2010
they don’t understand the product and they
as important as the credibility of reverse
clients. It is NRMLA’s hope that the CRMP
hear it from politicians and regulators, and
from the posers, so that public trust in the
us about heavy-handed sales tactics and
misinformation they’ve received. NRMLA is
NRMLA began the process of selecting item
The group underwent rigorous training from
Jersey. Most of the participants had at least
February 2009, a new group of 12 volunteers
writing exams. This forced people to think
them a high-level group of candidates.
writers to develop the exam questions. In convened in Orlando.
Knowledge points
that every applicant seeking the CRMP should thoroughly understand, and the identified areas of the business with which all CRMP should be familiar, are the following: 1. Assessing clients’ motivations 2. Educating seniors, family members and trusted advisors 3. Setting expectations 4. Originating loans 5. Processing loans 6. Underwriting loans 7. Closing, funding and post-closing activities 8. Servicing 9. Managing reverse mortgage operations
Overview of the Certified Reverse Mortgage Professional: Earning the CRMP will distinguish you as someone who has demonstrated superior knowledge and competency in the area of reverse mortgages and dedication to upholding the highest ethical and professional standards.
Professional Testing on proper techniques for carefully about how questions and responses
should be worded, so as not to make the exam too hard or easy.
The questions that were developed varied and encompassed a broad range of topics.
They not only included the typical tasks that a CRMP applicant would encounter in their regular duties, but also an understanding
of HUD guidelines, handbooks, mortgagee letters and policies, as well as proper advertising, ethics, compliance, etc.
The exam questions were reviewed by
Professional Testing and incorporated into an item bank. Another task force was formed in May 2009 to review the exam questions for accuracy, clarity and grammar. All 350
questions were examined and updated as necessary.
five years’ experience in the business, making
Less than two months later, 10 members of
NRMLA met in Washington, D.C. to review the test scores. Along with the test scores,
each question was reviewed and re-evaluated.
There was much debate over what the passing score should be. After collecting everyone’s input, Professional Testing produced a
Passing Score Study Meeting Summary, which NRMLA recently presented to the ICC for review and approval.
On Febuary 26, 2010, a select group of
candidates sat for the first formal test at the
NRMLA Roadshow in Atlanta, Georgia. Of this group, 13 CRMP designees, including
the author, will be honored at a ceremony at
NRMLA’s annual meeting on November 3–5 at the Roosevelt Hotel in New Orleans.
Professional Testing updated the item bank
and in July 2009, NRMLA invited 35 reverse mortgage professionals to sit for a test at
MetLife Bank’s facility in Bridgewater, New
All CRMP applicants must meet the following requirements:
All loan officer applicants must have a minimum of two years’ experience
originating reverse mortgages, and they must have closed at least 50 reverse mortgages. All other applicants who are not loan
hours of continuing education from NRMLA or such other providers as approved by
NRMLA in areas related to reverse mortgages and senior financial issues.
Possession of a current mortgage loan
originator license in your jurisdiction, if a license is required.
officers must have a minimum of five years’
Once an applicant has met all the
in one or more of the following areas:
or she will need to have a background check
experience working in reverse mortgages underwriting, processing, management
and operations, title and closing services, appraisals and/or loan servicing.
Within one year prior to taking the
examination, applicants must complete 12
requirements and has passed the exam, he
by our designated vendor. The background check costs $49.50 (unless otherwise noted) and is paid by the applicant directly to the vendor.
Submission of a signed consent statement. November 2010 TRR |
29
Taxation on Foreclosure – Part II
A
A rise in foreclosures brings further tax consequences James e. veale Unless home appreciation rates rise
proceeds received from the disposition of
on the tax treatment of nonrecourse debt
HECMs that are in technical default can
or the balance due is greater than the fair
versus Commissioner, 86 T.C. 655 (1986)
substantially in the near term and those be easily cured, a higher percentage of
reverse mortgage terminations will, no
doubt, end in foreclosure or foreclosure-
type transactions. This article continues last month’s discussion of the tax consequences of those transactions.
