The Reverse Review by David Peck

washington, dc

INSIDE this issue

3 steps to addressing a senior’s legacy By Alain Valles

CIS HEADQUARTERS Atlanta, ga

Is it time to launch a new product? By Tony Garcia

+ Answers to last month’s puzzle By Ralph Rosynek

Dedicated to financial independence for seniors by Aman Makkar

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Bye bye, big banks. Two of the main national bank providers of Reverse Mortgages have just left the market. Now is your opportunity to fill this vacuum.

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Meet the Team Publisher

Aman Makkar Your greatest strength is knowing your greatest weakness.

Letter from the Editor l

Editor-in-Chief

Emily Vannucci “You’re trying too hard... try less.”

National Sales Rep. & Marketing Coordinator Our summer “break” here at The Reverse Review is over, but it honestly didn’t feel like much of a break! While we took a few vacations here and there and we did have some time to enjoy San Diego’s famously sunny days, most of our time was spent researching stories and lining up authors for our fall issues, not to mention keeping up with reversereview.com, where all the latest industry updates, from new company initiatives to the movement of professionals, always creates a buzz. Be sure to keep a close eye on the site – our News Editor, Brett Varner, has a lot of great video interviews and special news segments lined up for our viewers!

more aggressive push in the coming months. Aman is excited about the future endeavors of this organization and it truly shows in this piece. Turn to page 20 to read the full story, “We Are CIS.”

This month we are doing something a little different by featuring an article written by our publisher, Aman Makkar. Aman recently joined the Coalition of Independent Seniors (CIS), whose efforts are very dear to him. While Aman tries to separate himself from the editorial content of the magazine, he felt particularly compelled to let our readers know about this new and incredibly vital organization that is making a big splash in our industry. CIS has more than 100 Capitol Hill, agency and media meetings under its belt and plans to have an even

Until next time,

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Kate Sheehan “Love what you do. Do what you love”... Done and done.

Copy Editor

Kersten Wehde I can’t read a menu, text or wedding invitation without proofreading it.

We at The Reverse Review could not be more excited about our upcoming fall issues. Starting with this current issue, we have some great articles lined up for our readers. We look forward to hearing your feedback, which can be posted directly to the articles at reversereview.com. In the meantime, please enjoy all of the hard work that went into our September issue of The Reverse Review.

vannucci

Traci Knight Creating graphics can be hard but concocting palatable meals is harder.

News Editor

Brett G. Varner “He who spends too much time looking over their shoulder, walks into walls.” Printer The Ovid Bell Press

Editor-in-Chief { emily

Creative Director

}

Advertising Information phone : 858.832.8320 e-mail : kate@reversereview.com Subscriptions e-mail : information@reversereview.com Editorial Content e-mail : emily@reversereview.com © 2011 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

TRR 09.11 GREENWICH, CT

NEW YORK CITY, NY

One of the central CIS actions is quarterly lobby days where meetings with legislators are scheduled over two to three days and CIS board members go to Washington to practice some oldfashioned shoe-leather lobbying.

RALEIGH, NC

CIS HEADQUARTERS

Dedicated to financial independence for seniors by

Aman Makkar

the Essentials

reversereview.com

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| 21

We are CIS 20 Dedicated to financial independence for seniors.

Aman Makkar

Shangri-la or Just Foreclosure?

Dispelling the myths of HECM foreclosures.

James E. Veale

Unlocking the Opportunity for Jumbo Reverse Mortgages 30 With the current economic condition, the time is opportune to launch a new product.

Tony Garcia

the The Report 7, 9

Core The Hot Seat

The Industry Roundup 18

The Advisor 12

The Resources 33

Ask the Appraiser

The Last Word 34

Ask the Underwriter

reversereview.com

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the Contributors Michael Banner

Feature Article l

Aman Makkar

The Last Word, pg 34

Founder of LoanWell America, Inc., Michael Banner is one of few reverse mortgage professionals accredited to teach continued education classes to CFPs, CPAs, attorneys and insurance agents. Banner has been interviewed by the Wall Street Journal, Tampa Bay Business Journal, and appeared on the Fox Business Network. michael.banner@loanwellamerica.com | 877.753.1705

We Are CIS, pg 20

Tony Garcia

Unlocking the Opportunity ... pg 30

Tony Garcia is CEO of Premier Senior Home Equity, in Carlsbad, California. Garcia and his family have been originating reverse mortgages since 1996 and incorporated LibertyStreet in 2003, which has done over 7,000 reverse mortgages in several states. Garcia has served on the Board of the National Reverse Mortgage Lenders Association (NRMLA). tgarcia@libertystreetfg.com | 760.476.3111

Dennis G. Gassoway Aman Makkar is founder of The Reverse Review and a board member of the Coalition for Independent Seniors (CIS). He is also the founder of AppraiserLoft and Live Valuation Magazine. Prior to Makkarâ&#x20AC;&#x2122;s current initiatives, he co-founded a mortgage origination platform and a wholesale mortgage online portal, LenderLoft. Makkar holds a BA in Economics from Washington University in St. Louis. Makkar can be found watching Rams football and Lakers basketball, while being a serial entrepreneur with endless business ideas. Makkar was born in England and raised in St. Louis, MO. He currently lives in San Diego, CA. aman@appraiserloft.com 858.832.8332 6

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3 3

Tax Tip, pg 15

As the National Sales Executive for ICG Inc., the nationâ&#x20AC;&#x2122;s most diverse and customizable real estate tax service, Gassoway is responsible for business development at all levels of the loan servicing field. Prior to joining ICG Inc. in 2007, Gassoway held business development positions at Transamerica, Lereta and LandAmerica. In addition to many achievement awards, Gassoway is an honors graduate with a B.A. in marketing and finance.

Ryan LaRose

The Hot Seat, pg 16

Ryan LaRose is the Executive Vice President of Celink, an independent reverse mortgage subservicer. LaRose has more than 12 years of servicing experience exclusively in reverse mortgage servicing since 2005. In addition, he is an active member of the NRMLA servicing and technology committees. celink.com | 517.321.5491

John K. Lunde

The Report, pg 7, 9

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. rminsight.net | 949.429.0452

The Reverse Review September 2011

the Report

July 2011 Wells Fargo MetLife Bank, N.A. Bank, N.A. Endorsement Endorsement 1719 716

Top Lenders Report Generation Urban Mortgage Co. Financial Endorsement Group 491 Endorsement 426

One Reverse Mortgage, LLC Endorsement 328

12345 Lender

Endorsements

Lender

Endorsements

AMERICAN ADVISORS GROUP

161

NETWORK FUNDING

GENWORTH FINANCIAL HM EQUITY

129

WEST TOWN SAVINGS BANK

SECURITY ONE LENDING

105

THE MONEY SOURCE INC

REVERSE MORTGAGE USA INC

SIDUS FINANCIAL LLC

THE FIRST NATIONAL BANK

EQUIPOINT FINANCIAL NETWORK

SENIOR MORTGAGE BANKERS INC

NET EQUITY FINANCIAL INC

NEW DAY FINANCIAL LLC

AMERICAN PACIFIC MORTGAGE

PNC REVERSE MORTGAGE LLC

VALUE FINANCIAL MORTGAGE

ROYAL UNITED MORTGAGE LLC

VIG MORTGAGE CORP

M AND T BANK

ALLIED HOME MORTGAGE

GUARDIAN FIRST FUNDING GROUP

FIRST MARINER BANK

PRIMELENDING A PLAINSCAPITAL

NATIONWIDE EQUITIES

SUN WEST MORTGAGE CO INC

METRO ISLAND MORTGAGE INC

PLAZA HOME MORTGAGE INC

HIGH TECH LENDING INC

MAS ASSOCIATES

DAS ACQUISITION CO LLC

GREAT OAK LENDING

CHERRY CREEK MORTGAGE CO INC

SUNTRUST MORTGAGE INC

BANK OF NEW ORLEANS

REVERSE MORTGAGE SOLUTIONS INC

PRIORITY FINANCIAL SERVICES

LIVE WELL FINANCIAL INC

STERLING SAVINGS BANK

BRIAN A COLE & ASSOCIATES LTD

ASSOCIATED MORTGAGE BANKERS

MONEY HOUSE INC

AXIA FINANCIAL LLC

ASPIRE FINANCIAL INC

FAIRWAY INDEPENDENT MORTGAGE

OPEN MORTGAGE LLC

17 reversereview.com

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the Contributors Ralph Rosynek

