The Reverse Review - February, 2011 by David Peck

THE

REVERSE FEBRUARY 2011

review

HMBS

as “Holy Grail”of fixed-income securities REFORMS: consequences for

A Conversation with New View Advisors’ Joe Kelly.

ORIGINATORS

SEcRETS for reFerRals

customers

CH AN G IN G : what lenders

MUSTdo

Atare E. Agbamu

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TRR 02.11

Moving Forward in Rever se

l i a the Essentials em l

HMBS as “Holy Grail” of Fixed-Income Securities 24 A conversation with New View Advisors’ Joe Kelly.

Atare E. Agbamu

Reverse Lenders Have Reasons for Optimism, But Must Change as Their Customers Do 30 To increase market penetration, lenders must improve how they communicate the benefits of reverse mortgages.

Robert D. Yeary

The Poor-Taste Police 34 It is difficult to enforce good taste, but if we all do our part, we can avoid the public display of poor judgment in the reverse space.

Sarah Hulbert l

the The Report 7, 9

The Conversation

The Industry Roundup 18

The Perspective 12

Human Interest 19

The Advisor 14

The Resources 41

Ask the Underwriter

4 | TRR

Core

The Last Word 42

Meet the Team Publisher

Aman Makkar Your greatest strength is knowing your greatest weakness.

Letter from the Editor

Editor-in-Chief

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

Copy Editor

Kersten Wehde I can’t read a menu, text or wedding invitation without proofreading it. It’s the start of a new year (boy,

and ways they have helped seniors in

have many changes coming down

changing moment in a senior’s life

that came quickly!) and while we the pipeline, it seems as if we are in a holding pattern for the time

being. In Brett Varner and Ralph

Rosynek’s columns this issue, they touch upon the changes to come in April and where our industry

did for them. It’s stories like this that truly remind us why we are in this

Chairman and CEO Robert Yeary and

the publication and on the website

(reversereview.com). Be sure to log on for daily updates and all of the

breaking reverse mortgage-related news.

This month we have switched things

this issue, with articles from RMS

toward. We bring you four heartfelt stories from people in the industry

Brett Varner “He who spends too much time looking over their shoulder, walks into walls.”

as well as a compelling interview with Joe Kelly from New View

Advisors as our feature article. Please sit back and enjoy all of

Printer The Ovid Bell Press

February issue!

Advertising Information phone : 858.832.8320 e-mail : advertising@reversereview.com

our hard work that went into the

Subscriptions and Editorial Content phone : 858.217.5332 e-mail : information@reversereview.com website : reversereview.com

human interest piece. It’s always

picture: what our efforts are going

News Editor

Seattle Mortgage SVP Sarah Hulbert,

up a bit and are bringing you a new

good to step back and see the bigger

David Peck Changing the industry... one ad at a time.

work is helping those who need it.

interested to watch it all unfold

bring you all the latest news, both in

National Accounts Manager

industry, and how much our hard

We have a great lineup for you

over the next couple of months and

Tray-Sea Knight I don’t even know how to spell my own name. Sorry, Kersten.

and what exactly a reverse mortgage

may go from there. While things

are quiet on the front for now, I am

Creative Director

dire need. Each story conveys a life-

Until next time,

Editor-in-Chief { emily

vannucci

}

© 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

the Contributors

Feature Article

Dave Bancroft

Atare E. Agbamu

HMBS as “Holy Grail” of Fixed-Income Securities, pg 24

The Conversation, pg 16

Dave 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. Dave 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 l

Sue Haviland, CRMP 2

The Advisor, pg 14

Sue Haviland is Co-Founder of ReverseMortgageSuccces.com. She has been in the mortgage industry more than 25 years. Unlike many others Sue originates reverse mortgages each and every day and has earned her Certified Reverse Mortgage Professional designation. If you would like to profit from the largest niche to ever hit the mortgage industry, grab the free course and profit-producing tips at reversemortgagesuccess.com. l

Sarah Hulbert

Atare Agbamu is author of Think Reverse and more than 140 articles on reverse mortgages. Since 2002, he writes the column, “Forward on Reverse,” the first regular column on reverse mortgages in America’s mortgage media. thinkreverse.com

3 3

Sarah Hulbert is SVP at Seattle Mortgage Company, an affiliate of Seattle Bank, for which she oversees all reverse mortgage activities within the company. With 19 years of industry experience covering most aspects of the reverse mortgage business, Hulbert served four terms as Co-Chair of NRMLA’s Board of Directors. She is a current board member (ex-officio) and Co-Chair of NRMLA’s Standards and Ethics Committee. 425.765.4856 | shulbert@seattlemortgage.com l

John LaRose

The Last Word, pg 42

John LaRose is the Chief Executive Officer of Celink, the nation’s largest reverse mortgage subservicer. John also serves on the Board of Directors of the National Reverse Mortgage Lender’s Association and is the Co-Chair of its Compliance Subcommittee. l

John K. Lunde

6 | TRR

The Poor-Taste Police, pg 34

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. 949.429.0452 | rminsight.net

The Reverse Review February 2011

the Report

December 2010 Wells Fargo Bank of Bank, N.A. America, N.A.

Top Lenders Report

MetLife Bank, N.A. Endorsement 638

One Reverse 1st AAA Mortgage LLC Reverse Endorsement Mortgage 368 Endorsement 129

12345

Endorsement

CHARLOTTE

1820

Endorsement

Lender

864

Endorsements

Lender

Endorsements

GENERATION MORTGAGE COMPANY

114

UNITED SOUTHWEST MORTGAGE CORP

FINANCIAL FREEDOM ACQUISITION

GUARDIAN FIRST FUNDING GROUP

M AND T BANK

FIRST NATIONAL BANK

PNC REVERSE MORTGAGE LLC

URBAN FINANCIAL GROUP

SUNTRUST MORTGAGE INC

UPSTATE CAPITAL INC

AMERICAN ADVISORS GROUP

TRADITIONAL HOME MORTGAGE INC

GREAT OAK LENDING

MCGOWIN KING MORTGAGE LLC

SECURITY ONE LENDING

M AND I MARSHALL AND ILSLEY

MIDCONTINENT FINANCIAL CENTER

OPEN MORTGAGE LLC

MORTGAGESHOP LLC

PRIMELENDING A PLAINSCAPITAL CO

CHERRY CREEK MORTGAGE CO INC

MAS ASSOCIATES

NET EQUITY FINANCIAL INC

EQUIPOINT FINANCIAL NETWORK

SENIOR MORTGAGE BANKERS INC

HARVARD HOME MORTGAGE INC

FIRST MARINER BANK

BRIAN A COLE & ASSOCIATES LTD

MONEY HOUSE INC

AMTEC FUNDING GROUP LLC

MASTER MORTGAGE CORPORATION

ASPIRE FINANCIAL INC

SENIOR AMERICAN FUNDING INC

GENWORTH FINANCIAL HM EQUITY

IREVERSE HOME LOANS LLC

PROSPERITY MORTGAGE COMPANY

NEW DAY FINANCIAL LLC

WILMINGTON SAVINGS FD SOCIETY

STAY IN HOME MORTGAGE INC

METAMERICA MORTGAGE BANKERS

PRIORITY MORTGAGE CORPORATION

GERSHMAN INVESTMENT CORP

SENIORS REVERSE MORTGAGE

APPROVAL FIRST HOME LOANS INC

TRR | 7

the Contributors

Brett G. Varner

Ask the Underwriter, pg 10

Ralph Rosynek has been The Reverse Review “Ask the Underwriter” columnist 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

7 7

Ralph Rosynek

Robert D. Yeary

The Advisor, pg 14

8 | TRR

Brett G. Varner is the newly appointed News Editor for 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

Brian Sacks is Co-Founder of reversemortgagesuccces.com. He has been in the mortgage industry for over 25 years. Unlike many others, Brian orginates reverse mortgages each and every day! If you would like to profit from the largest niche to ever hit the mortgage industry, grab the free course and profit-producing tips at reversemortgagesuccess.com.

The Perspective, pg 12

Brian Sacks

Alain Valles, CRMP 9

The Advisor, pg 15

Alain Valles, CRMP, is President of Direct Finance Corp, Hanover, MA. He has obtained the CSA designation, a master’s in real estate from MIT, an MBA from the Wharton School, and graduated summa cum laude from the University of Massachusetts. Alain’s mission is to improve the quality of life through responsible financing. 781.878.5626 | avalles@dfcmortgage.com

Reverse Lenders Have Reasons for Optimism..., pg 30

Robert D. Yeary is Chairman and Chief executive officer of Reverse Mortgage Solutions Inc. (RMS) in Spring, Texas. The company is a premier provider of hosted reverse mortgage loan servicing software as well as the nation’s leading authority on all aspects of reverse mortgages, specializing in reverse mortgage servicing and sub-servicing. He serves as a Director of the National Reverse Mortgage Lenders Association (NRMLA). byeary@rmsnav.com

The Reverse Review February 2011

the Report

INDUSTRY SUMMARY Retail Endorsement Growth

-34.54%

November Endorsements Retail and Wholesale Volumes

Wholesale Endorsement Growth

-10.4%

- Reverse Market Insight

Total Endorsement Growth

-24.0%

Holidays seem to come faster each year (Christmas music will start in July this year!), and then they’re gone just as fast. Our first Wholesale Leaders

* Figures Above Reflect Change from Prior Month

Trailing Twelve Month Endorsements

report of the new year shows a similar disappearance, as the broker/

wholesale side of the industry saw the beginning of a positive trend from September to October vanish in November.

After two consecutive months of outpacing retail/direct endorsement

growth, wholesale fell way behind retail in the upswing. Gaining 10.4%

would be a strong performance in most months, but it pales in comparison to the 34.5% surge in retail. For the past six months, wholesale has grown

10,000

slower when the industry grows but also shrinks less when the industry

8,000

declines.

6,000

That might be a recipe for “slow and steady wins the race,” but it’s only

4,000

been enough to slow the advance of retail’s market share from 47.8% in

2,000

December 2009 to 61.1% in November 2010.

0 12 1 2 3 4 5 6 7 8 9 10 11 Retail

Wholesale *Numbers Represent Months

RETAIL UNITS CHG%

WHOLESALE UNITS CHG%

TOTAL UNITS CHG%

3,954

3.08%

3,171

-19.8%

4,450

2.87%

7,621 -7.96%

3,124

-1.48%

3,890 -12.58%

7,014 -7.96%

2,783 -10.92%

3,038 -21.9%

5,821 -17.01%

2,692

-3.27%

2,813 -7.41%

5,505 -5.43%

2,465

-8.43%

2,086 -25.84%

4,551 -17.33%

2,900 17.65%

2,404 15.24%

5,304 16.55%

3,358 15.79%

2,521

4.87%

5,879 10.84%

3,969

18.2%

2,672

5.99%

6,641 12.96%

3,405 -14.21%

2,558 -4.27%

5,963 -10.21%

2,976

-12.6%

2,307

-9.81%

5,283 -11.4%

4,004 34.54%

2,547

10.4%

TOT

38,801

4,326 10.89%

35,612

7.02%

8,280

24.0%

6,551

Among top 10 lenders, three of the nine with wholesale business grew

their volumes, while just two of the 10 grew retail. That may not sound like a dominant performance, but it’s easier to understand why the top

10 gained share if we look at how many grew OR declined less than the industry overall.