Preliminary
The purpose of this series of articles is to provide general income tax information about the discharge (i.e., cancellation
and forgiveness) of indebtedness related
the property securing the reverse mortgage; market value of such property at the time when the property is transferred to “the
lender.” Since there is little expectation that discharge of indebtedness will occur with reverse mortgages outside of foreclosuretype transactions, this series focuses primarily on those transactions.
Summary of Part I By federal law [15 USC 1602(bb)], all reverse mortgages are nonrecourse.
to reverse mortgages. It is assumed
HUD specifically declares HECMs to be
securing the reverse mortgage has only
2008-38 but also in Paragraph 1 3C of
throughout the series that the property
been used by the borrower as a principal residence (unless otherwise noted) and
nothing else. Please see the section titled “Disclaimer” for more information.
For purposes of this series, “foreclosure” includes not only actual foreclosure but also its subset of transactions including short sale, trustee sale, deed in lieu of
foreclosure, and any other disposition of
the property securing a reverse mortgage
where: the balance due is greater than the
30 | TRR November 2010
nonrecourse not only in Mortgagee Letter
involves an FHA-insured loan [Allan et al affirmed 856 F.2d 1169 (8th Cir. 1988)].
Despite FHA taking over the loan through default, the Tax Court (affirmed by the
Eighth Circuit Court of Appeals) treated the transaction as it would any other nonrecourse debt.
The amount of debt forgiven will generally either increase gain or decrease loss since the amount forgiven must be treated as
additional proceeds received in the taxable disposition. To the extent that accrued interest is forgiven and increases the
taxable proceeds, it is treated as paid and may produce favorable tax results.
Handbook 4235.1 REV-1. It is the note that
When forgiveness simply decreases a loss
“insurance.”
no practical tax detriment since a loss
makes a HECM nonrecourse, not FHA
Whenever amounts due are forgiven on a nonrecourse debt in a taxable disposition such as foreclosure, specific rules under
Internal Revenue Code (IRC) Regulation
(Reg.) Section (§) 1.1001-2 apply. Although there are no income tax laws, regulations, rulings, or court decisions specifically
related to HECMs, one of the leading cases
on the sale of a principal residence, it has
from the taxable disposition of a principal
residence is personal and cannot offset any
gains or any type of income. Even when the forgiveness increases gain, such gain may
be entirely or partially excludible under the limited exclusion rules pertaining to the sale of a principal residence.
Are HECM Proceeds Tax-Free?
Unless home appreciation rates rise substantially in the near term and those HECMs that are in technical default can be easily cured, a higher percentage of reverse mortgage terminations will, no doubt, end in foreclosure...
In late 2005 while doing some research on
the taxability of reverse mortgage proceeds, a statement very similar to the following
was found on the correspondent portal of a very large lender: “Reverse mortgage
proceeds are not taxable income because they are not income and since they are
not income, they are not taxable income.”
Reading that several times gave about the
same sensation as hearing Yogi Berra declare in an insurance commercial: “…the one ya
telephone call shortly following publication,
The planner then went on to explain why he
that’s why you need it… And they give ya
reverse mortgage proceeds are tax-free. He
mortgage proceeds are tax-free. [Most tax
really need to have. If you don’t have it,
I asked the planner why he believed
cash, which is just as good as money.”
immediately upbraided me, stating that he
A few months ago an article appeared in a
CPAs than his entire email server choked
well-published “financial planner”
originators telling him in no uncertain terms
reverse mortgage proceeds to reduce income
He then said he knew that reverse mortgage
mortgage proceeds “tax-free.” During a
“try telling that to” originators.
would rather have a few phone calls from
reverse mortgage publication by a
with “1,500 emails” from reverse mortgage
advocating a questionable strategy using
that reverse mortgage proceeds are tax-free.