Ralph Rosynek has been The Reverse Review “Ask the Underwriter” columnist for more than two years. Rosynek is the Vice President for National Correspondent Production at Reverse Mortgage Solutions, Inc. RMS is a premier provider of reverse mortgage servicing, a Ginnie Mae Seller/ Servicer and offers complete mortgage banking support and services to the reverse mortgage industry. He is currently seated as a member of the NRMLA Board, co-chair of the Professional Development Committee and holds HUD HECM Direct Endorsement credentials. rrosynek@rmsnav.com | 708.774.1092

Alain Valles, CRMP 7

The Advisor, pg 12

Alain Valles, CRMP is President of Direct Finance Corp., Hanover, MA, one of the leading reverse mortgage brokers in the country. Valles received a master’s in real estate from M.I.T., an MBA from The Wharton School, and graduated summa cum laude from the Univ. of Massachusetts. Valles’ mission is to improve the quality of life through responsible financing. avalles@dfcmortgage.com | 781.878.5626

Brett G. Varner

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James E. Veale

Ask the Underwriter, pg 10

Industry Roundup, pg 18

Brett G. Varner is the News Editor for reversereview.com. Varner 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.

Shangri-la or Just Foreclosure? pg 26

James E. Veale is a Senior Vice President at Security One Lending, Inc. Veale is also a California CPA and real estate broker with a master’s degree in business taxation from the University of Southern California. Veale has been a speaker for NRMLA and has authored several articles on tax matters and reverse mortgages.

Bill Waltenbaugh, SRA 10

Ask the Appraiser, pg 14

Bill Waltenbaugh is the Chief Appraiser at Kirchmeyer & Associates, Inc., a national appraisal and valuation company. As a certified appraiser with more than 20 years of appraisal experience, Waltenbaugh has experienced firsthand the many changes that have significantly reshaped the appraisal landscape; from the advent of licensing to the implementation of HVCC. Waltenbaugh also holds the SRA designation with the Appraisal Institute and is active in both regional and national professional organizations.

The Reverse Review September 2011

the Report

INDUSTRY SUMMARY Retail Endorsement Growth

13.81%

June Endorsements Retail and Wholesale Volumes

Wholesale Endorsement Growth

11.69%

- Reverse Market Insight While the rest of the world is deciding just how much the rating agencies

Total Endorsement Growth

12.96%

matter three years after the 2008 debacle, volatility in the reverse mortgage world is looking relatively calm by comparison.

* Figures Above Reflect Change from Prior Month

Retail endorsements were up 13.8% on the month, while wholesale/brokers

endorsed 11.7% more loans. This marks three consecutive months where the

Trailing Twelve Month Endorsements

performance gap between channels has been relatively low, with both channels moving up or down together after a much bigger performance gap in the wake of regulatory changes at FHA and the federal/state levels. The trend may not continue given how much change we’ve seen lately, but it seems reasonable to assume for now that we’ve seen the FHA approval and loan officer

10,000

compensation changes fully baked into the endorsement numbers by channel.

8,000

Share of HECM Endorsements by Business Channel

6,000 Ret

4,000 2,000

Whse

70%

65%

7 8 9 10 11 12 1 2 3 4 5 6 Retail

60%

Wholesale *Numbers Represent Months 55%

4,004 34.54%

4,343

8.47%

4,049

-6.77%

4,075

0.64%

2,805 16.25%

6,880

6.47%

4,515

10.8%

2,785

-0.71%

7,300

6.1%

3,704 -17.96%

2,415 -13.29%

6,119 -16.18%

3,106 -16.14%

2,079 -13.91%

5,185 -15.26%

3,535 13.81%

2,322 11.69%

5,857 12.96%

TOT

45,039

2,547

10.4%

6,551

6,550 -0.02%

9.33%

6,462 -1.34%

29,631

6/1/2011

5/1/2011

4/1/2011

3/1/2011

2/1/2011

1/1/2011

12/1/2010

11/1/2010

9/1/2010

10/1/2010

Reverse Market Insight, Inc.

24.0%

2,207 -13.35% 2,413

8/1/2010

5,283 -11.4%

7/1/2010

2,307 -9.81%

6/1/2010

5,963 -10.21%

-12.6%

5/1/2010

2,558 -4.27%

2,976

4/1/2010

3,405 -14.21%

3/1/2010

40% 2/1/2010

6,641 12.96%

1/1/2010

5.99%

12/1/2009

2,672

11/1/2009

18.2%

9/1/2009

3,969

10/1/2009

45%

8/1/2009

5,879 10.84% 7/1/2009

4.87%

6/1/2009

2,521

5/1/2009

UNITS CHG%

3,358 15.79%

4/1/2009

UNITS CHG%

50%

3/1/2009

UNITS CHG%

TOTAL

2/1/2009

WHOLESALE

1/1/2009

RETAIL

74,670

At this point it looks as though we’ve settled into a new normal of 60% retail (defined as the same company taking application and closing loan) and 40% wholesale. That compares to an average of 47% in 2009, with most months in a range from 41-50% (two months over 50%). The range in 2010 was

considerably wider, around a higher average of 54%, encompassing everything from 42% in January to 66% in December. That last month looks like an outlier right now, as 2011 average thus far is 61% with a relatively tight range of 59-63%. g

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The Reverse Review September 2011

ask the Underwriter

“The Operation Was a Success, but the Patient Died!” Ralph Rosynek

How many times in our lives can this phrase be so true? 10

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As the summer winds down for some, Take for instance the first crossword and we hear the ring of school bells in puzzle challenge posted in July. The the distance (a most welcome sound for idea was great, the design was carefully parents!), perhaps it is time to take a few thought out and the motivation to moments to focus on ways in which we complete the puzzle was undertaken can increase the effectiveness by many. But in the end, we of our actions and procedures experienced a few glitches to ensure we can meet the that ultimately did not full terms of the borrower’s produce the anticipated results. Our thanks to those ... it is time to request and leave them with a positive customer experience. who attempted to complete take a few the puzzle; we will crosscheck our work twice next To help your focus, moments time. Listed on the following consider the following: to focus page are the answers. on ways in 1 4Am I familiar, and able, which we can to fully explain the benefits Many times we are faced with the same or similar increase the and features of the products I “operation” situation in our am offering? effectiveness HECM transaction lives. We of our work diligently to produce 2 4Am I able to fully an anticipated result; an explain the application actions and approved and funded documentation package and procedures to loan per the borrower’s resulting process that leads to ensure we can request, only to find that a loan closing? meet the full terms we encounter glitches in of the borrower’s 3 4How are my overall our process that deliver an request and undesired outcome. interview skills?

leave them with a

Actual property value versus positive customer 4 4Do I have the requisite borrower estimated value skills and knowledge to experience. is one of the most common listen to the borrower, issues we face in managing expectations ask the appropriate questions and from the beginning. Failure to probe gather/provide the needed processing and ask second questions for proper information? processing and underwriting approval run a close second. I would be remiss if 5 4How do I manage my borrower’s I did not include disclosure, calculation expectations? and communication failures as well. 6 4When was the last time I increased In the end, our operational job of my skills and knowledge through delivering the borrower to the closing additional training or education? table based upon anticipated actions and following a defined procedure can be 7 4And lastly, how can I improve upon subject to unforeseen influences, or in my skills and knowledge to help avoid the real case of our puzzle, that extra bit those glitches that pop up from time to of diligence and cross-checking. time? g

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W 25.