• Retail channel outperformed industry decline for eight of the top 10 lenders.

• Wholesale channel outperformed for seven of the nine top 10 lenders with wholesale business.

In this context, the clearest trend of all is that small lenders are losing ground to their larger competitors. Retail vs. wholesale/broker will remain an interesting perspective, but it is just a visible effect of the underlying cause: small lender erosion. g

74,413

TRR | 9

The Reverse Review February 2011

ask the Underwriter responsibility and problem

My underwriting experience

do, we just originate and

has been a mixed bag. Most,

with TPO-originated files

– they will tell us what to

if not all, lenders require a

process…”

My reaction was a nervous thought: How many other

mortgage professionals feel similarly?

Have we gotten to a

point where our ability to participate and perform

in an industry has been so

conflicted by change that – somewhat in desperation – the production force

has embraced a mindless

approach to doing business? Contrary to the opinion that day, I believe there

remains a much-focused

approach to doing business,

Reform Brings

Consequences for Originators Ralph Rosynek

which we must all be aware of and participate in. The

implementation of regulatory and legislative reform that

will unfold over the months

to come has some very serious consequences for originators.

One key area of focus that will be evolving is that of quality control.

Clearly the information

contained in ML 2011-02, Quality Control

I was somewhat taken aback by a comment made by a mortgage professional during a recent holiday gathering. In essence, they said, “… Besides, now

that we are all TPOs, it is all the lenders’

10 | TRR

Requirements for Direct Endorsement Lenders,

reconfirms a quality control perspective that directly places compliance and

diligence on the third-party originator (TPO).

copy of the TPO company

Have we gotten to a point where our ability to participate and perform in an industry has been so conflicted by change that – somewhat in desperation – the production force has embraced a mindless approach to doing business?

quality control policy and procedures at the time of approval. In many cases, some shops have relied upon purchased plans,

lender-provided “sample outlines” or “copy and paste” documents.

As time goes by and

production builds, each party seems to assume that procedures are in

place and the TPO policy and procedure originally provided is being

implemented as detailed.

Generally, there is no further lender check or “worry” if the files being submitted

are of quality and there are no repercussions resulting from either the lender’s

subsequent sale/execution or internal QC diligence procedures.

Many lenders take comfort in the fact that quality

control is outsourced by their TPOs. Many TPOs take comfort in the fact

that they have outsourced their quality control

responsibilities. For the most part, the reports come back with few issues. Problem solved?

A past situation comes to mind when

Sponsored Third Party Originators must be

have Sponsored Third Party Originators,

TPO file wherein they outsourced their

Quality Control Plan. At a minimum, these

review of loans originated and sold to

reviewing a fraud loan repurchase on a quality control responsibility after closing.

The lender showed no issues resulting from their QC procedure of the file. However,

the fraud in this case occurred internally

included in a mortgagee’s FHA-approved

procedures must include the requirements outlined in Paragraph 7-6 of HUD Handbook 4060.1, REV-2.”

Sponsors must document the methodology

same quality of loan file submissions the

used to review Sponsored Third Party

lender had come to know and expect from

Originators, the results of each review,

the TPO.

and any corrective actions taken as a result of their review findings. A report of the

Further investigation revealed the TPO

indicates all of those pre-underwriting/ pre-funding policies and procedures in the detailed TPO policy and procedure submitted to the lender at the time of relationship approval.

Oh, by the way, policies and procedures were never really fully implemented

from the onset, as the owner indicated his

experienced processor of 15 years was “very detail-oriented and could catch anything.” He further stated this was confirmed

by their excellent (10 percent of loans

submitted and funded) post-closing quality control results the lender reported to him. ML 2011-02 re-emphasizes the lender’s

responsibility to establish a documented

of each Sponsored Third Party Originator’s

HUD Handbook 4060.1, REV-2. In addition,

format, appeared to be consistent with the

dispensable. You are correct if your answer

determine the appropriate sample amount

the Department in Paragraph 7-6(C) of

disclosures that, when reviewed in final file

what time and expense was considered

Third Party Originators. Mortgagees must

experience and other factors specified by

of borrower-signed documents and

manage expenses. Take a guess as to

the mortgagee by each of its Sponsored

loans to review based on volume, past

by the originator, who produced a series

company had reduced internal staff to

the Quality Control Plan must require the

You as an originator should be prepared for your lenders to reestablish their QC requirements and begin effective monitoring of your files. This monitoring will also determine the effectiveness of the pre-submission QC procedures you have in place.

quality control program for TPO

ML 2011-02 further states: “All FHA-

approved mortgagees will be responsible

in sponsored relationships must have a

their Sponsored Third Party Originators.

review of loans that are originated or

originations. “Consequently, all FHA-

approved mortgagees, including those

for performing quality control reviews of

Quality Control Plan that requires the

The procedures used to review and monitor

underwritten. For those mortgagees that

Quality Control review and follow-up that includes the review findings and actions

taken, and the procedural information (such as the percentage of loans reviewed, basis

for selecting loans, and who performed the

review), must be retained by the mortgagee for a period of two years. Quality Control

review records must be made available to HUD upon request.”

In a time when our industry is the focal point for many concerns and criticisms (most of which have resulted from the

actions of a slight few), it is important that we continue to work together for quality loan transactions that stand the test of

investment quality. “They tell us what to do

– we just originate and process” is not going to be the effort and spirit that will maintain

an industry statement of professionalism for the borrower and for the lender. g

TRR | 11

The Reverse Review February 2011

the Perspective the reverse mortgage industry (and the mortgage industry as a whole) has been, and will continue to be, going through a period of rapid regulatory change. As the Consumer Financial

comment on the impact of the new rules

only expect this to ramp up even further.

So as time runs down, there are still

the industry without much time to allow

fundamental change in loan originator

anticipated or not, there is usually a period

originators within lender organizations,

to meet new rules.

From the tone of the MBA letter, it appears

Rarely is the industry given a significant

implementation until the requirements can

Protection Bureau takes shape, one can

While Compensation Rules Approach Brett G. Varner

It goes without saying that 12 | TRR

with them. None of the organizations were prepared to respond at this time, but weâ&#x20AC;&#x2122;ll continue to seek comment as the deadline nears.

In many cases, new rules are dropped on

a number of questions regarding a

participants to prepare and adjust. Whether

compensation, which includes loan

of unrest as organizations revise practices

as well as lender-to-broker compensation. that they are counting on the Fed to delay

amount of time to prepare and revise new

be revised and clarified.

from the Federal Reserve System (the Fed)

The overriding goal of the Final Rule

The 113-page Fed commentary on the

consumers against being steered toward

highlighted and discussed the new rules to

that offers the originator the highest

the mortgage industry more than seven

of the consumer. The key provisions

changes.

compensation from both the consumer

Yet four months later, there is still very

third party (i.e., rebate). Additionally, an

the industry as to how organizations

any variable term or condition of a loan, as

Concerned about the sweeping changes

extended to the borrower.

prepared to adjust, the Mortgage Bankers

It is safe to say that in the vast majority

Reserve on December 16, seeking guidance

compensation of the salespeople is either

the writing of this article, the Fed has not

of revenue their sales generate for the

and detailed request.

as in secondary loan sales, prices fluctuate

The Reverse Review reached out to a number

markets, revenue per unit also varies.

business practices as it has with new rules

Industry Waits

and how they were preparing to comply

regarding loan originator compensation.

is to provide enhanced protections for

Final Rule, released on August 13, 2010,

mortgage products and/or pricing

take effect April 1, 2011. This has afforded

compensation and is not in the best interest

months to prepare for these very significant

prohibit the originator from receiving

(i.e., origination fee) and the lender or

little information being revealed within

originatorâ&#x20AC;&#x2122;s compensation cannot be tied to

are preparing for this looming deadline.

in interest rate, other than the loan amount

and lack of clarity for an industry that is illAssociation sent a letter to the Federal

of businesses that involve sales, the

for implementation on the new rules. As of

directly or indirectly tied to the amount

provided a public response to the lengthy

organization. Since in most businesses, just

of reverse mortgage participants, seeking

based upon supply and demand in the Hence, the same product, or loan, may

loan origination occur when a consumer

So as time runs down, there are still a number of questions regarding a fundamental change in loan originator compensation, which includes loan originators within lender organizations, as well as lender-to-broker compensation. not bring a company the same amount of

In addition, variability in pricing structure

This opens the door to wide-ranging

borrowers and increases compensation,

revenue in January as it does in March.

profitability on the same loan volume if

compensation stays static based upon loan volume instead of revenue.

actually provides more options for

rather than opening the door to abuse. The utilization of both origination and

rebate allows an originator to structure

a loan more specifically to a borrowerâ&#x20AC;&#x2122;s

needs. Unfortunately, abusive practices in

fails to compare options of more than one

lender. The potential for pricing abuses by

predators in the mortgage industry would be virtually eliminated if they knew

borrowers were very likely to receive multiple quotes.

Assuming these rules do take effect

without change or delay, the market will adapt and survive. Innovation is the

nature of successful businesses. There

must be many deliberations taking place

across the country behind closed doors in

board and management meetings. It is just surprising that there has not been more

open discussion and debate about these

significant changes, their impact, and how the industry as a whole can implement them. g

TRR | 13

The Reverse Review February 2011

the Advisor sound crazy, but follow me for a minute and see if you agree with me in the end. For a long time,

and I started to cut. And even more

importantly, I looked long and hard at the

referral sources I was cultivating and made

I was the networking queen. I went to

some tough decisions.

even some that were not senior-focused.

First, I made a list of the things that were

anyone and everyone

list will be different from mine. I did

send me a reverse

planner within 75 miles. I did not need to

was going to keep in

agency in town. It was neither possible nor

phone and newsletter

focused on the referral sources that needed

because I was going to be darn sure I

I help the most? Basically, who would

day the light bulb went on (sometimes

their clients and build their business?

way I was approaching this was simply

most closely mirrored my own? This was

every senior-oriented industry event, and I wanted to meet

important to me. Try this exercise â&#x20AC;&#x201C; your

that could possibly

not need to work with every financial

mortgage referral. I

be connected with the largest insurance

touch with them by

very smart to operate this way. Instead, I

and whatever other method I could,

me. Who among these professionals could

was the one who got these referrals. One

see the reverse mortgage as a tool to help

you just gotta hit me over the head): The

And whose values and business practices

unsustainable. I took a good look at what

perhaps the most important question.

