THE
REVERSE J U LY / A U G U S T 2 0 1 0
SURVIVING
In The Reverse Mortgage Industry Todd Walters
review
It’s hunting season... Join our team today!
Security 1 Lending is on the hunt for
Reverse Mortgage brokers interested in becoming lenders and established loan
officers looking to receive live transfers.
For more information on how you can be a part of | TRRSecurity July / August 2010 2the 1 Team, visit our web site at S1L.com
July / August 2010 TRR
|3
TRR07.10 “ M o v i n g F o r w a r d I n R e v e r s e .”
FEATURE
Surviving in the Reverse Mortgage Industry Small banks and brokers looking to
survive in the industry can find help with crucial decisions through two companies’ business models. Todd Walters
“What they need to do is take a hard, honest look at their present and potential production and decide if they would be better served by staying the course, using contract staffing support or joining a bigger entity. “
16
Creating an Endless Resource of Referrals
Developing a good plan for acquiring referrals can alleviate marketing
concerns and enhance your strategy. Sam Collins
page 16
12
Are We Evolving or Devolving?
Education can maintain a positive
evolution within the reverse mortgage industry, despite recent obstacles. Michael Banner
14
Reverse Mortgage Post Closing Activities
Alan Carlow explains some post closing
options that can reduce risks, losses, and costs.
Alan Carlow
21
Reverse Mortgages: A Compelling Product For Forward Originators Seeking New Business Forward originators seeking new
business can take on reverse mortgages, but must be careful. Robert D. Yeary
Note from the Editor
Ask the Underwriter
Industry Stats
It’s all about who you know... 5
Notes in the Sand...
April 2010
Directory
The Last Word
28
4 | TRR
July / August 2010
6
How a Reverse Mortgage Can Lower Taxes
29
8
24
THE
I
REVERSE review
It’s all about who you know… In general, every person on earth is separated from every
other person by only six degrees. That means your friend’s brother’s nephew’s wife could know Bill Gates, Steve Jobs
or even Oprah Winfrey. You could conceivably be only a few networking steps away from someone who could help you get your business off the ground--be it an industry contact, a top lawyer or a state government official. You’ve heard all about the importance of networking, but what about
harvesting your own network to uncover someone who
just might be able to get you in touch with a stellar business
16745 W. Bernardo Drive Suite 450 San Diego, CA 92127 Publisher Aman Makkar Editor-in-Chief Erica English Copy Editor Kaitlin Dershaw
contact? That’s six-degree networking.
Don’t think you know someone who can help? You’d be
Creative Director Traci Knight
surprised. What about an old classmate you only contact
during the holidays? Who might they know? Or could your softball teammate have a brother in an industry that you’re
Layout & Design Wilferd Guenthoer
The biggest benefit of using the “six degrees of separation”
National Accounts Manager David Peck
looking to enter?
method is that you have an “in” with this new person. Since your friend of a friend is opening the door, you’re no longer a stranger. The whole key to six degrees is that you avoid the cold call and come in with a reference.
Within the reverse industry we use all kinds of networking opportunities to gain the confidence of our senior clients
in order to help make their lives easier with the products
Printer The Ovid Bell Press Advertising Information phone : 858.832.8320 e-mail : advertising@reversereview.com
that we sell to them. This month, our contributors write
about survival in the reverse industry and also developing
a good plan for getting referrals—both of which require any individual to build and utilize a strong network.
So keep networking, keep marketing and your name and
company are bound to be successful in helping our seniors!
Erica English Editor-In-Chief 5 | TRR
July / August 2010
Subscriptions and Editorial Content phone : 858.217.5332 e-mail : information@reversereview.com website : www.reversereview.com
© 2010 The Reverse Review, LLC. All rights reserved. The Reverse Review, LLC is a California limited liability company and is the publisher of The Reverse Review magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, The Reverse Review, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127
Notes in the Sand...
While vacationing this summer, you’ll need a notepad for these 10 questions and suggestions RALPH ROSYNEK For many of us, July and August represent the time when we break out our luggage, pack up our sandals and head for the beach and destinations beyond. Summer fun and relaxation is one of our rewards for prior months of hard focused work.
A recent conversation with many of my fellow reverse mortgage
Notepad Item (3): What internal origination processes will be affected by the letter changes?
Notepad Item (4): What additional training and education is needed to address the letter changes?
colleagues has revealed an interesting twist in the ritual of choosing
Notepad Item (5): Will my licensing support my present and future
HUD anticipated your relaxation and perhaps you should consider
Notepad Item (6): How will the increased net worth requirements
My guess is that upon review of the latest mortgagee letter,
Notepad Item (7): What impact will loan performance and
Here are a few random notepad items to start you off...