Boxes Requiring Numbers

Answers

1. Index for monthly LIBOR 2. Swap index for expected rate 3. Floodplain years for manufactured home foundation 4. Minimum co-borrower age 5. Oldest year of manufactured home eligibility 6. HECM maximum claim amount 7. Residential loan application for reverse mortgages 8. HUD/VA addendum to URLA 9. Manufactured home appraisal report 10. Uniform residential appraisal report 11. Maximum number permitted FHA HECM loans to borrower 12. Multiplier for minimum title insurance coverage 13. July 1, 2011, monthly servicing fee amount 14. Additional guidance, minimum origination fee 15. Percentage over $200M in value 16. $185,000 value origination fee amount 17. Small residential income property appraisal report 18. Number of days appraisal report is valid 19. Condo appraisal form 20. DE form used to modify value or for comments 21. Individual condo appraisal report 22. HUD HECM handbook 23. HUD HECM program code 24. Number of days updated appraisal report is valid 25. Maximum lender paid comp in borrower-paid scenario

1 10 100

reversereview.com

62 1976 625,000 1009 929,000 1004c 1004 1 1.5 0.00 2,500 1% 3,700 1035 150 1073 54114 1073 4235.1 203b 240 0

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The Reverse Review September 2011

the Advisor the discontinuity between the senior’s current situation and their end-of-life wishes. I follow a three-step process to facilitate a conversation about a person’s legacy. I start with a budget analysis, then explore possible solutions, and finally encourage family and trusted advisor involvement. This frames the senior’s legacy analysis and helps in developing a specific plan.

step 1

The Legacy Discussion Alain Valles, CRMP

When I hear, “I want to leave my house to my kids!” I know it’s time for the legacy discussion. A person’s desire to leave

something of value, especially property, to the next generation is common and perfectly healthy. As people age they have fewer requirements for material items and begin thinking more about how they will be remembered. The challenge is bridging

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The critical question is this: Does the senior really need a reverse mortgage? And if so, how much projected cash will he or she need on a monthly basis?

step 2

After analyzing the budget it is time to transition to possible solutions. The options are better for clients with no current mortgage. Perhaps a tenure payment and line of credit will cover any monthly cash shortage while minimizing the long-term increase in loan balance. For relatively small projected reverse balances life insurance I follow a threemay cover the loan payoff. step process Or perhaps there are other to facilitate a available assets, such as other real estate, that are conversation not presently liquid, that about a person’s could pay off the reverse.

Whether I meet with clients before or after reverse mortgage counseling I always invest the time to review their budget. I want to make sure the reverse will be a long-term solution. legacy. I start with a Many of my borrowers Unfortunately, this is are in very difficult budget analysis, then seldom an option for financial straits involving explore possible solutions, clients who have a large high current mortgage and finally encourage current mortgage or balances, lack of monthly family and trusted advisor significant immediate cash flow, deferred home involvement. cash need. In either case, maintenance, and costly I start with the premise health care issues. The of not obtaining a reverse mortgage and better the senior understands their budget, use the senior’s provided budget figures the easier it is for them to come to terms to estimate how long they might be able with whether or not they will be able to to finance their lifestyle. More often than leave much home equity. not there is less than three years’ worth of available assets. I believe that people The eye-opener for a 62-year-old is when with more significant assets are not he or she understands that a $250,000 investing their time learning about reverse reverse mortgage on a home valued at mortgages. $400,000 will have more than a $1 million balance in 25 years, and that (depending I then model how a reverse mortgage on property appreciation rates) will likely may help finance their budget and the have very little or no remaining equity. corresponding loan balance over time. It It’s as if someone just let the air out of a comes down to a quality-of-life decision. balloon. The flip side is the senior will not If the senior truly wants to bequeath the have to make a mortgage or equivalent rent house then he or she must change their payment for that time period and beyond, budget or find alternative sources of cash. which would equate to more than $360,000 Cutting monthly expenses is difficult at using a $1,200 per month housing factor.

Need assistance from the Advisor?

Send your question to advisor@reversereview.com and it will be addressed in the next issue.

best without causing pain, which leads to the idea of moving from the home. Moving would work if the person sells the home, sets aside the profit as their legacy, and is able to find replacement housing that meets their budget, such as less expensive housing or living with a family member. Often the senior strongly affirms that they “never want to move” while also mentioning the sentimental value of leaving the home to the next generation. This is the perfect segue to suggesting a talk with their family.

step 3

This last step bridges the gap between the current financial reality and the desire of

leaving the home to the kids. I hear over and over again how adult children want their parents to enjoy a high quality of life, that they don’t expect a large inheritance, and, without meaning to offend mom or dad, don’t really want the house – especially in the condition it may be in after another 25-plus years. In situations where adult children want to retain the home we explore scenarios where they financially contribute any monthly cash shortfall or home maintenance costs instead of a reverse, or perhaps the children may wish to fund a life insurance policy to cover the reverse mortgage balance.

Involving other family members gives the senior permission to focus on their personal quality of life and reduces the perceived obligation of leaving material worth. A secondary benefit to this type of conversation is that it minimizes the children’s concerns of financially supporting their parents in the future. I end group family meetings by sharing the second definition of legacy — “anything handed down from the past” – and mention that sometimes the most lasting gift is peace of mind. g

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| 13

The Reverse Review September 2011

ask the Appraiser will address your question in an upcoming issue.

QUESTION I have a reverse mortgage

Safe, Sound & Secure Bill Waltenbaugh, SRA

We recently received a question for our knowledgeable appraiser, which is addressed in this month’s column.

If you have any appraisal-related questions, please email the appraiser at information@reversereview.com and we

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a HUD addendum, better known as VC sheets. This four-page addendum required appraisers to specifically address more than 80 site and improvement concerns. Any item that didn’t measure up to the expectations of this form was required to be corrected or repaired prior to closing. However, in January 2006 HUD retired the VC sheets at the same they implemented the mandatory use of the new Fannie Mae report forms.

borrower who has been advised her home will be sold in a sheriff’s sale due to nonpayment of real estate taxes. She has no mortgage on a $400,000 ... to make house that needs things extensive repair work, probably easier, HUD including a new categorizes roof. She is also a all potential hoarder and the concerns home is totally filled into three with her things. Are there any primary special provisions elements, or circumstances in know by many an FHA appraisal as the three S’s. that would allow her home to “pass” For a property to qualify for FHAthe appraisal and qualify for a reverse insured financing, the subject must mortgage? be safe, sound secure.

With very little exception, and FHA appraisals completed for reverse mortgages are no different than an FHA assignment for a standard HUD-insured loan. In short, the property must meet HUD’s Minimum Property Requirements (MPR) to qualify. If conditions exist that do not meet this standard, the appraisal is made “subject to” the repair or correction of the deficient item or condition. Back in the good old days appraisers were obligated to complete and include

Although the VC sheets were no longer being used, this didn’t mean homes no longer needed to conform to HUD’s MPRs. Instead, all valuation condition concerns, including repairs, alterations and required inspections, were required to be reported within the appropriate section of the applicable Fannie Mae form. There are numerous items that could potentially need to be repaired or corrected for a property to meet HUD’s MPRs. To list all of the possible scenarios would take pages of commentary.

As such, to make things easier, HUD categorizes all potential concerns into three primary elements, know by many as the three S’s. For a property to qualify for FHAinsured financing, the subject must be safe, sound and secure.

The 3 S’s of Qualifying for FHAInsured Financing Safety refers to the health,

habitability and sanitary condition of a property.

Soundness

relates to the structure and structural components of the dwelling.

security

refers to risk to the insurance fund in terms of a property’s ability to serve as collateral for the FHA-insured loan. It’s these three important elements an appraiser must consider when inspecting a property for an

FHA loan. When a deficiency is identified, the appraisal will be conditioned for repair or inspection. Without inspecting the property that is the subject of your question, it is impossible to determine if the home would “pass” HUD’s MPRs. However, based on your commentary, it would appear the subject would need a new roof to satisfy the soundness element before it would qualify. g

With the ever-expanding footprint of reverse mortgages throughout the 50 states, reverse mortgage servicers face an uphill battle maintaining an accurate and up-to-date tax collector profile. There are more than 22,000 various tax collectors nationwide, all with different addresses, profiles, collection times, and of course, their own local identity. A professional tax service removes that hassle by maintaining and updating a taxer law profile on every collector nationwide on a daily basis. Creating this collector profile is an integrated process within the tax service business model and is a tremendous benefit to the servicer. It’s a win-win for all.

Have a question for the Appraiser? Email questions to information@reversereview.com and look for your answer in an upcoming issue.

“I want a tax service company that understands the Reverse Mortgage Market.”

At ICG, we know the key to an effective Reverse Mortgage product is all in the details. Conventional tax service models merely report delinquent accounts to their customers. ICG goes beyond the conventional model and embraces proactive, loss mitigation and industry best practices into our tax service products to provide clients an end-to-end solution specifically designed for the Reverse Mortgage market. We understand your industry, investor guidelines, regulatory requirements and more importantly your client base. We welcome the opportunity to design a solution exclusively for you. Industry Consulting Group, Inc. is committed to helping Reverse Mortgage companies overcome the challenges related to tax defaults.