I was doing with my networking activities

The exercise took quite a bit of time but

was well worth it. I now have a loyal roster

I Want to Work with Fewer Referral Sources â&#x20AC;Ś Really!

Sue Haviland, CRMP and Brian Sacks

The title of this piece might 14 | TRR

of attorneys, financial planners, insurance

representatives, home health care agencies,

One day the light bulb went on (sometimes you just gotta hit me over the head): The way I was approaching this was simply unsustainable. I took a good look at what I was doing with my networking activities and I started to cut.

Realtors, etc. They were hand-selected and they know it. They are neither the biggest

in the area nor the most well known. Thatâ&#x20AC;&#x2122;s just fine. We are all focused on making sure each one benefits from the relationship.

They will continue to grow their business and so will I. Can you say the same for your referral partners?

Sometimes less really is more. After seeing the success I had implementing this idea, I began to incorporate it into my training programs. As you might imagine, some loan officers were skeptical at first, but

then came to embrace it when they saw

the results. Let me know if you think this

strategy could help you. Send me a note at sue@reversemortgagesuccess.com. g

The Secret to Referrals Alain Valles, CRMP

A sk for business.

Every communication with your network must include a clear “ask” for the referral. Make it obvious what you

want and how to get in touch with you, and why you

are the best one for the job. Most of us don’t want to be

perceived as pushy, but if we wait to be invited in, we may never get the chance.

The most cost-effective reverse mortgage lead is a referral from a

I recently presented a series of informational seminars to financial

start: an endorsement from a third party who trusts you.

loan officers. I was caught a bit off guard and said I’d be happy to

Many of us claim to “work by referral.” In reality we “wait for

thought you just taught about reverses.”

busy finding prospects for us. But 99 percent of our contact list is

Lesson learned. It’s my job to ask for the business. Practice saying,

trusted advisor. A referral is a “warm” lead that comes with a head

referral,” convinced that our borrowers and referral sources are all thinking about something else. They need to be converted into a

lead-generation stream through a three-step process. The process is simple, but requires discipline, patience and persistence. Let

planners. One participant called and asked if I knew any reverse help. His response was, “Oh, I didn’t know you would do that. I

“I’m never too busy for any of your referrals” after every call or contact with your database.

C all back and stay in touch.

When the referral comes, jump on it immediately. Speed

people know what you do.

Handing out a business card is not enough. Communicate with

is of the essence. Make the call right away to your new potential

interesting information about reverse mortgages. It could be reverse

secret is that I send a handwritten personal note to both the very

it, month after month. You need to be on the radar screen when

“Thank you so much for your note!”

the people on your list at least twice per month with helpful and

client as well as to the referring source to say thanks. My No. 1 trade

mortgage statistics or a story of how you helped a client. Keep at

same day! I can’t tell you how many calls I receive that start with,

the time comes for the source to make a referral. Going

for three months or more without communicating is like

Don’t focus solely on your borrower and forget to shower attention

awareness all over again.

including calls, notes, information mailers, in-person meetings,

disappearing. You’ll be forced to start building rapport and

on your referral source. Have in place a system of “touches”

and emails to demonstrate your character and competence to your

Here’s a test: If I randomly called your referral sources and asked if

referral sources. Studies show that you’ll need between eight to 15

name? If not, you need to focus on building stronger relationships.

despair; the same studies show more than 90 percent of salespeople

they know a reverse mortgage specialist, would they give out your

touches before a potential referral source starts referring. But don’t give up after making less than four contacts.

Follow this process and you’ll soon find yourself fielding as many

“warm” leads from referrals as you can handle. Shoot me an email as I’d love to hear about your tips and stories. g

Need assistance from the Advisor?

Send your question to advisor@reversereview.com and it may be addressed in the next issue. TRR | 15

The Reverse Review February 2011

the Conversation

Mortgage Industry Dave Bancroft

echinacea to ward off a full-blown fever, or the time I once spoke to the attorney

general’s office in the state of Washington about using the phrase “no payments” in

a mailer … let’s stop the insanity! Can we just apply some good ole common sense? Once inside the stadium, blimps, planes

Radio advertising for reverse mortgages is similar to ordering a mango smoothie at Denny’s off Alameda Street in downtown Los Angeles. Both

Resemblance

to the Reverse

people is unlike anything on this earth

(outside a Rob Zombie concert) and the

party surrounding it is just as interesting. It reminds me of the Financial Freedom

Broker Expo in Vegas so many years ago,

your appetite and leave your mouth dry.

flourished. I go for my first beer and I

apologize for not getting the info to you

highest-priced libation served in a plastic

appreciated.

leads for marketing. It may have the best

Today I am Rose Bowl-bound and this

and the grapes to wait out the results. But

result placed in front of you will destroy

where spirits were high and aspirations

For those that have made the mistake, I

need one … 10 bucks! This is officially the

sooner. For those I have saved, top shelf is

cup on record. It reminds me of buying TV conversion but you better have the wallet 10 bucks, really? Where is the

them all. I am on my way to Union Station to ride a train to Pasadena – thought I was smart to avoid the $50 parking fee. Upon

stepping into the train I notice six Homeland

Security officers stationed throughout the car. I

haven’t seen this much

fuzz since stealing peeks

at my dad’s old Playboys. I could not help but

parallel this extreme

policing to the over-thetop security going on in

our own financial world, with overkill legislation weighing us down. It’s like installing cameras

after the robbery, taking

16 | TRR

of music fills the air. It’s on! The mix of

sound so good when ordering but the final

is my adventure to the Granddaddy of

The Rose Bowl: An Uncanny

and helicopters spot the sky and the sound

The mix of people is unlike anything on this earth (outside a Rob Zombie concert) and the party surrounding it is just as interesting. It reminds me of the Financial Freedom Broker Expo in Vegas so many years ago, where spirits were high and aspirations flourished.

Los Angeles Times reporter chastising

bathrooms and a smidge out of touch

Only our industry gets crucified for

You will be happy to know I made it

these fees and ridiculing this vendor? offering products to the public with

incredible consumer safety standards and gets tossed to the lions for misrepresentation of fees.

To add insult to injury,

the bathroom lines

with their constituents.

without incident and found my way

Ask the

Appraiser

back to the TCU student section in my red Wisconsin sweatshirt. Though the game may not have ended the way

I wanted it to, I was reminded by so

many around me how important it is to stay the course. Hold tight on this

bumpy road because you never know

are ridiculous – I mean

when a private school of 7K can knock

utterly unbearable. I try to

a Horned Frog. g

off a major institution with one leap of

bribe a gate guard with $20 to let me out so I can use a portable john, to no avail;

For those of you who missed the game:

I think he may be on the Ethics committee. As I stand in line I am baffled as to

Wisconsin

why so many suffer when the solution

(11-2, 7-1 Big Ten)

game ticket a Case number that is only

FINAL

is so obvious. Why can’t we give each

good for a certain bathroom? We can set

personal times for the urinal and include Case number transfers for those stricken

with stage fright. Kids will be treated like

You’ve asked,

we’ve delivered. Your very own appraiser

who is willing and able to

condos: some approved and on the list,

answer any question you

paperwork. Nobody whizzes for free,

The Reverse Review will

throw his way. This spring,

others need more proof and additional not on my watch. OK, can we just step back and pause for a second? Maybe a

better alternative could be offered. How about placing some portables along the fence lines of the stadium, or making it crystal-clear how brokers and their

ilk will be handled in the near future? Unfortunately this will never happen because the people who make these

rules are in box seats with their own

debut “Ask the Appraiser,”

TCU

(13-0, 8-0 MWC)

a monthly column fielding many of your unanswered

appraisal-related questions.

FINAL

21 http://espn.go.com/college-football/bowls/_/game/rose-bowl

Email questions to information@reversereview.com Look for your answer in an upcoming issue. TRR | 17

The Reverse Review February 2011

the Industry

Roundup

industryround up edition

a roundup of this past month’s breaking news:

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

2010 -11

Find it here MetLife: With total wholesale volume of

7,247 as of November and a 700-loan lead over Bank of America, MetLife claims the top wholesale lender spot for 2010.

Jeff Taylor: Has stepped down from his

m ov er s k sh a k e rs Jessie Allen: Was promoted in November

by Bank of America from national retail

sales executive to the lead executive of the

reverse mortgage division, succeeding Steve

position as Chairman of Reverse Market

Inisght and will become an outside consult for the company, among many others through Wendover Consulting, Inc.

W h at H a p p e n e d ? Financial Freedom: It is hard to believe that

producing more than 1,100 units in 2010 is a fall from grace, but considering that marks a 75% reduction of the 4,000-plus loans

produced in 2009, it seems like Financial Freedom continues to drift in the wrong direction.

Golden Gateway: After raising $11 million in

capital they failed to sustain traction gained

in 2009 and announced in October 2010 they

Boland.

U p- k- C o m e r s

Genworth: Acquired the reverse mortgage

is a leading lender in the forward mortgage

Equitable Reverse Mortgage Company:

their internal lead generation systems.

in 2010. With a volume of 400 loans for the

Equitable surprisingly announced they

websites of Premium Reverse leads to boost

Knight Capital Group: Completing their

acquisition of Urban Financial Group in

PNC Reverse Mortgage, LLC: PNC Mortgage

were shutting their doors.

space, but they came on the reverse scene

After climbing to a top 10 lender in 2009,

year, they have quietly climbed to No. 20.

were shutting down in early 2010, stating

Senior Mortgage Bankers, Inc: At No. 17

or ability to raise the capital that would be

that they didn’t think they had the position

July 2010, they further boosted their reverse

nationally with 561 units for 2010. It would

required to survive a challenging market.

platform in Guardian First Funding Group

business is exclusively in Puerto Rico.

Northwest/Alaska: This region claimed the

spokesperson.

Great Oak Lending, Inc: Since merging with

drop in reverse mortgage production from

Urban Financial Group: As of November

2010 and committing to reinvesting, they’ve

region was a close second at -42.6%.

an impressive 82.4% during a year when

to reach the 16th spot overall.

numbers drop.

Royal United Mortgage: Announcing an

Jim Mahoney: A founding member of

lending by hiring Tom Holsworth as

chairman from 2005-2006, Mahoney joined

climbed into the top 50 at No. 38, with 200

mortgage services by acquiring a retail

that included the rights to Robert Wagner as

2010 their wholesale division has grown by many other lenders saw their wholesale

surprise many people to know that their

1st Maryland Mortgage Corp in early in

increased their market share by almost 300%

official expansion into reverse mortgage

Financial Freedom’s predecessor and

director of the division in March 2010, Royal

New View Advisors in May 2010 in an

endorsements in 2010.

unspecified leadership role.