Notepad Item (8): Are changes necessary to my marketing,
the right book or magazine to aid in the vacation process.
a “notepad in tow” to replace that best seller or magazine.
“summer beachin” may take on a whole new meaning for all of us!
The recently released HUD Mortgagee Letter 2010-20:
origination activities?
be achieved?
compliance issues have on my day-to-day activities?
communication and disclosure activities?
Implementation of Final Rule FR 5356-F-02, “Federal Housing
Now, draw a line
Risk Management through Responsible FHA-Approved Lenders”
Notably missing from the first group of items are issues related to
worth requirements, changes in authorities, mortgagee status
will undoubtedly be evaluating their internal credentialing and
Administration: Continuation of FHA Reform—Strengthening
includes revised information concerning present and future net
definitions, origination activities, underwriting authorities, loan performance, employment definition, and much more. Notepad Item (1): Read the mortgagee letter in detail. Notepad Item (2): Whether an owner or loan originator, how does this mortgagee letter impact me?
your investor relationships. In the next few months, the investors
broker/correspondent approval processes. Increased risk resulting
from direct endorsement authority applied to third party originated
loans is probably at the top of the wholesaler notepads on the beach. I think we all know that the cost impact of increased risk and assessment will also show up in a variety of ways.
My recommendation is that no assumption should be made as to
all relationships you presently have being kept limited to “business
6 | TRR
July / August 2010
as usual”; the new relationships you may develop will certainly be
subject to increased credentialing requirements and risk mitigation.
have a significant impact (hopefully a favorable one) on your ability
Enhanced review of size, financial strength, volume, management
to retain and expand your investor relationships.
expertise, internal processes, prior performance, commitment to the
Notepad Item (9): You knew where I was going with this (!) – the
product, and varying state regulation and legislation may impact present and future relationships.
book you need to bring along is your policies and procedures manual. Don’t have a PAP Manual? – I suggest you research,
While size, volume and financial strength are of concern, I would
approve and implement one – fast.
suggest that loan origination and processing activities combined
with management expertise and focus are weighted more heavily.
Now that you have read it, when you get back make a note to walk
Your evidence of efforts to mitigate risk through solid policies
fantasy or proof positive you are mitigating risk appropriately.
through it (or assist in the walk-through) and determine fact, fiction,
and procedures will tremendously support your relationship
Notepad Item (10): Read and review your last 3 quality control
development and maintenance with your investor.
reports and the management responses.
Notice the operative word “evidence”. Many company policy and procedures manuals are well written and contain detailed risk
Don’t have written QC reports? – check your policy and procedures,
the implementation and measurement of these protections is lacking
because your investor undertakes this procedure. QC is everyone’s
mitigation protections for all parties. Sadly, the resulting evidence of or in need of improvement.
they say you do. Remember, you are not exempt from quality control responsibility.
Your notepad should include items related to the review, update,
And lastly, do relax on your vacation – you will need your strength
measurable results that can be provided in the future to evidence
road on our journey to continue serving seniors – possible PLF
and evaluation of your policies and procedures, as well as what your loan origination and processing quality – these results will
when you return as we experience another little bump in the adjustments!!
ORNEY A TT
TRUST REVIEW
If you are a Lender and you review Trusts in house, you are taking unnecessary risk! Title companies insure that a trust owns the property but does not insure a trust meets HECM guidelines. In an industry that focuses on Risk Management, Attorney Trust Review eliminates the Risk of a loan being unsalable because a Trust approved by the lender turns out not to meet HECM guidelines. We provide: • Risk Management • Amendment To Trust containing required HECM language • Attorney Opinion Letter • 48 Hour Turn Around No risk to lender, our fee is paid only if the loan closes.
Paul N. Lovegrove PC Representing lending institutions for reverse closings for over 15 years
631.669.4370 plovegrove@AttorneyTrustReview.com • www.AttorneyTrustReview.com July / August 2010 TRR
|7
INDUSTRY SUMMARY Retail Endorsement Growth
-3.27%
April Endorsements Retail and Wholesale Volumes
Wholesale Endorsement Growth
-7.41%
REVERSE MARKET INSIGHT For the third straight month now, wholesale/broker endorsements shrank
Total Endorsement Growth
-5.43%
more than retail/direct endorsement volumes. In April, brokers saw 7.4% less volume, while retail lenders shrank by 3.3%. Given what we already
* Figures Above Reflect Change from Prior Month
TRAILING TWELVE MONTH ENDORSEMENTS
know about May’s low volume levels, we expect we’ll still be talking about declines in both business channels next month as well.