Call us at 972-991-0391 or visit www.icgtax.com today. Tax Monitoring / Exemption Information

Tax Payment / Borrower Notification

Full or Partial outsourcing models

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hot

Seat U

20 questions - things you need to know or may have been wondering -September 2011

the

hot seat 16

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From his most memorable moment to what he thinks industry growth is dependent upon, we get the personal and professional facts from Ryan LaRose, EVP of Celink, in our monthly edition of The Hot Seat.

ryan PERSONAL

celink

Executive Vice President

You can’t always be what others want or expect you to be. You have to be true to yourself.

When I was younger I wanted to be a garbageman. Who wouldn’t want to ride around hanging on to the outside of that cool truck?

Every morning I wake up excited about the day, unless of course we have auditors in the office.

I’ll never forget the birth of my two sons, Owen and Nolan. The two happiest days of my life.

The best job I’ve ever had is my current one. The opportunity to learn from and work closely with my dad has been a once-in-a-lifetime experience.

My parents taught me how to live each day as if it’s your last, and to plan as though you will live to be 100.

Right now I’m listening to a Detroit Tigers game.

The most memorable moment in my life was when I met my wife, Erin, for the first time.

A good friend is someone who knows all your faults and is still your friend.

My favorite book is Into Thin Air by Jon Krakauer.

My favorite quote is ”I’m a great believer in luck, and I find the harder I work, the more I have of it.” – Thomas Jefferson

PROFESSIONAL >

The biggest challenge in the reverse mortgage industry is overcoming outdated or

The most fascinating thing about the reverse mortgage industry is how nothing seems to stay the same for long.

incorrect information about the product.

People should seek a career in the reverse mortgage industry because you are able to see the positive impact the product has on seniors on an almost daily basis.

The most fascinating thing about the reverse mortgage industry is how nothing seems to stay the same for long.

I am optimistic about the reverse mortgage industry because the challenges we have faced have weeded out those who are not fully dedicated to the product.

If I could change one thing about the reverse mortgage industry it would be that the mainstream media would realize what a great product it can be for so many seniors.

Reverse mortgage professionals can best support the public image of reverse mortgages by maintaining a reputation of being open and honest about the pros and cons of the product.

Industry growth is dependent upon additional secondary market options. Relying on one outlet (Ginnie Mae) is not healthy for long-term growth.

My parents taught me how to live each day as if it’s your last, and to plan as though you will live to be 100.

The biggest impact reverse mortgages offer to seniors is financial independence.

The most confusing aspect of reverse mortgages is the servicing

fee set aside. Servicers are thankful every day that it has gone away on new loans (at least for now!).

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September edition

The Reverse Review September 2011

the Industry

a roundup of this past monthâ&#x20AC;&#x2122;s breaking news:

Who moved where; why a company closed its doors; WHO is new to the industry?

Roundup

mov er s k sh a k e rs Premier Senior Home Equity: The broker roll up joined forces with Security One Lending. The joined companies will use their combined capital investment to seek direct Ginnie Mae issuing authority. Celink: Launched a new, single-point-of-contact module for reverse mortgage borrowers who are in default status on loans serviced by the firm.

Up- k-Co mer s Reverse Mortgage Solutions: Announced plans to ramp up its origination channel with the addition of two regional directors: Garret Kolb in the Western region and Jamie Longe in the Midwestern markets.

UBS: Announced plans to return to the reverse mortgage space by launching a new interface with ReverseVision, providing a direct channel for delivering loans to the bank. Greenlight Financial: Launched a revamped reverse mortgage division with the hiring of Brett Varner and Dave Bancroft to lead the expansion. The company also signed retirement expert Ray Lucia as spokesperson. Consumer Financial Protection Bureau (CFPB): Officially opened its doors July 21, without a director. The confirmation hearings for nominee Richard Cordray have been postponed to September and Raj Date has assumed role of Special Advisor to the Treasury vacated by Elizabeth Warren.

industryroundup

W h at H a p p e n e d ? AARP: Filed another industry lawsuit, this time against Wells Fargo and Fannie Mae. Seeking class-action status, the suit claims that the defendants have failed to provide nonrecourse provisions in accordance with HECM guidelines. MetLife: Due to the growing number of regulations, MetLife announced its intention to sell its depository business, MetLife Bank NA. The move will remove their federal banking charter and subject the company to state licensing requirements. FHA: For the second time in three months, the leadership post at the FHA changed hands with Carol Galante replacing Robert Ryan as acting commissioner.

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P Nationwide service. P Low fees and swift turnaround times.

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727.481.3626 or bb2.inc@hotmail.com | Visit us online: www.amrevtitle.com 18

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the

Essentials

The Essentials | iâ&#x20AC;&#x2122;sen sh l | - your monthly source of in-depth information, industry updates, highly opinionated views and at-your-fingertips news. Tony Garcia Aman Makkar J a m e s E. V e a l e

It takes a lot to create an attention-grabbing, informative article and The Reverse Review is very fortunate to have worked hand in hand with industry leaders over the past couple of years. We are always searching for new writers and industry-related articles. If you are interested in contributing your views and have what it takes to intrigue our readers, we would love to hear from you! Email emily@reversereview.com to start the conversation.

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l o c a t i o n s across the u.s.

“From East Coast to West Coast CIS board members represent a diverse group of reverse mortgage lenders that are on a mission to advance the availability and the quality of the reverse mortgage product in an effort to further the cause of financial independence for America’s seniors.”

b o a r d members Dan Harder – Denver Reza Jahangiri – Newport Beach Torrey Larsen – San Diego Jeff Lewis – New York City Aman Makkar – San Diego Thomas Martignoni – Raleigh John Mitchell – Austin Kevin Rodman – Greenwich Gregg Smith – San Diego Bob Yeary – Fort Worth Headquarters – Atlanta

denver, co newport beach, ca

san diego, ca fort worth, tx

austin, tx

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Greenwich, ct

new york city, ny

raleigh, nc

CIS HEADQUARTERS Atlanta, GA

Dedicated to financial independence for seniors by

Aman Makkar

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H. West Richards starts his week in Atlanta, Georgia, and by the time the weekend rolls around he’s lived his own version of the movie Planes, Trains and Automobiles while traveling around the country and working for the Coalition of Independent Seniors (CIS). All the way at the other end of the Eastern Seaboard, Jeff Lewis starts his week in New York City, running Generation Mortgage Company and doing his fair share of traveling as Chairman of CIS and a spokesperson for the reverse mortgage industry. Though nearly 1,500 miles separate them, Lewis and Richards work very closely as stewards for the new and growing advocacy organization, managing its congressional affairs consultants, strategizing and planning the next key meeting with influential regulators and policymakers in Washington, and ensuring industry and affiliated partners

Jeff Lewis CIS Chairman, CIS Steering Committee CEO & Chairman of Generation Mortgage 22

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CIS , E x e c u t i v e director H. West Richards / Atlanta, Georgia

1987-1994: Worked on Capitol Hill

1989-1991: Engineered the

no-smoking legislation making it illegal to smoke in federal buildings - The model was pushed throughout the U.S. airline system and ultimately the private sector and legislatures globally adopted similar rules

1990: Youngest Chief of Staff in the United States Congress 1995: Served on the Atlanta Centennial Olympic Games PR team representing the Georgia Institute of Technology 1997-1999: Co-founded

and pioneered the nation’s first state wide e-commerce/ Internet Trade Association in Georgia - Assisted in writing the Digital Signatures Act (allowing American businesses to execute contracts over the Internet), which was adopted by Congress

2000-2002: Established his

financial services background with Arthur Andersen Business Consulting

2003: Co-founded and was

CEO of a small technology consulting firm which was sold in 2007

2010: Completed his first 70.3

Ironman in Augusta, Georgia, in an effort to raise funding for the Leukemia & Lymphoma Society West will compete in the Washington, D.C. Olympic Distance Triathlon on 9/11/11 on behalf of the Leukemia & Lymphoma Society. Event is being dedicated in memory of those lost during the 9/11 attacks

Bob Yeary CIS Secretary, CIS Steering Committee CEO of RMS

are aware of the goings-on in the nation’s capital that impact the way their members do business. “Washington is making decisions right now that will have an impact on seniors across the country that are considering reverse mortgage products to support their financial independence,” Lewis says. “We’re trying to ensure that when it comes to the federal Home Equity Conversion Mortgage (HECM) program, Congress knows that it benefits seniors by offering them solid financial products to help access their equity wealth.”