tax liabilities. The article declared reverse
proceeds were not necessarily tax-free but
believed from a practical standpoint, reverse preparers rely on federal Internal Revenue
Service (IRS) Form 1099-C to determine how
much of the forgiven debt is taxable. When a servicer fails to provide that form, preparers can normally assume that the amount forgiven is less than g
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$600 and will not significantly impact the
When a borrower pays off a reverse
themselves. [There is perhaps one very, very
planner gave the illustration of two tax
payoff or sale, generally there is no
and that is if a disbursement is made to the
income tax liability of their client.] The
attorneys who each had to file income tax returns last year where they needed to
mortgage in full, such as through direct taxable income from the loan proceeds
know from the lender how much reverse
mortgage debt was forgiven in foreclosure.
The servicers failed to provide Forms 1099-C so the tax attorney in each case reported the transactions without including any
amount for debt forgiven. According to
the financial planner, everyone close to the transactions – including the tax attorneys
– knew substantial portions of the reverse mortgages had been forgiven, but no one knew what the servicers/lenders had determined those amounts to be.
Some have argued that reverse mortgage
proceeds are not taxable because a tax ruling issued many years ago allegedly said so.
Several have promised to deliver a copy of
it. After vainly waiting more than five years and researching for such an IRS ruling, it can be safely said none exists.
Others have waxed on and on about the nature of FHA insurance; however, for
insurance proceeds to make a transaction
non-taxable, there must either be a law or a court ruling that provides such exemption.
Again, there is no such law or court ruling.
technical exception to this generalization borrower (or on behalf of the borrower) through a nonrecourse debt and the
balances due immediately following
payment on all loans and liens secured by the property exceed the appraised value
of the property on that date, the payment
could theoretically be taxable to the extent of the lesser of: the difference between
the balances due and the appraised value; or the amount disbursed. Since having
an appraisal done on the same day as a disbursement (or even very close to it
except at closing) is a rare occurrence,
chances of such an event occurring when a home is upside down are negligible at
best. The theory is that since a nonrecourse
lender in such cases can have no reasonable expectation of repayment at the time of
the disbursement, a theoretical forgiveness of debt transpires upon disbursement.
It seems the IRS took such a position on
nonrecourse loans of 125% of the appraised value of the home. Some tell of having to
issue Forms 1099-C showing the 25% above the appraised value as cancellation of debt income in the year the loans closed.]
It is very doubtful if reverse mortgage
proceeds are ever taxable other than through a foreclosure-type transaction. They may not be “tax-free” but unless there is some debt
forgiven, generally they will not be nor will they ever become taxable.
Some have argued that reverse mortgage proceeds are not taxable because a tax ruling issued many years ago allegedly said so. Several have promised to deliver a copy of it. After vainly waiting more than five years and researching for such an IRS ruling, it can be safely said none exists. 32 | TRR November 2010
So how did the “tax-free” message become so prevailing? There is an adage that states something like: Repeat something untrue
g
over and over and eventually it will become the truth.
Disclaimer The IRS requires that readers are informed that the
[Reverse Mortgage Marketing Specialist]
information contained in this series of articles cannot be
relied upon or used to reduce any income tax penalties (or interest). Readers are encouraged to consult competent
and knowledgeable tax professionals experienced in such
matters to determine how the information applies in specific situations.
The tax rules described are limited to federal tax rules;
state and local tax rules may vary. The information is time-
sensitive since laws and application of laws can change over time.
The series only addresses simple situations. Far more complicated situations may exist including but not limited to:
1 2
Situations where not only nonrecourse but also recourse debt is forgiven. Applicable property was fully or partially used in a trade or business of the taxpayer (including rental activities) at the time of foreclosure or in some prior period.
It also does not address other complications such as use of funds for purposes of:
1
Allocation of gain between passive and non-passive trades or businesses, portfolio, and personal activities.
2
Allocation of interest between such activities and home mortgage interest for tax-deduction purposes.
This article focuses solely on reverse mortgages insured by the Federal Housing Administration (FHA), known as HECMs (Home Equity Conversion Mortgages), and
proprietary reverse mortgages provided by major lenders.