Brokers still hold a slight edge in total volume over the retail channel, but the gap is closing each month and could easily flip the other direction at
any time with how close we are now. Large lenders continue to dominate the volume totals, accounting for 88.9% of volume in April. This is up a minor amount from March, continuing above trend for the past 12 months.
10,000 8,000
We’ve heard a lot about licensing and testing requirements at non-bank
6,000
originators driving many loan officers to move to national banks to escape these burdens, but at least so far we haven’t seen it affect volumes in the
4,000
industry.
2,000 0 5 6 7 8 9 10 11 12 1 2 3 4 Retail
Of the top 10 lenders, only 3 have grown retail volume in the last 12
•
The strongest retail grower over the same period is Metlife (national
months and 2 of those are non-banks: Generation and One Reverse.
Wholesale *Numbers Represent Months
RETAIL UNITS
CHG%
WHOLESALE UNITS
CHG%
TOTAL UNITS
4,077 -35.49%
4,275 -19.96%
8,352 -28.38%
6
4,010 -1.64%
4,623
8,633
7
4,436 10.62%
5,392 16.63%
9,828 13.84%
8
3,681 -17.02%
5,246
-2.71%
8,927 -9.17%
6.12%
8.14%
9
3,903
6.03%
5,567
10
4,081
4.56%
4,692 -15.72%
8,773 -7.36%
11
3,836
-6.0%
3,901 -16.86%
7,737 -11.81%
12
3,954
3.08%
4,326 10.89%
8,280
1
3,171 -19.8%
4,450
2.87%
7,621 -7.96%
2
3,124 -1.48%
3,890 -12.58%
7,014 -7.96%
3
2,783 -10.92%
3,038
-21.9%
5,821 -17.01%
4
2,692 -3.27%
2,813
-7.41%
5,505 -5.43%
TOT
43,748
July / August 2010
52,213
9,470
3.36%
6.08%
7.02%
95,961
bank), which continues to grow strongly in both retail and wholesale channels, up 82% and 102%, respectively.
CHG%
5
8 | TRR
•
•
Looking at the fastest growing retail/direct lenders, 4 of the top 5
are non-banks – New Day, Guardian First, and Cooper and Shein (in addition to One Reverse above).
It’s still very early to close the book on this, but at the very least,
the incremental benefits bank originators should see from licensing
requirements are getting muddled among the many other factors affecting retail volumes.
We Made Reverse Mortgages A Household Name Come and join the most experienced management team in the business. Loan Officers receive leads from the renowned Robert Wagner Television Campaign Sponsor LO’s for SAFE Exam and all state licensing CRM system customized for Reverse Mortgages Marketing tools to make you a SUCCESS We invest in you - Training, Technology and Support 3 Metro Locations – Manhattan, Long Island, Philadelphia Phone sales experience is a must Send us your resume! Upload at www.guardianfirst.com/jobs, email to jobs@guardianfirst.com or call us at 1-800-682-1577 (option 3).
Dedicated to setting the standard of quality and ethical dealings with seniors and providing outstanding education, honesty and knowledge.
Robert Wagner Paid Celebrity Spokesperson
Guardian First Funding Group, LLC, One Penn Plaza, Suite 1414, New York, NY 10119. Trade/servicemarks are the property of Guardian First Funding Group and/or its subsidiaries. Licensed by the Department of Corporations under the California Finance Lenders Law; Licensed by the California Department of Real Estate (Guardian First Funding Group, Inc.); Connecticut – Mortgage Correspondent Lender/Broker # 14560; Delaware, Office of the State Bank Commission, MB License NO.010889; State of Florida Office of Financial Regulation; Georgia Reg.#19764; Maryland, Mortgage Lender 11811; Massachusetts Mortgage Broker License NO. MB 3748 – acting in the capacity of a Mortgage Broker in MA; Michigan – Mortgage Broker #FL 0010711, 2nd Mortgage Registration SR 0010743; Registered Mortgage Broker, NYS Banking Department; NewJuly Jersey – State of NJ Department / August 2010 TRR of Banking and Insurance Reference No. 0804609-C20; Licensed with the Pennsylvania Banking Department; and Licensed by Virginia State Corporation Commission License #MC-3327; Texas Mortgage Banker, registration # 84221. Some products may not be available in all states. All loans arranged through third parties. This is not a commitment to lend. Restrictions apply. All rights reserved. We arrange but do not make loans. Equal Housing Lender.
|9
contributors
Ralph Rosynek
Ralph Rosynek is President and CEO of 1st Reverse as well as a HECM DE Underwriter. Mr. Rosynek has been involved in mortgage lending for over 30 years, with the last 5+ years exclusively providing reverse mortgage lending solutions. To contact Mr. Rosynek or to learn more about 1st Reverse Financial Services, please visit www.1streverse.com or call 877.574.1000.