Bringing Voices Together The Coalition for Independent Seniors was launched in 2010 when Lewis and Richards determined that midsize lenders could partner with other advocacy groups to protect financial options for seniors looking to stay in their homes longer

Gregg Smith CIS Treasurer, CIS Steering Committee CEO of One Reverse

and tap into their equity wealth. CIS is dedicated to identifying and cultivating those partners in order to strengthen all the voices advocating for seniors and their financial well-being. “We’re working hard to bring added value to the efforts already happening around seniors’ financial security and reverse mortgages,” Richards says. “We’re on the ground cooperating and coordinating with our friends at NRMLA and their team working the federal bureaucracy to look out for seniors and the industry.” The organization prides itself on being a nonpartisan, nonpolitical, public advocacy coalition. Its goal is preserving independence, financial stability and economic security for seniors while protecting their ability to live financially independent lives. Even in these early months of the Coalition, partnerships have been forged. CIS has worked with a seniors’ advocacy organization, RetireSafe, to highlight changes to the HECM program administered by the Federal Housing Authority (FHA). With nearly 500,000 members, RetireSafe is a grassroots organization that advocates and educates on behalf of America’s seniors on issues regarding Social Security, Medicare, health and financial well-being. “It’s a natural fit,” says RetireSafe (retiresafe.org) President Thair Phillips. “Both organizations are working to ensure financial independence for seniors so it makes sense to combine forces on matters that threaten or support that goal.” The organizations recently teamed up to reach out to members of Congress

Kevin rodman CIS Steering Committee Director of Urban Financial Group

Dan Harder CIS Steering Committee President of 1st Reverse Mortgage U.S.A. / Cherry Creek Financial

regarding bankruptcy rates among seniors and what that means for seniors with reverse mortgages. In addition to RetireSafe, CIS is reaching out to other groups to find ways to partner on important issues. Working with an expert on seniors’ issues, CIS is making the rounds to other seniors’ organizations to introduce themselves and offer help and support and the potential to partner with these groups. “Building a coalition of like-minded groups, formally or informally, is a central priority for CIS,” Lewis says. “We’re tremendously grateful to RetireSafe for working with us and we look forward to a long and productive partnership.”

Board Members Are Key CIS is organized around a central board, with members coming from various reverse mortgage lenders and affiliated industries. The board’s main function, aside from steering the direction of the organization, is to serve as spokespeople for the industry and ambassadors for the reverse mortgage products. “Because our board members run real companies that employ real people, we feel they can provide real-world experience and insight to members of Congress and

Torrey Larsen CEO of Security One Lending

going to the source

The quarterly lobby days allow CIS board members to build stronger “ relationships among themselves and learn more about each other’s

businesses, which in turn makes them better spokespeople for the industry. CIS Board Secretary. “The lobby days are efficiently run and strategically developed. We identify the folks we need to talk to and the team makes it happen.”

regulators,” CIS Executive Director Richards says. “There’s nothing more effective than someone coming into a congressional office and saying, ‘Hey, I employ 100, 200, 300 people in your district and here’s something I want to bring to your attention.’”

To that end, one of the central CIS actions is quarterly lobby days where dozens of meetings with legislators are scheduled over two by the to three days and CIS numbers board members go to Washington to practice CIS’ Management some old-fashioned Team shoe-leather lobbying. Total number of Each board member combined years visits a handful of working on Capitol Hill: offices, builds on existing relationships and seeds new relationships, all with the central purpose of educating members and their staff about the benefits of reverse mortgages and countering some of the negative publicity and perceptions of the industry.

100

Total number of presidential campaigns that management team members have been a part of:

Reza Jahangiri CEO of American Advisors Group

“CIS has opened a lot of doors in the last 18 months and we’ve visited with many decisionmakers in Washington that otherwise we’d never meet,” says Bob Yeary, CEO of RMS and

John Mitchell CEO of 1st Reverse Mortgage of Texas

But it’s not all meetings and lobbying. CIS’ philosophy is centered on relationships. The quarterly lobby days allow CIS board members to build stronger relationships among themselves and learn more about each other’s businesses, which in turn makes them better spokespeople for the industry. The CIS team orchestrates other opportunities for the board as part of the agenda. July’s board meeting included a briefing on campaign finance law for board members conducted by a leading elections law attorney; a breakfast with financial services reporters from Bloomberg News Washington Bureau, and a media training conducted by a public relations professional in preparation for the breakfast. The lobby days also include organized group meals for participants to get to know each other, discuss their meetings and track their collective progress. “Our goal is to provide value to our board and members,” Richards says. “We like to add something different and interesting to each lobby day schedule to give participants an enhanced experience. Anything from a guest speaker to meetings with reporters who cover the industry makes the experience more rewarding and memorable.”

Aman Makkar Founder of AppraiserLoft

Thomas Martignoni CEO of ReverseVision reversereview.com

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Going to Work Though the HECM program has been around for years, many members of Congress are unaware of the program’s benefits, requirements and impact. Each CIS member is briefed on a simplified “elevator pitch” explanation that highlights the benefits of the program in plain language and a short time frame. They put those messages to work in the meetings with members of Congress and staff to clearly communicate CIS positions on legislative and regulatory matters.

The focus of the July lobby days was the proposed budget cuts to FHA that would essentially eliminate federal support for mandatory counseling programs. Congress has proposed reducing funds for counseling programs by $88 million, but left in place the mandatory requirement for counseling. CIS board members’ objective was to convey the important consumer protections afforded seniors by the counseling program. When given the opportunity, they told lawmakers and

to make the right financial choices for themselves and their families. The out-of-pocket cost to seniors expected from the federal budget rescissions is a compelling argument. Because most reverse mortgages are backed by the FHA, the federal rules governing these loans require seniors to receive third-party financial counseling before exercising this important financial tool. The proposed budget cuts leave intact the requirement for counseling, but eliminate the funding – transferring the cost of counseling to seniors.

argues that restoring the counseling funds will save taxpayer money in the long run. “ByCIS providing the right information and advice, housing counseling programs can empower

seniors by helping them access their equity wealth to stay in their homes longer and continue to live financially independent lives instead of turning to entitlement programs to meet their financial needs. by the numbers CIS Management Team

Number of Team Management Members Who:

Are president/CEO of their company: Are founders of their company: 4

Are current registered lobbyists: 6 Have worked for members of the House of Representatives: Have worked for members of the Senate:

Have worked for the mayor of NYC: 1 Have taught classes at a university: 1

Held Chief of Staff or Deputy Chief of Staff positions for members of Congress:

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regulators that HECMs are designed to allow seniors 62 and older to access their equity wealth and maximize their financial independence. The program is backed by the FHA and provides important consumer protection to borrowers, including counseling from independent advisors about HECM loans. For many seniors a reverse mortgage is a life-changing, positive option. Some access their equity wealth to cover unexpected health costs and medical bills, complete a home improvement or simply give them the financial peace of mind they deserve in their retirement years. Many HECM borrowers use their equity to pay off their mortgages, eliminating the worry of monthly mortgage payments. Like any financial product, reverse mortgages work for seniors with the financial capacity to meet the requirements of the loan, including paying taxes and insurance costs as they would with a conventional mortgage. HECM counseling ensures that seniors can rely on independent information

“A new out-of-pocket cost for counseling puts seniors at a distinct financial disadvantage because it is often the case that seniors seeking reverse mortgages may not have readily available cash to pay for upfront fees,” says Lewis. These upfront counseling fees are required whether the senior chooses a reverse mortgage or not. For seniors on fixed incomes, with limited cash reserves, the out-of-pocket cost will present an unfair obstacle to accessing their own money. “We’re working alongside other nonprofit organizations like NeighborWorks to support the restoration of funding for federal housing counseling programs,” Richards says. “Seniors shouldn’t have to pay to access their own money or to fund a federal mandate. Furthermore, a rescission in funds could lead to a far less efficient and less effective counseling mechanism. Such a reduction in resources could lead to bottlenecks that slow the education process down, not to mention deliver less robust counseling.”