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The Wake-Up Call
T
Customers take action with simple letters Lisa Slay and Virginia Davies Think back for a moment to the first
wouldn’t have enough political support to
The Industry Rallies
didn’t look good for the reverse mortgage
of us in the industry came to understand
The realization that our livelihoods were
quarter of this year. The immediate future industry, as the threat of a second principal limit reduction was looming. Why?
The Office of Management and Budget
(OMB) had projected our industry would need to be subsidized by Congress to
the tune of $250 million. As former FHA Commissioner Brian Montgomery aptly
fund a $250 million subsidy. When many this unpleasant reality, it was shocking.
Some heard the wake-up call and realized the need to take action themselves, rather than relying on others to fix the problem
for them or simply closing their eyes and hoping the problem would go away.
reality was that our industry didn’t seem to have enough political support to fund this “rounding error.”
Doesn’t that strike you as odd? Consider the great social good our industry
performs. Reverse mortgages provide, in the majority of cases, the best option for
seniors to obtain money from their biggest asset: their homes. Millions of seniors are
finding themselves financially ill-prepared to live out the rest of their lives, and the problem is growing because the baby boomers are now becoming seniors.
It certainly seems strange how an industry that has really blossomed over the last decade and provides such a valuable
product to a protected class of citizens
34 | TRR November 2010
Lewis of Generation Mortgage was the first to rally key individuals to wake up and
smell the coffee — and to get those same
individuals to take action. He realized that we, as an industry, could not just depend on NRMLA to do all that was needed.
put it, “That’s a rounding error in the
world of government.” Amazingly, the
threatened woke up a lot of people. Jeff
Lewis formed a coalition of significant
Some heard the wake-up call and realized the need to take action themselves, rather than relying on others to fix the problem for them or simply closing their eyes and hoping the problem would go away.
voices and companies to really step up our lobbying efforts to gain political support
for our industry in its dire time of need. But he was trying to win the game with two outs in the bottom of the ninth.
Eventually, the painful reality about
what was needed in our industry became
blatantly obvious. What was really needed was an ongoing, long-term campaign within the industry to create political
support, by getting customers who have taken out a reverse mortgage to write their representatives and share their
positive experiences. There needs to be a
commitment by individual companies to do this internally and, most importantly, there needs to be accountability in the industry and on the company level.
A Grassroots Solution
It only helps them do their job better.”
The wake-up call we received this year
In an effort to support the lobbying efforts of
the borrowers contacted actually wrote a
in the reverse mortgage industry accept
called Senior Voice extended a helping hand
impact, a principal of RMOT called Kay
assisted in successfully requesting RMOT’s
D.C. in September 2010. A simple question
and representatives. The purpose of Senior
people are writing and calling about?”
commit to a long-term campaign to get their
that reverse mortgages were among those
government representatives.
Hutchison’s office went on to explain how
With the help of Senior Voice, RMOT
to the senator and their significant impact.
letter to Kay Bailey Hutchison, the senator
The bottom line is RMOT learned that letters
House Appropriations Committee. RMOT
Our industry can get on the radar with
closed a reverse mortgage from the first of
companies make an ongoing effort. Based
one-page letter to each customer explaining
encouraged other companies in the industry
industry. Customers were encouraged to
such letters were brought to the attention
positive impact their reverse mortgages
chairman of the Senate Appropriations
RMOT found that approximately 25% of
Lewis’ coalition, a new grassroots initiative
letter. As a test to see if the effort had a real
to Reverse Mortgage of Texas (RMOT) and
Bailey Hutchison’s office in Washington,
senior borrowers to write key senators
was asked: “What are the top five things
Voice is to help reverse mortgage companies
Without prompting, the response was
closed-loan customers to write their elected
top five things! The staffer in Kay Bailey
requested that their customers write a
topics of constituents’ letters are conveyed
should make each successful company responsibility for conveying to our
representatives the tremendous value our
product provides to seniors. Initiatives like Senior Voice are a conduit through which
individual companies can do their part for the industry. It makes NRMLA’s message all the more effective. When NRMLA is
meeting with a representative or senator in Washington, D.C. and that representative has received no letters about reverse
mortgages from his or her constituents,
NRMLA is just another trade organization
asking for special consideration. However, when that representative has received
multiple letters about reverse mortgages
from Texas who also happens to be on the
from constituents really do make an impact.