10 | TRR
July / August 2010
John K. Lunde
Sam Collins
Michael Banner
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 8 of the top 10 reverse mortgage lenders plus investors, servicers and vendors to the industry. Find out more at www.rminsight.net or call 949.429.0452.
Sam Collins is the President of Sam Collins Reverse Marketing, LLC and Founder of REMALO, the Reverse Mortgage Association for Loan Officers. REMALO is a web based national sales, marketing, training, and full service center, created exclusively for Reverse Mortgage loan officers, correspondents, branch managers, key executives, and brokers. www.remalo.org or 877.262.7656.
Founder of LoanWell America, Inc., Michael is one of few Reverse Mortgage professionals accredited to teach continued education classes to CFP’s, CPA’s, attorneys & insurance agents. Michael has been interviewed by the Wall Street Journal, Tampa Bay Business Journal & the Reverse Mortgage Wire. He’s a member of NRMLA’s State Local Issues Committee & sits on the Board of Directors of FPA of Tampa Bay. For more information: Michael.Banner@ loanwellamerica.com or 877.700.0555.
Todd Walters Todd Walters has been in the reverse mortgage industry since 1993, starting with Bank of New York. He then started his own company, Amston Mortgage, in 1996, which became the 14th largest reverse mortgage company in the US when it was sold to Generation Mortgage in 2006. Until recently, Todd remained with Generation Mortgage as the EVP for the East Coast Sales and Operations and has originated, managed, or been involved in approximately 6,000 reverse mortgages.
Alan Carlow, CSA Alan Carlow is CEO and Founder of Delta Group a full service mortgage post closing company offering an Enterprise Software Technology platform and Outsourced Post Closing Services. Mr. Carlow has 15+ years experience in the mortgage industry, including Reverse Mortgages. Mr. Carlow can be reached at 928. 458.5884 or email at Al@Deltagroupsolutions. com.
Robert D. Yeary Robert D. Yeary is chairman and chief executive officer of Reverse Mortgage Solutions Inc. (RMS) in Spring, Texas, which provides private-label sub-servicing, as well as a stateof-the-art reverse mortgage loan origination system. RMS is an active issuer of Ginnie Mae HMBS Securities and is currently working on a contract to rewrite the FHA MIP collection system for Reverse Mortgages. Mr. Yeary has a mortgage career that spans nearly 40 years. He serves as a Director of the National Reverse Mortgage Lenders Association (NRMLA) and can be reached at byeary@rmsnav.com.
Jonathan Neal Jonathan Neal is the senior partner at CCGCapital Consulting Group, LLC, a sales and training consulting firm located in Atlanta, Georgia. Through his 30 years of experience, Jonathan’s primary focus has been on post-retirement and estate planning. Jonathan is recognized nationally as an author and coach, managing and training financial/ insurance professionals who work principally in the senior market place. Jonathan can be reached by phone at 678.906.2850 or email at jneal@ccgcap.com.
July / August 2010 TRR
| 11
Creating an Endless Resource of Referrals
Tips and truths to giving referrals, an essential component to good marketing strategies SAM COLLINS Are referrals part of your marketing strategy? Despite what you may think, there are no real secrets to any business, but only the truths yet to be discovered.
I once heard about an MIT graduate who locked himself in a room for one year. His goal was to develop the right idea or formula for
getting more business for niche marketers. When he emerged from
awareness and separates you from others who are drawn to you like a magnet because you are the ‘go to’ person.
Every time you give a referral, you are building your social and
business bank account. The more you give, the more you get, if not today, in the future.
solitude, he was full of ideas, yet none of them seemed to work.
Truth #2: No matter what business, there is risk
find out what they actually wanted or needed.
Sometimes giving a referral involves a risk. For example, have you
After years of pounding the pavement and graduating from the
job the referred person or company did? The trust factor can be
Where did he fail? He forgot to talk to clients during his solitude to
school of hard knocks, I think I have finally stumbled on something
that works, if you work it correctly! Interestingly, all of us are wired to actually give referrals, and yes, referrals happen to be the best
forms of increasing, maintaining and achieving maximum profits in
ever referred someone and then received a call saying what a lousy eroded if you give a bad referral. So, your goal is to minimize risk by connecting with others on whom you can rely upon, both on a logical and emotional level.
your business.
Most of us refer others based on logic, such as price or benefits of
The truth of referrals lies in certain realities that we all know and
We all get excited when things go our way, but can get turned off
maintain within us.