18 | TRR

unfortunate position of largest percentage 2009 to 2010 (-46.6%). The Pacific/Hawaii

HELP

It’s a simple four-letter word but it can mean so much, especially when it can go as far to save someone’s life. The Reverse Review spent the past two months working with four different companies to compile a human interest piece that shows the impact a reverse mortgage, as well as a little help are making in the lives of seniors.

human interest the Human

Interest Contributors

Bruce Barnes

Mark Draper

Karen Keating

Joshua Shein

EquiPoint Financial Network, Inc. Bruce Barnes, President of EquiPoint Financial Network, Inc, is a mortgage banking executive with more than 19 years of experience. He has dedicated the last five years of his experience to the reverse mortgage industry. His focus is creating an innovative reverse mortgage lending platform that makes it easier and faster for top producing reverse mortgage advisors to originate and close reverse mortgage production.

MetLife Bank, N.A. Mark has originated dozens of reverse mortgages nationwide. His experience encompasses all areas of the reverse mortgage process. He is an expert at using a reverse mortgage to help seniors out of bankruptcy and foreclosures. He enjoys working with elder law attorneys on life estates and trusts, CFP and CPAs. Mark is professional and experienced, and a trusted, knowledgeable resource. 732.318.4162 mdraper@metlife.com

Tradition Title Agency 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 | traditionta.com

Great Oak Lending Partners Joshua Shein is CEO of 1st Maryland Mortgage Corp. dba Great Oak Lending Partners in Timonium, Md. He founded the company more than nine years ago and recently led Great Oak’s merger with 1st Maryland Mortgage Corp., which made the company a FHA Full Eagle direct lender. Great Oak has been ranked No. 1 in Maryland for reverse mortgages for the last two quarters.

TRR | 19

The Reverse Review February 2011

Human Interest Bruce Barnes

Feedback like this

many other things, the household

Shortly after getting her

good intentions are

finances. Upon reviewing the details, she discovered that her husband

The reverse mortgage profession

had been keeping their dire financial

is filled with wonderful success

situation a secret. To her dismay, she

stories and professionals that are

found that they were deep in debt,

truly compassionate and caring. It’s

their family home was in foreclosure

through our daily experiences with

and they had no savings to speak of.

reverse mortgage customers that we

Betty explained in her letter that this

a job, it’s a ministry of sorts. We often receive letters and

Unfortunately, Betty’s

forcing Betty to take over, among

EquiPoint

realize the work we do is more than

had to be admitted to a care facility,

discovery left her feeling hopeless

and that her only source of comfort was found through prayer. She

positive feedback

from our customers, which helps

inspire and motivate us to continue our efforts to educate the public

about the HECM product. Many of

these letters express the customer’s gratitude for helping them achieve greater peace of mind.

prayed for help, peace of mind and the return of her husband to their family home.

I’ve received came from an 88-yearold woman named Betty. She had

been married to her husband for 59

cash poor. Betty became aware of administrator at her husband’s care facility and decided to make a call. Alone, scared and uncertain about

her future, Betty took out a HECM

loan and succeeded in saving their

that we realize the work we do is more than a job,

m i n i s t r y .

We often receive letters and positive feedback from our customers,

which helps inspire and motivate us to continue the endeavor

of educating the community about the HECM product. years, had two children, and lived in the same family home for more than 50 years. Betty, like many women from this era, never managed the

home finances – they were always

taken care of by her husband. One day her husband became ill and

20 | TRR

Betty’s husband passed

away. She explained that despite her sadness, she knew that she would be

OK: “Even though 100% of my prayers were not answered, I will live in

my family home until I die with peace of mind and now … nobody to clean up after, thank God.”

appreciated and firmly establishes that the

HECM product can be

life-changing. To those of you who have dedicated your professional

life to this industry, I

applaud your dedication and encourage you

to continue to serve

your communities by

educating the public on

the many advantages of the HECM product. g

husband were house rich and

It’s through our daily experiences with reverse mortgage customers

i t ’ s

family’s finances in order,

reminds us that our

Like many seniors, Betty and her

the HECM product through an

One of the most memorable letters

story did not end there.

Mark Draper

MetLife Bank, N.A. One of the greatest satisfactions I have had working

with seniors in the reverse mortgage field was with a client from upstate New York. John C. contacted me

after reading an article in the Sunday New York Times

titled “Reverse Gear” in which some of my clients and I were featured. John needed help; his wife, the sole

breadwinner, had taken early retirement and cashed

out her 401(k), then died of cancer. John lived on the

remainder of the 401(k) and tried to keep up with the family home, paid off their debt

bills, but he ended up in foreclosure with a first and

and put enough money in the bank

second mortgage on his doublewide.

facility. She wrote in her letter that

Desperate to save his home, John had already started

her life changed forever.

inexperienced mortgage broker in

to help pay for her husband’s care

her prayers had been answered and

the reverse mortgage process with an Long Island. He had already

It was getting to the point had an appraisal done with the previous broker, but the value did not come in and they left

him hanging after promising him a reverse mortgage. John was

where I felt

individual lives and personal concerns. Since so many of the

for the previous mortgage

to become a part of their history.

company’s incompetence.

unhappy – the previous broker

and I had to reassure everyone

the value of an upstate New

and his plight. I had many

should have done research into York doublewide. If it seems

low to make the deal work, the

borrower should decide whether to continue with an appraisal. I

always follow this practice with

that I was committed to John

conversations with John to keep him focused. I truly believed he would end his life if I could not get him a reverse mortgage.

seniors have lived such interesting lives, we feel truly blessed

For many of the seniors, their grandchildren are the most

precious parts of their lives, which always reminds me of

my own daughter and the special relationship she had with her paternal grandfather. They truly adored spending time

together. She has many photos of him in her room, but some of her favorites are photos of them in Disney World. He was a wonderful grandfather and I will always remember what

a great sport he was when my daughter kept on turning the

wheel on the Tea Party ride; when they got off the ride, he was

my clients.

In the end, the two mortgage

I advised John to write a letter

payoff. The reverse mortgage

Unfortunately, in these uncertain and turbulent financial

from foreclosure, but also more

as my daughter. When so many seniors are having trouble

to the manager at the original

company. He did and received a full refund of the appraisal and an apology. By now, the

foreclosure letters were pouring in. Distraught over the loss of

his wife and now the impending loss of his home, John was

upside down by $20,000. The

plan was to get all his mortgage information, start the short payoff process with both

companies agreed to take a short definitely saved John not only heartache. As a matter of fact,

John called me about a year later. He had bumped into a high

school sweetheart, started dating and ended up getting married again. John is very happy, in

love, and thankful every day for the second chance that a reverse mortgage gave him. g

had gotten ourselves into. The

frustration we both experienced over the next six months was overwhelming. John’s file

was transferred to at least five

different people and each time I had to resend everything

that was already sent. John called every few days and

the stress was building – we were both losing sleep over

this. It was getting to the point where I felt blamed for the

previous mortgage company’s

incompetence. John’s sister and

brother-in-law began calling me,

paying their property taxes, they certainly can’t afford to

take vacations. For many seniors, reverse mortgages are their

best option for financial security. Reverse mortgages can help seniors to relax and enjoy their lives because no one should have to struggle merely to scrape by in their golden years. We have helped many seniors to have better lives with the money provided by a reverse mortgage. We met Francisco Navarro and

daughter Marcella on August 4, 2009. When

his

because his home was in foreclosure. Senior

difference and close a reverse

Little did we know what we

times, there are many children who will not be as fortunate

we met Francisco he was under enormous strain

mortgage companies, split the mortgage for him.

green, but smiling. My daughter treasures those memories.

Karen Keating

Tradition Title Tradition Title Agency, Inc. and Senior Security Home Advantage, a lending

area of United Northern Mortgage Bankers, Ltd.,

work together to educate the

senior community on reverse mortgages. The best part

of the work we do with the

seniors is learning about their

Security was able to help him save his home from foreclosure with a reverse mortgage. Marcella, his grandchild and his wife were present at the closing, where

Marcella said that they are forever grateful. Francisco, an excellent guitarist, was so happy that

his home had been saved he serenaded us.

We met Joseph and Mary

Sanfilippo on January 22, 2009. They

were a nice, elderly couple that had been

married for years. They explained that they were receiving

harassing phone calls because of some outstanding credit card debt. Senior Security was able to help them with a reverse

mortgage. At the closing they explained how relieved they

were to be debt free and to have additional money available to them in the credit line. Their plan was to enjoy themselves >>

TRR | 21

and travel to Italy. Joseph passed away before they got to take

Joshua Shein

We met Marian and George

Great Oak Lending Partners

from a friend of theirs. Marian

Like many homeowners, Joanne Crumb and

about doing a reverse mortgage

downturn.

a new car and do some home

Their story is not unusual: She is a cleaning

George passed away before

when the economy slowed. As the downturn

decided to proceed with the

meet. They fell behind on the bills. It became

now gives testimonials on Senior

the home her mother had left to her years ago.

the trip, but at least Mary is

financially secure because of the

money in the reverse mortgage’s credit line.

Wallace via a recommendation

her husband were hit hard by the economic

and George were very excited

because they wanted to purchase improvements. Unfortunately,

woman and he a carpenter who lost his job

the closing. However, Marian

continued, they struggled to make ends

reverse mortgage. In fact, Marian

increasingly difficult to maintain payments on

Security’s behalf, explaining that

Their credit quickly deteriorated.

...Marian now gives t e s t i m o n i a l s on Senior Security’s behalf,

explaining

t h at

she regrets not doing the reverse mortgage

so that she and George

could have enjoyed the benefits of the

Joanne and her husband were at a loss.

They tried to consolidate and pay off their debt with a repayment plan through their

mortgage company, but that only made the

situation worse. Their $900 monthly mortgage payments went up to $1,500 in order to

help them catch up. They searched for other

options with a mortgage broker, but nothing worked and the couple was inching closer and closer to foreclosure.

reverse mortgage t o g e t h e r .

Then, a friend and past client of 1st

she regrets not doing the reverse

Lending Partners told her about a reverse

George could have enjoyed the

was eligible for a reverse mortgage. She

mortgage sooner so that she and benefits of the reverse mortgage together.

We take great pride in the

security we bring to the seniors that we have educated and assisted over the years and

for this coming year, we look

forward to continuing to help

seniors realize the benefits of a reverse mortgage. g

22 | TRR

Maryland Mortgage Corp. dba Great Oak mortgage. Joanne had just turned 63, so she

contacted Great Oak at her friend’s

suggestion and immediately began feeling better about things. For her, a reverse mortgage was a no-brainer.