CIS argues that restoring the counseling funds will save taxpayer money in the long run. By providing the right information and advice, housing counseling programs can empower seniors by helping them access their equity wealth to stay in their homes longer and continue to live financially independent lives instead of turning to entitlement programs to meet their financial needs. “With the country in the midst of a financial and housing crisis, it is shortsighted to take away a basic consumer protection and limit housing choices and options for seniors, especially one that extends financial independence and keeps seniors in their homes longer,” says Lewis.

A Plan to Grow Compared to other coalitions or advocacy groups, CIS is in its infancy, but has already achieved success. With more than 100 Capitol Hill, agency and media meetings under its belt, the organization is already building its profile among the leading decision-makers in Washington. The plan is to be even more aggressive in the coming months. CIS hopes to add numerous new memberships at all levels in the near future. This powerful and growing organization plans to offer an annual membership to all participants in the reverse mortgage space within the next three months. This membership will include quarterly updates, newsletters and direct access to upcoming events. CIS has seen growth already. Members joining in 2011 include AppraiserLoft and ReverseVision, both top vendors supporting the reverse mortgage industry with key appraiser and technology resources.

“I joined because I could see the effectiveness CIS is playing in the public policy arena,” says Gregg Smith, President of One Reverse and CIS Board Treasurer. “I wanted to be part of something new, something energetic, something that is getting to the heart of what our industry is about: financial independence and security for seniors.” CIS hopes that the success of the July lobby days will be noticed by companies and leaders considering joining the group. “By providing meaningful and direct contact with key legislators and agency folks, our members feel like their voice is being heard,” Richards says. “This is a value-added benefit for a modest investment in CIS – our members get a lot in return.”

Planning for the Future

years, it is interesting to note that Bank of America was in the game for less than three years and Wells Fargo for just 10. CIS is delivering a positive message to Congress and FHA: The departure of the big three isn’t a problem, it’s an opportunity. Midsize lenders can step in and service the market demand, they say, and the product is still something seniors want.

is delivering “ CIS a positive message to Congress and FHA: The departure of the big three isn’t a problem, it’s an opportunity. Midsize lenders can step in and service the market demand, they say, and the product is still something seniors want.

There’s no question these are challenging times for the reverse mortgage industry. Skeptical journalists continue to paint the industry in a negative light – though progress has been made with the media in recent months. Meanwhile, two of the “big three” lenders, Bank of America and Wells Fargo, have decided to exit the reverse mortgage market, while MetLife has decided to sell off its banking arm, fueling questions about the future of the industry. Fortunately, even with two of the three big banks being gone, and MetLife’s banking arm in flux, the industry still thrives under many of the original industry players. During the last 20

“There’s no question the way they left didn’t do the industry any favors,” says Lewis. “We’re working to let people know that the industry still exists, is still growing, still employs thousands of Americans and can still provide a quality product to a solid market. There’s no reason for Congress or FHA to give up on the HECM program.” The independent lenders are different from the big banks in that reverse mortgages are what they offer exclusively. With experienced mortgage lenders and a focus on reverse mortgages, these lenders will continue to be successful.

“In terms of the market, the sales cycles in the reverse mortgage industry are complex; they take a long time; multiple family members are involved; and transactions can be emotional. This is all outside the traditional comfort zone of banks, and at the end of the day, this industry requires too much effort for many banks to justify the investment,” Lewis says. “However, we predict that when the market turns and the reverse mortgage industry continues to grow on an impressive trajectory, large institutions are likely to jump into the space again, especially as seniors turn to the product more as a sound tool for financial security.” g

With more than 100 Capitol Hill, agency and media meetings under its belt, the organization is already building its profile among the leading decision-makers in Washington. reversereview.com

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The Reverse Review September 2011

the Essentials

Shangri-la or Just Foreclosure? Dispelling the myths of HECM foreclosures.

James E. Veale

istorically the process and consequences of HECM foreclosure (and its cousins: short sale, short pay, trustee sale, etc.) have not been taught to reverse mortgage originators. As a result, many in our industry have given it a kind of “Shangri-la” twist. It is as if nothing negative comes of it. HUD pays off any balance due at termination and all is well. What could go wrong? ¶ This article will look at the harsh realities of HECM foreclosure some HECM originators have been discovering. HECM foreclosure is a process with which far too many are becoming familiar.

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“ … no need to worry … ”? In mid-2004 the widow of a friend who had passed away a few years before made it known she needed more monthly cash flow. Several mutual friends asked me to help. An acquaintance, who was a well-respected managing partner of the second-largest law firm in Los Angeles County, suggested looking at reverse mortgages even though she knew very little about them. With little to go on, my inquiries about reverse mortgages began. Months later, despite speaking with several originators and the regional manager of a large lender, HECMs remained as mysterious and exotic as the 10,000 Immortals of Xerxes must have been to the Spartans just before the Battle of Thermopylae. It was as if the products (monthly and annually adjusting) were so novel and distinct, there was literally nothing to compare them with. While HECMs may be mortgages, it sounded as if their special nonrecourse nature (through FHA insurance) and their “tax-free” income proceeds made HECMs unique and incomparable to all other mortgages. HECMs were allegedly both “equity release” and “equity conversion.” By late 2004, they were indeed still very mysterious. When discussing nonrecourse, most HECM originators were surprised to hear that very few “foreclosures” on recourse mortgages in California result in deficiency judgments. Due to the high costs and the time required to obtain a deficiency judgment when a California recourse mortgage is in default, most note holders forgo their right to a deficiency judgment and elect to have the trustee exercise its power of sale found in the deed of trust. Judicial foreclosure is so rare in California that most real estate attorneys there broadly classify it as a nonrecourse state. Despite explaining that foreclosure of any kind in California generally results in credit dings and

income tax consequences, most HECM originators declared that the nonrecourse afforded by FHA insurance eliminated all those concerns.

To most originators it was a distraction to learn such tangential and theoretical information when home values were rising and the number of seniors waiting for information on reverse mortgages It was odd how the answers, definitions, was going. When questions came up and explanations from HECM originators at the office about the consequences of were so consistent. It must be HECM termination when the true, right? After emphasizing balance due was in excess of real estate taxation and real the then value of the home, estate finance in grad school the question was generally and holding a real estate met with: “Don’t worry Historically about it. The chances of the broker license for more than 12 years, HECMs seemed far balance due being greater the process too good to be true. That is than the value of the home and because, as explained, they at termination are so remote consequences it is not worth discussing. were. of HECM Even if that occurs, the FHA Despite not getting all foreclosure insurance will take care of all questions answered, with of that. So let’s get out there (and its a home appraised at more and originate more HECMs.” cousins: short than $800,000, it was hard to In the years that followed imagine how a mortgage with it was amazing to hear the sale, short such low available proceeds misinformation originators pay, trustee would result in a situation gave to seniors on this topic. have sale, etc.) where the balance due would It was as if some originators not been taught to were originating one kind of end up in excess of the value of the home at termination, reverse mortgage HECM, and others, another. even years down the road. originators. As a So with few other acceptable A recent thread of comments result, many in our alternatives, the widow got a on LinkedIn, which was industry have given eventually deleted, shed HECM. it a kind of considerable light on the “Shangri-la” twist. surprise many originators Around the Office felt as a five-year industry It is as if nothing veteran explained what In early 2005, the sheer negative comes he recently discovered boredom of retirement from of it. about HECM foreclosure a CPA firm made the idea at termination. By his first comment of helping seniors and learning more one could tell he was still confused about this “equity release” product and reeling from what he learned. very intriguing. So I joined a HECM The comment shows he was trying to lender. Training consisted of a half-day reconcile what he knew before about on a Saturday and on-the-job training HECM foreclosure with what he was from a mentor for a minimum of three being told by the servicer and – perhaps closings; unfortunately, the mentor even worse – his knowledge regarding canceled every meeting with borrowers. recourse. To a large degree, combining Instead the originator who provided the that comment with his second comment HECM for the widow took me on one clarifies what the servicer told him. >> of his appointments. Although the topic of foreclosure was mentioned, aside from no deficiency judgment no other consequences were mentioned.