Truth #1: We give referrals because we need to
the product or service, but we often forget about the emotional side. emotionally when our experience is bad. When a bad experience occurs, many times you will never hear about it, but your trust factor has just eroded, even if it is not your fault.
We are all referrers. Think about it. What happens when someone
Truth #3: No one likes to talk about a boring business
you know of a good repairman or hairstylist, you just can’t wait to
Let’s face it: the reverse mortgage business can be a boring business.
with other people. When you are recognized as a good resource for
Most often, we are not allowed to discuss the issues, but every now
asks you where you get your car repaired or your hair done? If
give the referral. Giving a referral allows us to connect positively
others, then you gain tremendous respect. Respect raises your social
12 | TRR
July / August 2010
Why? Because we deal with serious issues of our senior clients.
and then, we really make a huge impact on our clients’ lives. This is
when you want to shout it out and tell the world. Yes, if you are not
being talked about, then you are most likely pretty boring. You need to learn to be talked about!
I do something that is so simple, even a cave man can do it! I wear my name tag to all appointments and to all networking events.
Many people already know me, but some may not, so I take no chances. I want to leave the encounter with them knowing my
name. By the way, here’s another tip: always wear your name tag
on your right side. The reason? Most people introduce themselves with a right handed shake and there you are, with your name tag.
They can now greet you, saying your name and feeling good about the experience of just meeting you.
Truth #4: Being consistent builds the trust factor Most of us suffer from inconsistent behavior. We often start a project or have a plan of action, that soon gets changed and we forget to
“
I do something that is so simple, even a cave man can do it! I wear my name tag to all appointments and to all networking events. Many people already know me, but some may not, so I take no chances. I want to leave the encounter with them knowing my name.
stay on task. Your goal should be to stay consistent all the time. For
example, if you wear your name tag this week, don’t forget to wear it next week. If you get a referral this week, don’t forget to make a call or send a thank you card. This behavior must be repeated
consistently, all the while building relationships and the trust factor. Truth #5: Your referrals must be built on a system At the basic foundation of any business is a system that functions and gets results. If you agree that a system is the root to your
success, be it marketing, finance or managing your business, then
you will also agree that in order to get referrals, you need a system. Many are afraid to ask for referrals and some will make excuses, such as, “I always forget to ask!” I say get past the fear and
remember to ask. Your success as a referral source relies on you consciously being proactive with a referral system.
Believe it or not, most times, getting a referral is simple; just ASK! My feeling is that you actually deserve referrals. If you are not getting referrals, you need to ask yourself: “Am I giving referrals?” “Am I asking for referrals?” “Do I have a system to make sure I acknowledge my referral partners?”
”
Ask yourself this: “What am I here to give?” or “How can I better serve?”
The Law of Value states: “Your true worth is determined by how much more you give than you take in payment.” The Law of
Compensation states: “Your income is determined by how many people you serve and how well you serve them.”
It is highly likely that someone will come to you for a reverse mortgage from referral because they want to have a great
experience and you are the person with the solution. If they have a great experience, then you will most likely receive more referrals.
Your great service makes it easy for you to be introduced as a great referral partner.
Remember, a referral strategy is a lead strategy, it’s a competitive strategy, it’s a people strategy, and a financial strategy.
Never forget a great referral strategy must be designed to satisfy the emotional and logical needs of your senior clients,. When you put
the needs of your client first, then you will be in the unique position to receive many referrals.
Good luck creating your endless source of referrals!
“Do I have a plan to make sure I am networking to create relationships that create trust?”
July / August 2010 TRR
| 13
Are We Evolving or Devolving?
Education can be the key to positive evolution in the reverse mortgage industry MICHAEL BANNER As 2010 continues to unfold, the reverse mortgage industry casualty
Every life changing product that has been introduced to this nation
sides of the spectrum.
and “reshaping” periods in the beginning of their evolvement as
list continues to grow. The casualties seem to be taking place on all
The industry continues to lose loan officers as this current
environment makes it close to impossible to earn a living. Small
in the last few decades has been met with the very same obstacles
well. And make no mistake about it; a reverse mortgage (when used correctly) is a life changing product!
to medium mortgage brokers continue to drop like flies and many
You want examples?
guidelines as a death blow.
Cable TV: I remember the masses in the 1970s unequivocally taking
The $250 million in credit subsidy that the FHA is requesting does
for free!”
correspondent lenders are looking at the new net worth requirement
not appear to be happening as I write this article, which almost
the position of “pay for TV, what are they, crazy? We already get it
guarantees an additional principal reduction. This, combined with
Home Computers: Who the heck needs a home computer?
another huge gut shot to our beloved evolving industry.