They tried to consolidate

and pay off their debt

w i t h a r e p ay m e n t p l a n through their mortgage company, but that only made the

situation

monthly

worse.

Their

mortgage

$900

payments

went up to $1,500

in order to

help them catch up. “I definitely would have lost this house without it,” she recently told me.

Because Great Oak is a direct lender, we

were able to move quickly and close her

reverse mortgage within a few weeks. That meant no more mortgage payments for

Joanne and her husband, and they were able to keep their home. Their only remaining

financial obligations for the house are taxes

and insurance. For someone like Joanne, this is ideal. The minute the reverse mortgage

closes, everything a customer owes on his or her existing mortgage is paid off.

For Joanne and her husband, the reverse

mortgage was a game-changer. A homeowner who has worked hard to pay down or pay off

their traditional mortgage for 30 years should

have access to that equity if they need it – it is their money. Eliminating monthly payments is a huge savings for homeowners and can significantly impact their lifestyle, and the

benefits are felt immediately. There’s no other product out there that can do this and have such a significant and immediate financial

impact – a welcome change for Joanne and many others like her. g

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. A ta r e E. A g b a m u R o b e rt D. Y e a ry S a r a h H u l b e rt

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.

TRR | 23

24 | TRR

HMBS

as “Holy Grail”of fixed-income securities A Conversation with New View Advisors’ Joe Kelly. Atare E. Agbamu

efore the mortgage-sparked national and global financial tsunami of 2008 which swept it and others into the rubbish of financial history, Lehman Brothers’ prowess in mortgage securitization (and all things mortgages) was the envy of Wall Street. For reverse mortgages, in the days when Fannie Mae was the sole buyer of whole HECM loans in the secondary market, Lehman supplied capital to launch the proprietary jumbo reverse mortgage market. It did not stop there.

It dug deeper into reverse country with a number of strategic moves: the acquisition and consolidation of portfolio companies, such as Financial Freedom, Unity Mortgage, and others into a dominant Financial Freedom; the buying of whole jumbo loans from a pioneer reverse jumbo lender that was leaving the business; and the deployment of critical capital market expertise to support a young and struggling proprietary market.

j New View Advisors

J oe K elly

= jjk@newviewadvisors.com

Kelly has described Ginnie Mae’s HECM Mortgage-Backed Security (HMBS)

Using the jumbo reverse loans

hiked monthly insurance premiums by

HomeFirst as underlying collateral,

and lower-credit-limit product (HECM

it bought from Transamerica Lehman engineered the first

securitization of reverse mortgages

150 percent, introduced a lower-cost Saver), and renamed the existing

product as HECM Standard, among

as the “holy grail” of fixed-income securities. We caught up recently to explore the “holy grail” idea as well as other vital issues in reverse-land. Atare E. Agbamu What is the

fixed-income market and what are fixed-income securities?

Joe Kelly Any security that pays

other changes.

a fixed rate on a debt instrument

between 2000 and 2007.

A Wharton MBA and tireless industry

an adjustable rate index. We are

Among its army of structured finance

finance was nominated for the Total

in U.S. financial history in 1999.

Four similar securitizations followed

talents was Joe Kelly, now a partner

at New View Advisors, a Wall Street boutique specializing in reverse

speaker, Joe Kelly’s work in structured Securitization’s North American RMBS Deal of the Year in 2007.

mortgages. A chief architect of the

Kelly has described Ginnie Mae’s

New View Advisors) anticipated, and

(HMBS) as the “holy grail” of fixed-

historic 1999 securitization, Kelly (and advocated for, some of the critical

changes that have repositioned the

HECM program for success in a leaner post-2008 world of reverse mortgage

lending: HUD has slashed credit limit across the board by about 18 percent,

26 | TRR

or a predetermined margin over

basically talking about bonds. Fixedincome includes municipal bonds,

treasury bonds, corporate bonds, and mortgage-backed bonds.

Atare And mortgage-backed bonds

HECM Mortgage-Backed Security

are where HMBSes are located, right?

income securities. We caught up

Joe Yes.

idea as well as other vital issues

Atare And that is probably the

transcript of our conversation:

right?

recently to explore the “holy grail” in reverse-land. The following is a

newest of the fixed-income asset class,

Joe Yes. I would say it is one of the

forward mortgage prepayments are

That’s not the case with a HECM. You

U.S. fixed-income markets in the past

is interest rate- and property market-

MCA, and if the HECM loan is not in

most important developments in the

generally higher and more volatile. It

couple of years.

driven. By contrast, the reverse

Atare Why do you say that?

HECM, are more range-bound. Not

Joe The HMBS market has rapidly

variability in HECM prepayment rates.

now have several billion dollars of

outstanding HMBS. Besides saving

the HECM program and the reverse mortgage market, there are unique aspects to its performance.

Atare What’s unique about its performance?

Joe It is a mortgage-backed bond

that has a decent spread; but more importantly, it has much less pre-

payment risk than other mortgage bonds.

that they don’t change, but there is less

[

Atare What else is unique about HECM?

[

grown to the point where you

mortgage prepayment rates, especially

J o e Its performance is also actuarially based. Its maturity is not certain;

it’s an event. And the event is more

predictable if you have a pool of loans, versus one loan. If you have a pool of loans, you can predict prepayments

default, you can put that loan back to HUD. That’s another unique feature. The unique features are its actuarial

nature, its prepayment stability, and

its extension risk protection. The FHA insurance is valuable to investors.

By itself, the FHA insurance doesn’t

make HMBS unique, but a combination of actuarial nature, prepayment

stability, and extension-risk protection is pretty unique. Also, the way the

market is now, there is a bit of excess

spread on HMBS versus your average new-origination Ginnie Mae.

within reasonable range if you know

Atare When you say “excess

the range of actuarial events would be.

investor, right?

the borrowers’ ages and therefore what

Another unique thing about the

spread,” you mean extra profit for the

Joe Not necessarily. It depends on

HMBS is that the underlying HECM

what price the investor pays. What

loan balance reaches 98 percent of the

newly originated HECM has tended

Atare Why is that the case?

has that put back to HUD when the

Joe The refinancing incentives and

Maximum Claim Amount (MCA).

are significantly less compared to a

when that is going to be. So, that

mortgage loan usually pays off over

would call “extension risk.” Extension

balance of the loan goes down and,

security longer than you

up. So there is more equity there for

be, for instance, if

a reverse mortgage, the loan balance

and the forward

there is less and less money to take out.

you invested

incentive, for a forward mortgage, if

refinance,

reduce your monthly payment. With

investment

monthly payment, so the incentive is

goes on and

the refinancing ability of the borrower

For a fixed-rate loan, you know exactly

forward mortgage loan. A forward

protects the investor from what we

time, so the equity builds up as the

risk is the risk that you own the

maybe even the property value goes

thought. That could

the borrower to take out. Whereas with

interest rates go up

goes up and the equity goes down, so

mortgage that

That speaks to the ability. As far as the

in does not

you refinance your loan, you can often

so your

a reverse mortgage, you don’t have a

extends – it

considerably less.

on and on

Consequently, if you look at the

now a low yield.

prepayment data, you can see that the

know when it reaches 98 percent of

earning what is

I mean is that the interest rate on

to be above the interest rate on most

newly originated forward mortgages. That may change in the coming year, however. >>

familiar with its details. There have

Atare OK, how important is the

fixed-income market to investors, and to consumers of credit?

Joe It is vitally important. The

economy couldn’t exist the way it is without a very robust fixed-income

market. That’s mostly how we finance housing, the government, and private corporations in this country. The

amount of debt that is raised, sold, and traded greatly exceeds comparable

amounts in the equity markets. If you construct a household balance sheet, or a corporate or FHA balance sheet, you’ll see most of it is fixed-income

instruments of one kind or another.

Atare You have described the HMBS as the “holy grail” of fixed-income

securities. With your pedigree on Wall

Street as a pioneer in reverse mortgage securitization, that is a very bullish

statement. Why are HMBSes the “holy grail” of fixed-income securities?

Joe There is no other fixed-income

security that has all those aspects

that I mentioned – actuarially based

performance; relatively stable and low prepayment speed; put back to HUD

when loan balance reaches 98 percent of MCA; extension-risk protection;,

and a healthy spread (especially in this environment).

also been non-HMBS reverse mortgage

There is no other fixedincome security that has all those aspects that I mentioned – actuarially based performance; relatively stable and low prepayment speed; put back to HUD when loan balance reaches 98 percent of MCA; extensionrisk protection;, and a healthy spread (especially in this environment).

protection, but the yield is much lower. There are fixed-income instruments

that have extension protection, but not necessarily prepayment protection. You are protected from your bonds

paying off longer, but not necessarily quicker. There are bonds that have

high yield, but they don’t have FHA

insurance, and so on and so on. I don’t know of a security that has all those things that the HMBS has. You add

28 | TRR

market is very small and doesn’t

have FHA insurance or the automatic 98 percent put, but it has excess

spread and it has a relatively stable prepayment.

Atare How deep is this awareness (HMBS as the “holy grail” of fixedincome) among fixed-income investors?

Joe There are more investors getting

into this market all the time. Every month we have about $800 million

of these securities being issued. Since prepayments are so low that’s about how much the overall supply is

growing. So every month you might

have a handful of investors investing in these securities, as well as existing investors adding to their portfolio, adding to their stake in the whole

program. The word is definitely out.

You saw improving execution in this market steadily, beginning around

May 2009. As the word spread, the demand for HMBS securities rose.

It was reflected in the price of those securities. As it turned out, this

happened just in the nick of time for

the reverse mortgage industry because Fannie Mae was pulling back.

Atare What are some of the

For example, there are fixed-income

instruments which have prepayment

securities issued in the U.S. That

all that together, it is a very valuable security.

Atare Is there a comparative security anywhere in the world’s capital markets?

Joe Well, there are other countries

that have reverse mortgages. Those

markets are relatively small, as they are here. In Canada, they have the CHIP program, though I am not

implications, both positive and

negative, of this awareness for the primary HECM market?

Joe It is positive because you’ve

got great execution and that creates a

virtuous circle versus the vicious circle we used to have. You have execution, you make money; then you have more investors

and more information

available to the investors,

such as prepayment data. This sets

The word is definitely out.

the table for demand and supply for the next round of issuance, which

generates more profits, more interest,

more investors, etc. That is a virtuous circle.

Previously, it was more of a vicious circle. We had one investor [Fannie Mae] and information was limited.