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Surprised

Appalled

(All quotations were copied and only edited to remove superfluous content. All typos were left intact.) The industry veteran researched the credit report ramifications of HECM foreclosure with the servicer for a couple who had a HECM and wrote the following: “ … if they move out (to go to a nursing home or move in with their adult children), and the value is less than the mortgage balance, they cannot just walk away without a foreclosure or a short sale – still owing on the remaining debt. If they short sell it, they are in default on the remainder and have to use other assets, if any and if the bank requires it as a condition, as many often do, to mitigate the shortfall. Worse, it is a federal debt default since it’s FHA. It’s a lot more complicated when the owner is alive than if the owner passes away.” In his second comment the industry veteran goes on to say: “I can only say that a servicing lender told me that if the owner is still alive, there is either a foreclosure or short sale on the borrower’s record, plus the credit shows a short sale or foreclosure, and the only way to clear it is to pay the difference. I was appalled.” It seemed the industry veteran did not expect any negative consequences for the borrower when a HECM goes through foreclosure. While there can be no deficiency judgment obtained through the courts because of the nonrecourse nature of the HECM note, it seems the industry veteran was surprised to find that FHA insurance provides no more additional protections to borrowers than any other nonrecourse mortgage. The industry veteran was not alone in his dismay. Others in that same thread were appalled as well but it was very surprising to read what they wrote.

Are the Consequences of a HECM Foreclosure Different? Many claim that FHA insurance makes a HECM nonrecourse. Under this theory, FHA steps in and simply pays the difference between the balance due and the amount that is considered or actually paid in foreclosure. This theory is based on the concept that, since the borrower is paying for the insurance, FHA comes to the rescue of the borrower so that the payment from FHA is treated for all purposes as if it came directly from 28

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Some of the HECM Nonrecourse Myths Now the real confusion starts. One commenter stated: “A forward is not non-recourse. A reverse is NON recourse. The loans are FHA insured…. But, the borrwr, or heirs, are not subject to the penalties of a foreclosure or short sale.” The individual posting the now long forgotten original topic stated: “Based upon … his conversation with an individual at a servicing lender claiming a deficiency balance would be reclaimed by the lender may be correct if it is a non-recourse (private product) reverse mortgage loan that they foreclosed upon. I think there is plenty of agreement if it is a HECM, non-recourse loan, the deficiency balance is not reclaimed from the borrower after foreclosure as it is not permitted within the program.” Later the same commenter stated: “In the message above, strike (non) if is a recourse reverse mortgage, non-governmental.” When questioned about how a reverse mortgage could ever be recourse, the poster then stated: “…however I was thinking about HELOC’s, which in many states have a recourse provision….” A different commenter wrote (or rather “shouted”): “THIS IS NOT A TYPICAL RESIDENTIAL CREDIT TRANSACTION.” The original poster replied: “I think there is a mixed message herein with the comments. A lost translation of the ‘typical residential credit process to property disposition’, foreclosure process.” The foregoing quotations demonstrate the confusion so many originators have regarding HECMs, nonrecourse, and foreclosure. It is time to shed a little light on the subject.

the borrower resulting in no negative ramifications, and somehow, since it is insurance, there are no income tax consequences. Everyone likes the results of this theory, even those who know it is a myth. First, as to the borrower there is no difference between HECM insurance and lender title insurance. Both are for the primary benefit of the lender with some benefits for the borrower as well. In neither case is the borrower the policy beneficiary. The borrower does not

participate in any part of the claim, if any. None of the legal documents make reference to the FHA insurance as the cause for nonrecourse because it is not. The truth is a HECM is not nonrecourse because of the FHA insurance. Lenders are willing to make the mortgage nonrecourse due to the protection FHA provides them. One of the FHA stipulations is that a HECM is nonrecourse. By federal law a reverse mortgage is nonrecourse [15 USC 1602(bb)] and, of course, HUD does

in fact classify HECMs as reverse mortgages. The terms of the note make it clear that the note itself is nonrecourse; this means that if for some reason FHA cannot honor the insurance because of fraud or an unknown material defect, the mortgage is still nonrecourse. Since a HECM is a nonrecourse mortgage, its consequences are no different than any other nonrecourse debt in the state where the collateral (home) is located when it comes to foreclosure, etc. Despite what one commenter After wrote, forward emphasizing mortgages can real estate be recourse or taxation and nonrecourse. All mortgages real estate including finance in commercial grad school mortgages can be recourse or and holding nonrecourse; it a real estate all depends on broker license the terms in for more than the note.

12 years, HECMs

Generally seemed far too there is no good to be true. way to avoid That is because, negative credit as explained, they reporting from a foreclosure were. (or short sale, etc.) on a nonrecourse mortgage unless the mortgage is paid in full as a result of sale plus the borrower making up any shortfall. The FHA payoff does not count for this purpose since FHA is insuring the mortgagee in foreclosure, not the mortgagor.

to the trust; equitable (the legal concept of equity) title remains in the hands of the property owner/borrower. (Yes, in California title technically does change in a HECM transaction, but except for the trustee’s power to sell, the borrower generally retains all property rights.) With a trust deed, the trust holds legal title, the borrower is the trustor, the lender is the beneficiary, and the trustee is normally a paid third party. Elizabeth Weintraub has a fairly good explanation at ask.com. So it is false to say in states with trust deeds that legal title does not transfer; it does but no differently than any other mortgage recorded in the same way in those same states.

Conclusion

in the terms of the HECM note; lenders cannot obtain a deficiency judgment against the borrower. As to the borrower in termination, there is nothing extraordinary, unusual, special, or favorable about a HECM over any other nonrecourse mortgage. Nonrecourse is nonrecourse. As to income tax consequences, the benefits of the income tax deduction of accrued interest can exceed the detriments of gain recognition for borrowers but planning in this regard can be crucial. The income tax detriments for estates, and possibly heirs, can be much different and far worse.

Next month the series on nonrecourse will conclude with some income tax There is no special category for HECMs aspects on HECM foreclosure and some in California, Arizona, and most likely all answers on servicer compliance. g other states, other than nonrecourse. As previously stated, when foreclosure occurs on a HECM, the results for the borrower are no different than for any other nonrecourse mortgage in the state where the the scoop home is located. Conference season is upon us and Credit suffers, The Reverse Review wants to make sure your income tax company receives ultimate exposure. consequences result, etc. Of the contact course the borrower can For special advertising rates and avoid all of that more information contact negativity if THE the borrower review (including sales proceeds, if any) simply pays off any remaining balance due before FHA 858.832.8320 or reimbursement. kate@reversereview.com What is true is what is stated

It’s

time!

REVERSE J U LY / A U G U S T 2 0 1 1

Kate Sheeh an

John LevoniCK

Some Nonrecourse Facts In California the security for a mortgage is generally recorded through a deed of trust. The lending process transfers literal legal or “bare title” in the property

Putting ReveRse Lending on the Road MaP INSIDE this issue

3 prevalent misgivings of reverse mortgages By Jonathan neal

a problem affecting seniors nationwide By John Smaldone

the industry without wells and bofa By dave Bancroft

* The article is not legal advice. As to questions about short pay, foreclosure, short sale, deed in lieu of foreclosure, and similar transactions, originators should advise borrowers to seek the counsel of a competent attorney specializing in such matters and practicing law in the state where the property is located.