Cell Phones: Why would anybody need a cell phone? There is a
ever continuing appraisal issues on the great majority of our files, is
Should reverse mortgages be used to finance Long Term Care
insurance, in home care, life insurance and other various investment products? This subject itself is causing a very emotional debate between those of us still standing.
Our good friend Senator Clair McCaskill continues her relentless mission to offer inaccurate and harmful information to the very
seniors she claims she wants to protect and now she has a new best
friend…Consumer Reports. Clair McCaskill and Consumer Reports… the Stevie Wonder and Ray Charles of the reverse mortgage industry! So, are we evolving or devolving? Many would say we are devolving. I would say we are most certainly not! (Big surprise there…)
14 | TRR
July / August 2010
phone booth on every corner!
Map Quest: What the hell is that? Google? Isn’t that against the law in most states? Yahoo? I love that drink!
The list goes on and on. It brings to mind one of my favorite
sayings: “Those who say it cannot be done are usually interrupted by someone doing it!”
The reverse mortgage industry is here to stay! Today’s reverse
mortgage looks nothing like that of just 3 years ago. And guess
what? In 3 years it may look totally different than today! But, it will surely exist, helping seniors maintain and, in many cases, increase their quality of life!
The reverse mortgage is evolving and it will be an accepted vehicle for allowing seniors to avail themselves to financial services and products they never would have had before.
But how do we survive until then, as an industry and as individuals?
Here are my two answers: For those of you that have read my articles in the past, it’s the same
message. Education, education, education! I sometimes get negative comments and feedback on my philosophy of how the positive
reverse mortgage “word” needs to be introduced to the masses. This message will never be delivered properly through the
mortgage industry. My apologies to my mortgage brothers and
sisters; we are not, nor have we ever been the voice, the eyes, or
the ears of the senior population of this country! Although no one
will ever convince me that the reverse mortgage industry is not the
There is still much debate ahead of us in order to accomplish the above. There is still a need for strong and accurate “suitability
standards” to protect our seniors. I look forward to that debate and
hope to be heavily involved in the development of those standards. But, make no mistake about it; once the bond between those
industries mentioned above and the reverse mortgage industry is forged, the reverse mortgage industry will be here to stay! It will
be a great asset to seniors and it will flourish! And once those very
powerful industries put their muscle behind this great product, you will see our detractors change their tune so quickly—even Stevie
Wonder & Ray Charles will suddenly and miraculously gain sight! Now, how do we all survive while this great evolution is taking place?
noblest group of the mortgage industry today, we must admit that
That’s the tough question. So many of us, including myself, have
the last couple of years; we just don’t have the credibility to silence
these record breaking bad times. We have cut expenses, been forced
the mortgage industry itself has been tarnished by the events of
critics like Senator McCaskill or Consumer Reports. Put your egos aside and let’s evolve into that voice! And how do we do that? EDUCATION, EDUCATION, EDUCATION!
exhausted every option to keep our companies’ doors open through to lay off associates that had grown into friends, borrowed on our
homes because we believe we are on the noble path…There is just
no easy answer for this one. It’s as much a personal dilemma, as it is an industry dilemma. But I have an idea.
And just who do we educate?
It’s time for a roll up
How about the 60,000 Certified Financial Planners in this country?
It’s time for a bunch of us little guys, (who, by the way, used to be
every time they need to access their life insurance, long term care
this industry by surprise. We need a company that is capable of
How about the 1.2 million insurance agents that seniors actually call insurance, or annuities; to inquire why their homeowners and flood insurance premiums have skyrocketed? How about the 1.1 million
attorneys that are involved in estate planning, wills, trusts, Medicare and Medicaid issues? How about the 726,000 bankers? How about
kind of big guys) to get together and form a company that takes
educating the masses discussed above, one that gives some muscle
and gains some “staying power” to take this industry and ourselves to the next level.
the 476,000 CPAs? How about 1.2 million accountants? How about
And guess what else? This company could also allow its players
everyday about their financial security? And, how about the 1.1
position that grows with time and volume? An “exit strategy” for
the 649,000 registered representatives that actually speak to seniors million realtors, a great majority of which don’t even know that a purchase reverse mortgage exists?
These groups, these industries are the eyes and ears of the senior population, not us!
But, we are their eyes and ears to the reverse mortgage world! EDUCATE, EDUCATE, EDUCATE! Educate these millions of potential referral sources and they will
educate the tens of millions of seniors in this nation that can benefit from this incredible product we all believe in so much!
to have an equity position in the company. How about an equity the independent reverse mortgage broker/lender. It’s time…
I think it’s time we all started talking. This is our industry; it is our
future and those of us that believe in it need to start taking control of it. Another one of my favorite sayings: “You know the best way to predict the future? Make it happen!”