There were a lot of problems too in

the old days where we had the CMT Index for HECM but not LIBOR,

and no fixed-rate product either. So

You saw improving execution in this market steadily, beginning around May 2009. As the word spread, the demand for HMBS securities rose. It was reflected in the price of those securities. As it turned out, this happened just in the nick of time for the reverse mortgage industry because Fannie Mae was pulling back.

that was a vicious circle, where we

had small profits, small volume, and

there wasn’t much interest from new investors. It was very slow going

with the exception of the boom-let in 2006 and 2007. Before, sellers relied

on Fannie Mae as a whole loan buyer. There wasn’t a good securitization

program for HECM. Now, there is a great securitization program. On the negatives, not everyone can be an

HMBS issuer because

there are lots of things an

HMBS issuer has to do: They have to fund all the additional amounts

and then finance that somehow, they

have to bear the brunt of any defaults, and so on. Those are intrinsic risks to HECM, not HMBS per se. It is

just that with the HMBS program,

you can’t do what you can do with a lot of mortgage loans, for which

the seller can say: “Here are all the

loans. We will sell them into the trust as if we were selling whole loans.”

The seller then no longer retains any risk other than those created by its

representations and warranties to the

trust. The bondholders are bearing all the risks.

In the case of HMBS, you can sell the

HMBS, but you still are going to have

residual risks you have to deal with one way or another.

Atare So, you have to be well

capitalized to get into the game, right?

Joe The HMBS issuer bears liquidity

risk in two ways. First, it must fund future advances, such as borrower

draws and MIP payments. Second, the

HMBS issuer must provide the interim funding to purchase each HECM loan

from the HMBS trust at the 98 percent trigger. It can then put these back to

FHA, but still must reserve sufficient capital to perform this “middleman” duty on an ongoing basis. The issuer also bears default risk, for example, from tax and insurance defaults. A

defaulted loan cannot be put back to

FHA. Of course, HMBS issuers should have capital markets expertise and

infrastructure, and that requires capital as well.

Atare There is another potentially

troubling aspect I want you to address: Could this heightened awareness and interest perversely incentivize the

primary HECM market to produce

loans at any cost to feed Ginnie Mae’s HMBS machine?

Joe Well, New View Advisors

has always stressed the distinction

between the performance of reverse

mortgages and the rest of the mortgage sector. A securitization or any type of financing is only as good as the

underlying collateral. And for all those reasons we talked about, including

all the other safeguards of the HECM program, like the counseling and so on, there are lots of safeguards that exist in reverse mortgages that are superior to other sectors.

The other thing is some of those

mortgage securities, like the CDOs

and so on, weren’t structured as well and as conservatively as the reverse mortgage transactions were. With

the reverse mortgage transactions,

the rating agencies – now we are not talking about HECM anymore but

about jumbo reverse mortgages – had very strict criteria, resulting in those deals having a lot of subordination.

Getting back to HECM, we are talking about Ginnie Maes and those are

agency securities because it has the “full faith and credit” of the U.S.

government. Investors feel much more secure. It is a whole different animal if we are talking about CDOs and

subprime deals. >> cont. on pg 38 TRR | 29

The Reverse Review February 2011

the Essentials

l i a em

compu

ter

savvy

Reverse Lenders Have Reasons for Optimism, But Must Change as Their Customers Do To increase market penetration, lenders must improve how they communicate the benefits of reverse mortgages. robert d. yeary

30 | TRR

he reverse mortgage industry faced some serious and significant challenges in 2010, probably led by the continued decline in home prices, which meant many senior borrowers werenâ&#x20AC;&#x2122;t able to extract as much equity out of their homes as they previously thought â&#x20AC;&#x201C; or any at all.

The foreclosure epidemic continued to

borrow is between 10 and 18 percent less

borrowers defaulted on their loans because

assessed an ongoing insurance premium of

grow and spread. Many reverse mortgage

they couldn’t or didn’t make necessary tax and insurance (T&I) payments or required repairs on their properties.

At the same time, the FHA raised its annual

than on a HECM Standard. Both loans are 1.25 percent annually.

Different, Bigger Pool of Prospective Customers

insurance premium on reverse mortgages to

However, we don’t believe that difference

the costs from increasing loan defaults.

On the contrary, the drastically lower fees

1.25 percent, up from 0.5 percent, to cover In addition, the FHA lowered the amount

seniors can borrow through its Home Equity Conversion Mortgage (HECM) program

by as much as 5 percent, on top of the 10 percent reduction the year before.

But despite these setbacks, we believe the reverse mortgage industry is poised for a

strong 2011. There is a continuing, growing need for reverse mortgages just as new

products and lower pricing promise to open up the market to more seniors.

While some government changes to the FHA program make reverse mortgages less attractive for portions of the senior

will make the HECM Saver less attractive. and the smaller loan sizes will appeal to a

different – and bigger – pool of prospective

customers who have a less costly alternative to the HECM Standard mortgage, which was previously the only government-

guaranteed reverse mortgage available. The HECM Saver should appeal to seniors who only want to take out a small loan to fund

a limited project or who don’t plan to stay

in their home for the rest of their lives, not to mention those who were put

off by the higher,

upfront insurance premium.

population, the government also made

More good news

significantly lower the cost of getting a

the government

some positive course corrections that will reverse mortgage, which should broaden

the appeal of the HECM program to more prospective borrowers.

The biggest change was the launch of

the HECM Saver alternative program in

October, which effectively eliminated the upfront mortgage insurance premium

(MIP), reducing it to just 0.01 percent of

a home’s value. On a $200,000 home, that works out to an upfront premium of just

$20. By comparison, the upfront MIP on a

HECM Standard loan remains at 2 percent

of the home’s value, or $4,000 on a $200,000 home. That’s an enormous difference. In return for the lower MIP, there is a

tradeoff with the HECM Saver, namely that depending on age, the amount a senior can

...the drastically lower fees and the smaller loan sizes will appeal to a different – and bigger – pool of prospective customers who have a less costly alternative to the HECM Standard mortgage...

is that along with reducing the

costs associated with a reverse mortgage,

lenders have

followed suit

with their own lower pricing. In order to

increase business, many of them

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have reduced or eliminated

their origination fees on reverse mortgages,

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even paying

TRR | 31

mortgage insurance premium, making the

While that 75 percent might look like a

Requiring a Financial Supplement

ever before.

certainly not unreasonable to expect that

Moreover, according to the MetLife study,

loans even more affordable to seniors than

Which product – the Standard or the Saver

– will garner the biggest market share going forward depends to a great extent on what happens to the performance of reverse mortgage-backed securities (RMBS) in

the secondary market. If bond prices hold steady and interest rates stay low, more

lenders will be able to offer a no-cost option

pie-in-the-sky figure to some people, it’s three-quarters of the senior population

of this country will need a supplement to

augment their finances in their remaining

years and that reverse mortgages will play a major role for many. Recent reports indicate that not only is the senior population of

this country continuing to grow, but their

financial needs are growing even more so.

low-cost options going forward.

Over the next decade, the number of Americans 65 to 74 years old is expected to grow by 50 percent, a growth rate not seen in half a century, according to a recently

In addition, Congress recently extended the

Market Institute. There are now 36 mil-

on the HECM Standard, making it more competitive with the Saver. But if bond

prices drop, as we think they eventually will, then the Saver will become more

attractive. Either way, borrowers will have

FHA’s lending limits on reverse mortgages,

now ranging up to $625,500, through at least Sept. 30, 2011. That should continue to make more seniors eligible for reverse mortgages. What these actions show is that the

released report by the MetLife Mature

lion early boomers (those aged 55 to 64); their number has increased more in the

past decade than in the previous 30 years and made that group the largest it has ever been.

There are currently 34 million Americans aged 65 or older. By 2030, that number is

expected to more than double to 71 million, becoming 21 percent of the population.

Moreover, there are presently more than 12 million seniors in the U.S. who own their homes free and clear, with an estimated $4 trillion in equity. That is a lot of loan collateral to be tapped. By the time the

last of the baby boomers reaches age 62 in

2026, it’s conceivable that three out of four home-owning seniors may have reverse

mortgages, assuming we have the support of the financial markets.

32 | TRR

continue working, some indefinitely.

A new study from the Brown School at

Washington University in St. Louis found that 58 percent of those aged 60 to 84 will

not have enough liquid assets to help them withstand an unanticipated expense or

reduction in income. The study also found

that nearly half of those between 60 and 90 will encounter at least one year of poverty

or near poverty, a startling statistic. Clearly, many people will need additional financial resources, besides wages, retirement

accounts and Social Security, to sustain themselves.

Many will turn to reverse mortgages,

largely because the product is appealing.

According to a recent survey conducted for

citizens who have a reverse mortgage said

and help it to grow. We’re very encouraged

mortgages remains as compelling as ever.

obligations will force many seniors to

Association, nearly three-quarters of senior

supportive of the reverse mortgage program

The long-term argument for reverse

retiring is very likely over. Instead, financial

the National Reverse Mortgage Lenders

government is going to continue to be

by that.

the notion of working until age 60 and then

they were satisfied with the product, with 43

By the time the last of the baby boomers reaches age 62 in 2026, it’s reasonable to believe that three out of four home-owning seniors will need a reverse mortgage, assuming we have the support of the financial markets.

percent declaring they had a maximum level of satisfaction. In the study of 600 seniors who have had a reverse mortgage for at

least two years, just 12 percent expressed the lowest level of satisfaction for the product. Seven of eight polled were content.

The survey garnered responses from 1,800 seniors, as well as their adult children,

finding that nearly half worry they will not

have enough money to support themselves in retirement.

We’ve even gotten some positive support

from an unexpected but significant source. The AARP, after many years of being

noncommittal about the product, has

recently said that reverse mortgages might be a good idea for some people.

Rethinking the Customer Base

myRMloan.com will enable RMS customers

Clearly, there is an immense and immediate

statements, submit an advance request,

resound positively with the public. So

activities, manage and update their

penetrating the market? Perhaps the reverse

the account, and get answers to frequently

to go online to review monthly and past

need for reverse mortgages, and they

check loan balances and other transaction

why have we barely scratched the surface

profiles, download forms associated with

mortgage customer is actually someone

asked questions.

For example, recent studies indicate that

Basically, the new site – a first for the

no longer a 72-year-old widow. Rather, the

their loan files and serve themselves. We

senior couples in their 60s, and single

in the site from both our senior customers

customers change, lenders and their

managing their parents’ reverse mortgage

much different from whom we’ve thought. the average reverse mortgage customer is

industry – empowers borrowers to log into

more typical customers are more active

expect there will be considerable interest

men. For this reason, as reverse mortgage

and their adult children, who often assist in

marketing methods will have to adapt if we

accounts.

demand.