contacted all of their borrowers who had
our elected representatives if individual
the year through July 31, 2010, and sent a
on the success of their efforts, RMOT
the state of affairs in the reverse mortgage
to rally their customer base. As a result,
write their representatives and share the
of notable people like Patty Murray, the
The need for ongoing legislative support
were having on their retirement years.
Committee.
The Wall Street Journal weekend edition of
made to each customer, assessing their
limited assistance. The follow-up phone
The New Dynamics of Our Industry – Companies Must Take Action
was tremendous. Customers were only
NRMLA is our trade organization and
explaining how their reverse mortgage had
recommend action on the part of their
touching and heartfelt.
the critical component of accountability. It’s
As a result of this campaign, RMOT’s
banks, Wells Fargo and Bank of America,
representatives, primarily to Kay Bailey
received TARP funds, they really can’t
RMOT made it a point not to be heavy-
mortgages. Based on 2009 volume, Wells
their communications. The pitch was lower-
of our industry volume. So the message is
in something or disapprove of something,
to write their government representatives
Then, two weeks later, a phone call was interest in writing a letter and offering
call was the key to success; the response too willing to help. The letters they wrote
does a fine job. However, they can only
positively impacted their lives were very
members, and are not equipped to provide also important to appreciate that the big
customers ended up writing 230 letters to
are also somewhat constrained. As they
Hutchison. This was a gentle process;
rally their customers to lobby for reverse
handed or twist their customers’ arms in
Fargo and Bank of America comprised 26%
key; the letters suggested: “If you believe
this: The responsibility for getting customers
write your government representatives.
falls on the individual companies in the
from constituents, NRMLA is now speaking with a representative that has a personal, vested interest in what is being said. As
Reverse Mortgage of Texas found out from calling Sen. Kay Bailey Hutchison’s office, constituent letters do matter!
will only become greater in the future. In
October 2–3, an interview with Eric Cantor was published. You may not recognize
the name, but he will be the next majority leader of the House of Representatives in
the event the Republicans take control in the
upcoming November elections. His message was clear: If the Republicans gain control of the House, their top priority will be to
extend the Bush tax cuts and cut spending. Cantor intends to pare back government
programs as much as possible. That may
mean the reverse mortgage program as well. So the call to action for companies in the
industry to rally political support for reverse mortgages has never been greater.
industry, not the big banks.
November 2010 TRR | 35
Senior Moments Making a difference
T
Mark Sisco This past November, I encountered Laverne, a senior who had lost her husband, Frank, a little more than two years ago. They had resided in the same Chicago home for more than 45 years. When I contacted Laverne, she said that she had just sold their home and was moving to Arizona to be closer to her daughter, son-in-law and grandchildren. She was going to live with her daughter until
36 | TRR November 2010
she could find a one-story patio home. Her vision had worsened and she was hoping to relocate before the harsh Chicago weather arrived. At the time, she was staying with one of her sons and his family in the city. Laverne was concerned that the money from her home she had just closed on would be absorbed in the purchase of the new property, leaving her with little to live on. She was worried sick about having a mortgage payment all over again and did not want to be a burden on her daughter’s family. Oh, and did I mention her cat and longtime companion, Boots? Laverne found him abandoned on a snowy night when the temperature was 20 degrees
below zero. Worried about her financial situation and the cost of having a pet, Laverne thought she was going to have to leave Boots behind and began to cry whenever she mentioned him. After her husband’s passing, Laverne was not about to be without her “baby,” as she called him. After several more conversations with Laverne and her children, I’m happy to report that she and Boots are doing great, having settled into their new home in Arizona. She has had her vision corrected and has renewed her driver’s license. Laverne has plenty of money in the bank and a new perspective on life, all thanks to the HECM for Purchase. When we talk, she calls me her angel – she can’t believe how
a simple phone call created something so wonderful. She has her independence back and says she feels 20 years younger. (Did I mention she’s 80?) She has plenty to do and we talk when I can get through; she’s on the phone a lot these days and has not considered call waiting. “Too much technology,” she says. “I can only talk to one person at a time.” Her answering machine greeting begins, “You have reached Laverne and Boots,” To this day, Boots has not picked up. It is this and many other “senior moments,” as I call them, that make our careers so rewarding. For those that are in this for the long haul and have a true passion, I say: Keep on fighting the good fight.