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The Reverse Review September 2011

the Essentials

Unlocking the Opportunity for Jumbo Reverse Mortgages With the current economic condition, the time is opportune to launch a new product. Tony Garcia

D 30

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ue to current housing market conditions, possible future FHA lending limit reductions and the number of baby boomers becoming seniors, there exists a great opportunity for the introduction of proprietary jumbo reverse mortgage products. ¶ In the last 11 years, housing has arguably been through the steepest market rally followed by the biggest decline in our lifetime. Following the peak, we took an “over the waterfall” three-year drop in home prices, exceeding 40 percent in many metropolitan areas. >>

Beginning in 2003 the real estate market boomed as lenders expanded the subprime mortgage market to borrowers that could not afford the properties they were purchasing. Existing homeowners were able to dramatically increase their mortgage balance through “cash out” refinancings they could not afford. Remember the day traders in the dotcom bubble? They became speculative property flippers in the real estate boom. The frenzy continued until the market peaked in the second half of 2006. As an example, in late 2007 Countrywide was doing more than 150,000 appraisals a month, according to their head appraiser. Once all possible buyers were in, the real estate market crashed, as there were no more buyers left to continue the rally. The mortgages these properties were based on were packaged into securities that also collapsed, causing a subsequent crash in the under-regulated derivatives market and leading to a worldwide liquidity crisis. Now, hopefully, we are in the process of forming a bottom in home prices and utilizing prudent underwriting standards. How has this crisis affected the reverse mortgage client? Admittedly, many are underwater, but at least they remain safe in their home. The big bad foreclosure wolves are not huffing and puffing to blow their house down. Seniors with higher-valued homes, however, are underserved in the reverse mortgage market. In previous years, there were several different jumbo reverse mortgages available with competitive rates and fees, some with creative equity retention options. Today, very few alternatives exist in this niche, but with expected changes in demand for a jumbo reverse mortgage, it could be an opportune time to launch a new product. FHA limits have a direct impact on demand for jumbo reverse mortgages. If a 75-year-old homeowner has a $1,000,000 home, for example, they will compare

how much they can get from a HECM to a jumbo. With a relatively high $625,500 FHA limit, the 75-year-old will have a higher HECM approval. If, however, our FHA limits are reduced to as low as $417,000 in October, the jumbo approval amount might exceed the HECM. Considering how many homes in the country exceed the $1,000,000 level, it’s easy to understand how demand for a jumbo could spike very soon.

years have seen very few new homes being built. When construction resumes, there is going to be a “sticker shock” at the cost of new home construction. Commodity prices for materials to build a new home (copper, steel, wood, etc) are up 30 percent. >>

Given the lower loan to value ratios typically offered by a jumbo product, it would present a relatively low risk to the investors. It appears we are near the trough in home prices for several reasons. One involves the cost of building; the past five

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The cost of new home construction will help support the price of existing homes. Another factor is the cyclical nature of the real estate market, which of course is impacted directly by employment. According to a recent Bloomberg article (July 18, 2011) researchers at the Fed are reaching the conclusion that they are dealing with a mostly cyclical bout of unemployment. Fed forecasters say U.S. unemployment will return to its pre-crisis level of 5-6 percent by 2016. “Neither party has an awareness of the why or the wherefores of how to put America back to work again. It is becoming obvious that the 2012 election will be fought on a battlefield of job creation,” says Bill Gross, Manager of Pimco Total Return Fund. Indeed, this is truly a key in solidifying the housing market. So if the cost of materials and unemployment are primary components of future home prices in general, what will have a more profound influence on the reverse mortgage market? I can almost hear Paul Revere: “The boomers are coming! The boomers are coming!” Baby boomers will cause the number of seniors to double from roughly 40 million to 80 million over the next 20 years. We need to come up with products to cater to this tremendous opportunity before us.

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In the political arena, there’s a creeping realization that everything is suddenly in play, both out of political necessity and intergenerational fairness. Budget negotiations between Congress and the White House include wrangling over

Baby boomers will cause the number of seniors to double from roughly 40 million to 80 million over the next 20 years. We need to come up with products to cater to this tremendous opportunity before us. $350 billion in potential Medicare and Medicaid savings over the next 10 years. We’ve heard from the Tea Party, now just wait until the 80 million-strong “Gray Party” speaks up! Clearly the need exists for reverse mortgages to help pay for future medical needs for the booming senior population. The market will need products to accommodate seniors 55 and older. As an example, one pays 33 percent less for long-term care insurance at age

55 than at age 70. We need to provide parallel financing to help the seniors purchase these types of products and fund their future medical care. With Bank of America and Wells Fargo exiting our market because of problems not related to our industry, there is an opportunity to hire good producers to fill the void created. Speaking of banks, there is a tremendous opportunity to educate and represent the smaller community banks and credit unions that have many seniors as customers. This is a time for good independent shops that have survived this market and believe in the industry to join forces and provide a national distribution network with a wealth realization far better than they could achieve on their own. This is also a great time to provide propriety products and services not possible individually, and enjoy a greater profitability due to the size created. Presently we are back to 2003 home prices, but this time around is very different. In 2003 we were doing four times the number of reverse mortgages that we are doing today. Today more than 50 percent of the people looking into getting a reverse mortgage have too large an existing mortgage for us to be able to help them. They want to get a reverse mortgage, but we can’t do the loan because so many of the new borrowers coming into the market refinanced a conventional mortgage at some point during that dramatic market upswing four to seven years ago. We would need an additional 25 percent appreciation in home prices to be back to the volumes we were doing in 2003. Given that the Fed doesn’t see employment returning to historical norms for four or five years, now is the time to create proprietary jumbo products to increase reverse loan volumes and service the growing baby boomer market. g

the Resources Information at your fingertips. A listing of advertisers and contributors featured in this issue. l

AppraiserLoft

Kirchmeyer & Associates

Performance Title

Americaâ&#x20AC;&#x2122;s Reverse Title Company

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Loan Well America

Direct Finance Corp.

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New View Advisors LLC

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amrevtitle.com 866.259.0168 celink.com 517.321.9002

dfcmortgage.com 781.878.5626 icgtax.com 972.991.0391

iReverse Home Loans ireverse.com/employment 800.486.8786

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kirchmeyer.com 800.771.5246

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loanwellamerica.com 727.669.1705

mortgagecadence.com 888.462.2336

newviewadvisors.com 212.353.2932

performancetitle.com 888.641.3334

reversemarketinsight.com 949.429.0452

Reverse Mortgage Crowds reversemortgagecrowds.com 800.604.6535

ReverseVision reversevision.com 919.834.0070

RMS

rmsnav.com 888.918.1110

Security One Lending s1l.com 619.794.0797

8/11/2011 9:29:56 AM

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The Reverse Review September 2011

the Last

Word Considering the changes we have seen in our industry these last 12 months, as well as the changes about to take place, it is more important than ever that as many of us attend as possible. And when I say “many of us,” I mean independents. I’m sure the big boys – the few that are left – have their plane tickets and hotel reservations. I’m sure they have blocked out those days on their calendars and confirmed with the powers that be that their expense accounts will cover their meals and expenses for those few days. It’s just a little different for those of us who actually depend on funding loans to cover these expenses. Do I sound bitter? I hope not. It is not my intention. I am very glad the location is on the East Coast as I am located in Florida and it is much more convenient than coming out to California, as I have done several times. However, this does make it much more inconvenient for our friends on the West Coast, which is a real bummer because many of the great players of the industry are out there. Nothing can be done about that.

NRMLA Annual Meeting & Expo Michael Banner

This year’s Expo will be held October 24-26 at the Renaissance Boston Waterfront Hotel. 34

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I like the premise of having the Expo on the East Coast one year and West Coast the next. Kudos to NRMLA! But I would like to point something out. The backbone of the mortgage industry has always been the independent. The largest players in the nation have always seen the most success from their wholesale division, not retail. This is a fact, not an opinion. And the reverse mortgage industry is no exception. Now before all my friends in Met retail or Genworth retail start sending me mean emails, let’s all take a deep breath. This is the mortgage industry; accept it. It always has been and always will be. With the untimely exits of BOA and Wells Fargo, the backbone of this industry needs to know that the few giants that remain are

here to stay. And the best way to get that message across is at this trade show! For those of you that haven’t had the pleasure of meeting the national players, this is the time and place to do it. Have a conversation with Peter Bell and the staff from NRMLA and see the passion they have for this great industry. Meet the players of Met, Genworth, Security One Lending, Reverse it! and others (no one was intentionally omitted; I just can’t list them all), and witness their commitment to not only seeing our industry survive, but prosper! All that being said, maybe having this Expo in one of the most expensive cities in the country – and at one of the most expensive waterfront hotels in that city – might not have been the best decision. I know all the big boys will be there, but how many of the hundreds of producing loan officers I converse with on LinkedIn will be there? These are the producers, these are the people that have survived these last two terrible years and these are the people that should be there. Hmm ... Here is my suggestion for next year: Vegas, baby! The deals are always incredible. The flights and hotels are within reach of the masses! Remember the masses? Many of you may be smiling at this, but I am dead serious. In addition to the financial reasons, many would consider making this trip a vacation, with our wives or girlfriends (or both!). This is why so many large conventions are held in Vegas. It increases attendance. And higher attendance is good for all. The year after that it’d be back to the East Coast for Disney World here in Orlando. The same reasons apply. Think about it … because this is the last word. g

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