Until recently, seniors weren’t thought to be interested in such online services. It’s unlikely we

are to succeed and meet this huge customer

We’ve recognized these changes at our own company. In early December, RMS went live with a new self-service website for

our reverse mortgage customers. The new

would have done this five years ago. But seniors are getting more computersavvy and coming to expect online access to an array of other services in their lives, from medical needs to merchandising. More of our customers have been contacting us through email, so setting up the website seemed

a natural step for us to take. About 3,500

customers asked for online access to their accounts even before we formally promoted it.

The reverse mortgage is a great product. But that doesn’t mean originators and servicers can’t do things to make it even better to

enable more seniors to avail themselves of its many benefits. g

TRR | 33

The Reverse Review February 2011

the Essentials

The Poor-Taste Police It is difficult to enforce good taste, but if we all do our part, we can avoid the public display of poor judgment in the reverse space.

Sarah Hulbert

ome marketing ideas sound pretty good in theory. But in practice, they do not always come across the way the creator intended. Many reverse

mortgage marketing pieces also probably sound

good in concept, but there are regular examples of â&#x20AC;&#x153;good intentions gone bad.â&#x20AC;? Unfortunately, these

attempts at promoting reverse mortgages ultimately damage the image of our industry and are

counterproductive to our efforts to educate the public about this wonderful retirement planning tool. 34 | TRR

Some time ago I was browsing through

As co-chair of NRMLA’s Standards and

licensing and disclosure requirements, in

read the various articles published that day

practices, whether in the form of

the form of Ethics Advisories.

my daily Google Alerts, a ritual where I

mentioning reverse mortgages. I remember a time, not so long ago, when an article

on reverse mortgages was a rarity, often

resulting in a great deal of excitement and discussion. Multiple copies of the article, clipped from real paper newspapers (the Internet was in its infancy), would be

forwarded to my attention by colleagues,

Ethics Committee, I review questionable advertising, business practices, or general

ethics issues. The committee evaluates each

NRMLA’s first Ethics Advisory, Ethics

relates to the NRMLA Code of Ethics and

Advertising, was released in February

complaint from an ethics standpoint as it

Professional Responsibility. We work with

our regulators to address the issues in both a proactive and reactive manner.

friends and family members. These articles

The vast majority of reverse mortgage

inaccuracies and misperceptions.

thoughtful manner and represent reverse

more often than not contained many

Today, articles mentioning reverse

mortgages are commonplace. When

reviewing my daily alerts, the first thing I

look for in an article is whether the article

is positive or negative in nature. Secondly, I review the article for accuracy. Over

the past several years we have certainly

had our bumps and bruises as a result of

articles highlighting old news or extolling

advertisements are done in a professional, mortgages accurately, portraying our

industry in a manner that is beneficial

public domain.

acceptable advertising practices and

highlighted some key examples of practices that could be considered false, misleading, deceptive or unfair. These practices

were labeled collectively as “Unethical Advertising.”

which were again supplemented by last

product descriptions are accurate and are designed to generate interest from those who may truly benefit from a reverse mortgage.

maximizing the return on your investment,

pieces that have made their way into the

to NRMLA’s membership regarding

a solicitation for reverse mortgages; the

advertisements clearly indicate they are

In addition to reviewing these articles,

borderline reverse mortgage marketing

2008. This advisory provided guidance

Included in this advisory was a list of six

Anytime you are developing a marketing

I am often presented with examples of

Advisory Opinion 2008-01: Ethical

to all industry participants. These

the perceived nefarious traits, rather

than the virtues, of reverse mortgages.

addition to guidance issued by NRMLA in

plan, one of the biggest challenges is

or ROI. Oftentimes, particularly with print media, space is an issue. All advertisers should be mindful of federal and state

In all, we have 12 examples provided by NRMLA. Please note that this list is not allinclusive; rather, these are specific examples of issues deemed particularly troubling and damaging to our industry’s reputation and in direct violation of NRMLA’s Code of Ethics and Professional Responsibility.

Here is a brief summary of the 12 examples of practices that are in

violation of the NRMLA Code of Ethics (please refer to the NRMLA website for additional detail):

specific examples of unethical advertising, year’s supplemental advisory, NRMLA

Ethics Advisory Opinion 2010-2, Additional Ethical Advertising Practice Requirements. Advisory Opinion 2010-2 includes

additional guidance to NRMLA members, describing an additional six specific acts

and practices that were deemed violations of the NRMLA Code of Ethics and

Professional Responsibility because they

can be construed as unethical advertising

practices1.

Marketing or advertising HECM loans as a “Government Benefit” or as “Government Supported”; from or offered by a “Government Loan Division” or “Official Business”; or as “Endorsed” or “Approved” by the Government, Federal Government, HUD, FHA, AARP or by NRMLA;

1. Visit nrmlaonline.org/nrmla/ethics/conduct.aspx to download complete copies of the NRMLA Code of Ethics and Professional Responsibility, as well as the Ethics Advisories referred to in this article.

tating or suggesting that S failure to respond to its marketing or advertising will or may result in a loss to the consumer of any benefit to which the consumer is or may be entitled;

Making misleading, unfair or exaggerated claims of benefits to consumers; >> TRR | 35

Providing or arranging for a testimonial, endorsement or infomercial that fails to clearly disclose the nature of the relationship between the NRMLA member and the person or entity providing the testimonial, endorsement or infomercial;

equiring or suggesting R that a product or service other than the reverse mortgage must be purchased in order to obtain the reverse mortgage loan;

Directly or indirectly stating or implying that reverse mortgage loans are “no cost” loans, that they “require no payments,” that seniors need not repay a reverse mortgage “during their lifetime,” that a senior “cannot lose” or that there is “no risk” to a senior’s home with a reverse mortgage loan, at a minimum, without at least explaining that reverse mortgage loans do, in fact, require seniors to make certain specified payments and meet other specified obligations;

Marketing or advertising to a business partner unreasonably high compensation in a manner that is false and/ or misleading;

Using a celebrity’s image or likeness without that person’s express, written and documented permission, or to provide celebrity endorsements that do not reflect the honest opinions, findings, beliefs or experiences of the endorsers;

Stating or implying that an applicant or borrower is “pre-approved” or “pre-qualified” for a reverse mortgage without also fully disclosing approval or qualification conditions or other criteria that apply;

Stating or implying that “recent” federal legislation or HUD action provides more money for seniors, if such legislation or action, if any, is not recent or if such funds have not been appropriated for seniors, particularly if the claim is made with a sense of urgency or call to action implying that if the senior does not promptly respond they may miss out on this or related “limited” opportunities;

Including simulated checks or other currency as part of an advertising or marketing piece; or

Using the names or logos of HUD, FHA or other names or logos confusingly similar in appearance except as otherwise permitted by law.

The above-referenced advisories were issued in response to claims by regulators and the media that reverse mortgage industry participants were actively engaged in unethical advertising practices.

While many argue such practices are the

It is important to note that the vast majority

common sense. You, the reader, probably

were (and still are) organizations actively

in a thoughtful manner, managing to both

regular instances where organizations in

exception, not the rule, the fact is that there involved in unethical advertising on a

regular basis. The advisories, with the full support of NRMLA’s Board of Directors,

were created to provide clear guidance to

industry participants in an effort to curtail unethical advertising and marketing practices.

of reverse mortgage advertising is done

comply with federal and state requirements, adhering to the spirit of the NRMLA Code of Ethics and Professional Responsibility while also succeeding in generating

acceptable response rates and ROI to the marketer.

One topic I have often commented on is

that it is difficult to enforce good taste and

36 | TRR

know what I am referring to – there are

our industry walk a fine line of compliance, enter gray areas and push the limits of

acceptability. It is easy to enforce instances of clear violations of the law and related

regulations; however, it is always difficult to address poor taste.

Some advertisements, whether they are in

print media, television or on the Internet, are

simply a result of poor

loan modification mailers sent

to be ranked up there

take advantage of the misfortune

judgment. Do we want with the Chia Pet ads or

the various infomercials that inevitably end with a “But wait! There’s MORE!”? I, for one, do not. Every time

an advertisement is

designed, we must keep in mind that we are not only trying to generate the best possible ROI,

but are also shouldering a certain amount of

responsibility for the public’s perception

of reverse mortgages,

both as a product and as a viable retirement planning tool.

Although we have

addressed celebrity

out by various entities trying to

Do we want to be ranked up there with the Chia Pet ads or the various infomercials that inevitably end with a “But wait! There’s MORE!”? I, for one, do not.

spokespeople in our

of so many homeowners in

today’s marketplace. Some are clear violations of NRMLA’s

Code of Ethics and Professional

Responsibility, as well as federal and state Laws. This is what led

to the Ethics Committee’s decision to issue the Ethics Advisories –

we need to proactively educate

our industry about unacceptable

advertising practices, and this is of critical importance to ensure the

four ways to pique the reader’s interest

while still accurately describing

our product:

ongoing viability of our product. The difficulty has been reaching

the group of non-NRMLA lenders and originators, and the Ethics

Committee has begun considering

various ideas on how we can work

1. Reduced upfront cost HECMs (instead of “no cost” HECMs)

2. Make no monthly mortgage payments

with wholesalers to ensure even

(instead of “no payments”). In this

what may or may not be considered

with an indication that borrowers are

non-members are well-versed in

case, it’s helpful to footnote the claim

acceptable advertising practices.

still required to make property tax and

There are examples of advertising

homeowner’s insurance payments)

3. No repayment required for as long as

Ethics Advisories, there is absolutely

practices that are not necessarily clear

reverse mortgages. In fact, these campaigns

mind, these advertisements are classified

residence and remain current on

Taste.” I have often thought a “Wall of

lifetime”)

nothing wrong with a celebrity promoting have provided great benefit to the reverse mortgage industry through increasing

awareness and acceptance of the product.

They have also generated good business for companies who opt to go this route. They

key, however, is for the scripts to be written in a manner where the “pitch” doesn’t

sound so “pitchy.” Ultimately the advertiser is going to look at response and conversion rates versus content and settle on what works best for them.

I’ve seen mailers appearing to be

correspondence from a government

violations of any regulation or code. In my

you live in the home as your primary

in what I prefer to call “the Land of Poor

property charges (versus “during your

Shame” could be useful – an industry

participants-only Internet site where we

publish examples of the dos and don’ts of reverse mortgage marketing. Perhaps we

will be able to create something along these lines. Meanwhile, organizations should

step back and re-evaluate their marketing initiatives from an outsider’s perspective,

always asking themselves, “Is this the way we want our company and our industry perceived?”

organization, referring to reverse mortgages

We cannot be the poor-taste police.

program. Others have simulated checks

public displays of poor judgment in reverse

as a government benefit or entitlement

or vouchers attached to form letters, and yet others are modeled after the home

However, if we all do our part, we can avoid mortgage marketing. g

4. FHA-insured (rather than claiming the product is a “government benefit”)

These examples demonstrate the following point:

It is possible to describe reverse mortgage features and benefits accurately while

still serving the purpose of capturing the

interest of the reader. Please keep in mind that these suggestions are for illustration purposes only. Advertisers should

always consult with their company’s

counsel and/or compliance specialists to ensure they are in full compliance with applicable regulatory requirements.