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November 2010 TRR | 37
A New Direction, A New Look
I
The missing piece to the puzzle Brett G. Varner It was about two and a half years ago when The Reverse Review released the first issue of a magazine specifically for the reverse mortgage industry. Publisher Aman Makkar launched the publication with a seemingly simple goal: “to educate and create awareness in the industry” and “create a community of reverse mortgage professionals that will continue to help this industry grow in the right direction.” The magazine has served that purpose well for a very simple reason: It is built upon and supported by industry insiders. Aman was compelled by his experiences at NRMLA’s conference to start the magazine. From the beginning, the contributors have been active and engaged participants, helping the magazine to continue to be a strong voice and gathering point for the industry. However, to truly meet the mission crafted by Aman and diligently pursued by the staff, the magazine must do more to not only bring the community together, but engage it in lively discussion and debate the issues and opportunities that lie ahead. The magazine has always had a vehicle for serving this purpose in their website, but honestly, it has lacked focus and direction. When the magazine was first released in April 2008, one of the biggest concerns we had was a flood of new participants and whether they were prepared with the same knowledge and passion for the product and clients as those who had
38 | TRR November 2010
helped drive the growth of the product. Industry changes did not happen rapidly, so the magazine was the perfect vehicle to fuel the discussion. Since then, however, the pace of changes in the industry, including product changes, economic impact and regulatory developments, have come in rapid-fire fashion. It is nearly impossible for an individual to keep up with the research necessary to track changes and understand the impacts on their area of the reverse mortgage sector. The magazine is one piece to the puzzle, but it needs to be complemented by daily updates from the website that address the topics of immediate importance – not only for the purpose of disseminating information, but to provide useful analysis and advice on how the information impacts the industry and foster discussion and debate from participants. I am thrilled to have the opportunity to join The Reverse Review as News Editor with the sole purpose of revitalizing the website and supporting its noble mission. As I have been preparing for this role, I have been bolstered by the unending passion exhibited by Aman and Editor-in-Chief Emily Vannucci for this project. Our planning sessions have generated some amazing ideas to unify the industry, raise the bar for expected knowledge and service, and create a platform where approaches and strategies are developed, debated and implemented. I promise that our enthusiasm will spill over into new and exciting elements that will capture your
attention, compelling you not only to stay tuned, but to get involved! The expectation is clear: This is not about information dissemination; it is about knowledge expansion! If your goal is to thrive in this industry, then the only way to stay ahead is through constant, interactive education. Your role in this mission is to engage in the debate. I challenge you to partner with www. reversereview.com and share your own voice. Get involved by commenting on articles of interest to you, responding to others supporting or debating their viewpoint, contribute articles or information, and let us know about information or topics you’d like to see. We will make sure information and topics of discussion are informative, relevant, engaging and entertaining!! You just have to promise to join the fray. Those who persevere in this industry will reap the benefits. The Reverse Review will continue to be a unifying source and community gathering point where we can support, defend and grow, as professionals and as an industry, in a manner aligned with the mission of The Reverse Review and many other committed individuals and organizations within the industry. Are you ready to join in? Start today by making The Reverse Review your homepage. Then give me your thoughts and share your ideas for content that you would like to see or even contribute. brett.varner@reversereview.com.
Novebmer 2010 TRR | 39
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