I leave you this month with thoughts and prayers that all of you will
survive these rough times and enjoy prosperity again in the near future. Let’s help as many seniors as we can.
July / August 2010 TRR
| 15
16 | TRR
July / August 2010
You have heard all the dire predictions at NRMLA conventions concerning the sustainability of reverse mortgage providers. But, don’t throw in the towel just yet! There are new companies and concepts that have arisen to help the new, small or struggling entities that offer reverse mortgages.
For roughly 18 years, the number of reverse mortgages and the companies writing or servicing them remained small. The pioneering brokers who chose to write only reverse mortgages found themselves in a pretty select niche in the mortgage industry. For the most part, everyone in the industry was doing pretty well until 2006, when reverse mortgages became more profitable. When this happened, the secondary market collapsed, and trade groups (like NRMLA) began promoting RMs as an additional source of income to existing forward brokers.
July / August 2010 TRR
| 17
This led to exponential growth in the companies offering RMs and
the same difficult time writing enough business to support a
(100,000) a year. Those numbers sound great, except for the brokers
these costs in line. For the banks that have only one loan officer
the number of loans written grew to over a hundred thousand in the industry saw their portion of the market share drop to a
single digit or worse. Now, 90% of all reverse mortgage originating companies average four or less endorsements through HUD per month.
The new origination entities writing reverse mortgages have become overwhelmed by the new rules, regulations and scrutiny placed
on them. What they need to do is take a hard, honest look at their
present and potential production and decide if they would be better served by staying the course, using contract staffing support or
joining a bigger entity. Sadly, some of the best RM brokers have been forced to close shop. For some, the income is sufficient to support the current staffing levels, so staying the course is the best viable answer. If, however the income cannot support the needed staff
requirements, then contracting out all or most of the support staff makes sense. But, if the production levels still do not support the decision to continue as a stand-alone company, or the climate for
that broker is too toxic, the best decision would be to join a lender. Toward these ends, two companies have developed business
models to help the brokers and small banks with these options.
Experienced reverse mortgage professionals from all aspects of the
reverse mortgage industry staff both companies and help to provide brokers with distinctive options.
One company has chosen to work with small banks and brokers
to provide a processing service that allows for greater commercial
success. This is accomplished by an efficient, dedicated processing staff whose only concentration is on quickly and properly taking an application to closing. Having the RM processing outsourced can work to relieve the bank staff from learning and following
++
contradictory rules and procedures. Because banks are experiencing
process loans as well. Contracting out the processing duties allows the loan officer to work exclusively on selling.
This particular company has created a support system that, in
substance, allows a broker to utilize the necessary support staff without having them on the payroll. “We created our company
to provide the support that small brokers and banks need to stay both competitive and compliant in this difficult environment,”
said Dennis Chanski, one of the company’s partners. Compliance, licensing, training, sales support, and other such positions whose actions are not unique to each company are shared. For example, the compliance officer would perform the same duties for
numerous companies, since the issues that arise are redundant. The same can be said of their licensing coordinator, Human Resource
department, sales trainer, etc. Because of this, independent brokers may be competing with each other in the same territory.
The second company is a lender that allows brokers to operate their business under the umbrella of a bigger firm as employees. The
income is increased by the elimination of most of the fixed costs of
running the company, as well as greatly decreasing other operating expenses. The small broker business model that thrived during the boom isn’t able to compete as effectively with the major players in
a more normal market due to increased compliance responsibilities and the collective expense redundancies of all the brokers. “To
compete at a higher level, brokers gain efficiency by combining
their talents and resources with other brokers sharing a common
goal,” says Mike Gruley, V.P. Brokers and entire staff can operate as
their own branch under this model. This option is being considered
by brokers, as many are beginning to believe that mortgage brokers will be greatly diminished over the coming months and years, and that the benefits of being a lender are not just convenient and cost-
seeing necessary and effective consolidation throughout the lending
++
July / August 2010
dedicated to reverse mortgages, they have required the LO to
effective, but necessary for survival. According to Gruley, “We are
Sadly, some of the best RM brokers have been forced to close shop. For some, the income is sufficient to support the current staffing levels, so staying the course is the best viable answer.
18 | TRR
processor, contracting out the processing allows the banks keep
industry, and the broker channel is no exception.”
Below are some questions that brokers should consider when looking at their options.
Q: What is the description of a typical candidate that joins or becomes a client of these companies? A: For the first company: 1.
Mortgage brokers who wish to continue running their own
shop, but are looking for support in running their company and wish to continue their focus on building their company’s sales.