TRR | 37

J o e You can have an escrow instead, and there is always the brute force method, which is to reduce principal limit even more. But I think the preferable way is

just have a T&I set-aside, and say, “Look, we are going to set aside four, five, six, or nine months of tax and insurance

money, and if you default on your taxes or insurance, the investor has the right to draw on that set-aside and add that amount to your loan balance.”

But that would necessitate a reduction in the initial proceeds the borrower

receives. The servicing set-aside used to reduce what they receive by about

2 or 3 percent. If the tax and insurance set-aside was like 2 or 3 percent, it

would be a wash, except it is not a wash Ata r e Investors are secured. For

defaults, and other types of defaults.

seen increases of fully drawn fixed-rate

it. They’ve lowered the principal limit,

expressed concern that in a couple of

raised the mortgage insurance premium

of funds and may be unable to pay

is to address the tax and insurance issue

maintenance, resulting in defaults. Of

think you can significantly mitigate that

because they may have exercised their

aside in lieu of the servicing fee set-aside.

But these defaults could damage the

But that comes at a cost too. By bringing

support HECM origination and the

that people have less home equity, there

fixed-rate trend?

That doesn’t mean you shouldn’t do

J o e In the summer of 2009, we

weigh cost and benefit.

what we think should be done, and a lot

Over time, with each new cohort of loans

we also warned that HUD could lose as

a better chance to get back in the black.

FHA reported in its latest Annual

they address the T&I issue, I think all the

example, over the last 12 months, we’ve

That’s an issue, but FHA has dealt with

HECMs. Some, including myself, have

they created HECM Saver, and they

years, these borrowers could run out

(MIP). The remaining item on the agenda

their taxes and insurance, let alone

(T&I). There is no surefire solution, but I

course, investors may not be affected

risk if you create a tax and insurance set-

put to HUD at 98 percent of MCA.

insurance fund and HUD’s ability to

down the principal limit, especially now

primary market. What do you say to this

are fewer homeowners who can qualify.

published a pretty extensive blog about

it, but it means that you must carefully

of it was done. For the 2006-2008 vintage,

being originated, the HECM program has

much as $8 billion. And sure enough,

FHA has done all the right things. Once

Management Report that it expects to

major fixes are in place.

lose about $8 billion for those vintages. So, you’re right. FHA is at risk from crossover loss, tax and insurance

38 | TRR

Atare So you propose setting up a T&I

set-aside as a way to solve the T&I issue. Are there other ways?

because right now, for a lot of loans, the servicer is not charging a servicing fee. Nonetheless, it would be a good idea to have a T&I set-aside that creates a

margin of error to mitigate these losses. A more flexible but also more complex

method would be, instead of having the

same T&I set-aside for everyone, vary the amount of the T&I set-aside based on the credit score of the borrower.

Atare Why credit score? At that age

and for this product, credit scores do not mean much. Why?

J o e Credit score or other methods of

credit underwriting can still give you significant information regarding the borrower’s ability to pay their bills,

including taxes and insurance. The most

credit-worthy borrower might not need a tax and insurance set-aside. But for some borrowers with poor credit, we may

find that the necessary T&I set-aside is prohibitively high.

There is no easy solution, but there should be something so that the

frequency and the severity of T&I losses are small enough so that issuers and investors can deal with them.

Ata r e Actually, investors are not in

OK. Ginnie Mae has a much different risk

lowered, then, necessity being the mother

HMBS …

profile compared to Fannie and Freddie.

J o e You’re right. I mean someone who

Atare What of the political risks?

They are, in effect, an investor in that

Joe If you have very large losses in an

HMBS cash flow, they get everything in

down or they will change it. In the case

Atare I am willing to speculate that

the sub-servicing fees they have to pay,

they took very constructive steps that

controlled House might say, “Hey, we

losses they bear on the T&I side are big

viability. The political risk is always

is an HMBS issuer and holds that risk.

of invention, you might see some deals being done. There might be some baby

steps in the next 24 months. That lays the groundwork for the market returning in earnest, and that is good, but we’ll see.

excess spread [HECM cash flow minus

FHA program, they will either shut it

between] and in the advances they make,

of HECM, they didn’t shut it down;

and the losses that they bear. And the

enhanced the program’s long-term

issues in the industry today.

going to be there.

Ata r e In light of Mortgagee Letter 2011-

Atare Choice is always important. Right

the Tax and Insurance default issue?

some point, which entity on Wall Street

J o e If you really couldn’t securitize

J o e ML 2011-01 formulates a curative

Brothers played in proprietary jumbo

$417,000, then, as I said, necessity being

01, how adequate is FHA’s response to

now, Ginnie Mae is the only option. At do you see playing the role Lehman

response to the T&I default issue; I’m

reverse mortgage-backed securities?

the HECM loan is originated.

Joe There isn’t right now. That’s not

Ata r e What are the implications of the

a real non-agency market, except for a

HMBS issuers?

lot of things will have to happen for that

talking about preventive measures when

new Ginnie Mae capital requirements for

J o e It was appropriate for Ginnie

unique to reverse mortgages. There’s not

might happen. The new Republican-

are too exposed in this reverse mortgage

sector; we should cut the lending limit to the Fannie Mae limit to encourage ‘free

markets’ and create jobs.” What do you think?

any loan (forward or reverse) above the the mother of invention, there will be

much more of an impetus to solve those hurdles, and you might see something get done.

few deals being done here and there. A

Atare Lehman went down with a lot of

market to be revived.

capital markets. Of the survivors, is there

mortgage expertise in every area in the

any entity that could quickly reassemble

Mae to raise the HMBS issuer capital

Atare What are those things?

been discussing

JOE The implications of Dodd-Frank and

Ata r e Ginnie Mae is the only game in

be sorted out. There is Reg. AB. The new

government entity. With Fannie Mae

out. The lending limit being so high

happened: They failed. What could

market for forward and reverse. Even

thoughts?

disrupt the reverse mortgage market?

solved, a government-backed market is

J o e In some ways reverse mortgage

J o e If it does, we’ll have problems

With the lending limit at $625,500, there

industry, whose problems get solved

difference between GSEs (Fannie and

reverse mortgages.

Ginnie Mae, which is a government

Atare Is there any evidence that these

of securities and a lot of loans, but Ginnie

months?

Mae and FHA stick to the insurance

Joe No. I will believe it when I see it.

requirements, given all the risks we have

those skills and play the Lehman role for the jumbo market?

the other new regulations will have to

J o e Sure. I don’t think there is a shortage

town for HMBS. Ginnie Mae is also a

regime of Reg. AB will have to be sorted

including New View Advisors, of course.

and Freddie Mac, the unthinkable has

hinders development of a non-agency

happen to Ginnie Mae and, potentially,

if you did have all of those problems

beyond reverse mortgage. There is a Freddie) that had shareholders and

agency. Fannie and Freddie owned a lot Mae doesn’t do that. As long as Ginnie business and get it right, then they are

39 | TRR

always going to have better execution.

is not a big market left for [proprietary]

hurdles will be cleared in the next 24

of experience out there. I think it is there,

Ata r e Do you have any closing

lending has always been a lucky

just in the nick of time. So, let’s hope the lucky streak continues. Ata r e Thanks, Joe! g

If, for example, the lending limit were TRR | 39

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Number

72,748

The number of HECM endorsements for calendar year 2010. TRR

| 41

The Reverse Review February 2011

the Last

Word adulthood and maturity. I thought I had grown up.

The years prior to 21 were arrogant, smarterthan-my-parents days. I was self-centered

participants, the loan volume garnered

This newfound freedom led to flunking out

of college and getting drafted into the Army.

It may sound bad, but military discipline was exactly what I needed. I learned that a lack

of controls and no supervision often lead to

years prior to its 21st year, the HECM had a

somewhat loosely defined set of controls and guidelines that were more than adequate; we were a very small cottage industry.

When 2006 came along and Wall Street

investment bankers came into the market, it looked like our industry was going into the stratosphere. There was talk about

proprietary products and how each Wall

Street firm was working on their own non-

HECM loan. These same firms talked about securitizing both HECMs and non-HECMs, and that is when the regulators started paying attention.

HUD and Fannie Mae began to tighten

42 | TRR

levels. Senators and representatives in the

U.S. Congress began asking questions, and much to our dismay, one senator held a

hearing that did a lot of harm by generating unwarranted and bad publicity.

There are multiple states with the exact same

turning 21 last year? Consider this: For many

adults, and besides, 21 was the passage into

legislators at both the state and federal

education and learned to work “within the

What does all this have to do with the HECM

“adult beverages” in the company of other

the attention of even more regulators and

More and more state legislators have jumped

system.” I had grown up.

to pass up the opportunity to enjoy a few

providing clearer guidance to all industry

poor-quality decisions. After a tour of duty in Vietnam, I returned to complete my college

When I turned 21 (a long time ago!) I partied until the wee hours of the morning. I was not one

suggested order.

good life.” I was at college and I could do I wanted.

John LaRose

order, nor is their any such thing as a

As HUD and Fannie Mae continued

anything I wanted, whenever

(Did I miss the party?)

military there is no such thing as a vague

and hated any kind of supervision or

controls. These were halcyon days of “the

HECM Turned 21 Last Year!

discipline was a life-changing event. In the

their rules and regulations, and from my

on the regulation bandwagon.

state regulations provided at the federal

level. I welcome order and controls, but there is such a thing as too much regulation. Rules and regulations cannot, and should not,

attempt to completely control all aspects of

the life of a 21-year-old adult – and it should be the same for our 21-year-old industry. We have heard recent calls for civility in our country’s political rhetoric, and in

keeping with that theme, I call for a return

to civility and common sense when it comes to regulating our industry. Seniors warrant protection, but the vast majority of those eligible for a reverse mortgage are smart and they are comfortable making major

life decisions. Let’s recognize seniors for

knowing what is right for them and stop the madness of overregulation by legislators

who view them as completely defenseless. Nothing could be further from the truth.

standpoint as a subservicer, it was most

Balance and common sense was the order of

role to lenders and/or investors, there is

it’s no different as our industry enters its

welcome. When you serve in a supportive nothing worse than not having everything clearly defined. My military training and

the day when I returned from Vietnam, and 22nd birthday. We’re growing up too. g

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