2. Successful RM originators who wish to open their own mortgage company. ARS staff would help the originator through the process of getting approved and staying in compliance. In
addition to their reverse mortgage services, ARS has a division
that helps small business with payroll, workman’s compensation, 3.
insurance and other small business back room needs.
The RESPA Challenge
Small or community banks that are looking for either processing
support or help in adding reverse mortgages to their product mix.
For the second example, there are basically two typical candidates:
1. A mortgage broker owner who no longer wishes to shoulder the financial risks, legal risks, and the management of a business,
and wishes to focus more on the sales and recruiting aspect of the 2.
industry.
A successful RM originator that works for a mortgage brokerage firm that feels that his/her future success may be limited by
working for a broker as opposed to a lender. This is especially true of branch managers who control a team of LOs and may feel the
same way. Those branch managers are at risk of losing valued team members and the subsequent overrides he/she makes from them.
Q: What are the benefits of joining a company that allows brokers to operate their business under the umbrella of a bigger firm? A: A well capitalized lender effectively eliminates many of
the burdening financial issues through an economy of scale.
Infrastructure costs are spread over a combined larger volume of
loans, re-creating the higher margins for both the company and the LOs alike. No more worries about employees, audited financials,
rent payments, etc. Lenders can just worry about production and
getting paid. In fact, even at low volumes, they make money. Most
importantly, they eliminate the risk of losing money at times of low
•
In-house underwriting (speed and access)
•
If YSPs get banned or restricted, LOs would likely not be
Stricter RESPA rules, lower principal limits, a more complex FM1009 and other changes pose a serious challenge to our industry. Lenders will take on additional responsibilities and need to be meticulous while working with brokers. Brokers will lose all or most of the YSP and any mistake made in the GFE could cut into their origination fee as well.
Not forced to use bad AMCs
But there is also good news around the corner...
volume. In fact, for brokers producing less than 15 loans per month, both LOs and managers would typically make the same or more under the umbrella. That would not be true for an independent company in most cases.
The loan officer working with a lender such as this can benefit with:
•
• • • • •
No YSP disclosure adversely affected
Only one LO to learn and use
Share marketing materials, projects, databases, etc. (scale economies)
Considerably higher commission splits than mega lenders/banks A division team that is exclusively committed to RMs
ReverseVision Inc.
3310 Pollock Place • Raleigh, NC 27607 www.reversevision.com (919) 834 0070 • info@reversevision.com
July / August 2010 TRR
| 19
The RESPA Opportunity
Q: Why should a broker become a client of a company that contracts out the RM processing?
A: All brokers have important decisions to make in some form or
another. Consolidating is just one of those choices. They either have
to commit themselves to continuing as a broker with all of its rewards and punishments, or make changes that will suit their individual needs and comforts in another way. There is no right answer,
however, in order to ensure their staff is well trained, compliant,
properly licensed, and successful, brokers can look to this company for that support.
Because states are now going after brokers in ways that they never
have before, many of the owners now have to worry about issues that were once minor considerations, but are now violations that could shut them down. Advertising must be done with an eye towards
compliance. A survey of 50 reverse mortgage web sites found that almost all had violations that result in severe fines. One law that
brokers are not aware of is one that states that any site that they have
a link to must come with proper disclosure. A link that does not come with the proper disclosure could add liability to the broker. While
it is understandable that brokers don’t have the time to stay current
ReverseVision's international team of software engineers, attorneys and mortgage specialists turn these challenges into opportunities. They build the tools that give their customers a competitive advantage. This is why over 6000 reverse mortgage specialists in over 600 companies rely on ReverseVision every day.
on all the laws, they are not relieved of the responsibility and more importantly the liability that comes with the territory.
Q: Why should a bank or credit union use a company such as the first example when entering the reverse mortgage field?
A: Small banks and credit unions have limited time and resources
to open up a new sales unit effectively. The staff will work with the bank’s employees to rapidly bring them up to speed on all of the aspects of reverse mortgages.
Q: How could a bank or credit union work with a company such as the second example to enter the reverse mortgage field?
A: By working with an experienced, exclusive reverse mortgage
lender, banks and credit unions can provide reverse mortgages to
their customers and long-time members without the typical capital
Can you afford not to use ReverseVision?
ReverseVision Inc.
3310 Pollock Place • Raleigh, NC 27607 www.reversevision.com (919) 834 0070 • info@reversevision.com
20 | TRR
July / August 2010
and labor investment required to be a full scale reverse mortgage
originator. This private label model maintains consistent branding
for the bank/credit union and it prevents customer runoff to other competing depository institutions.
Reverse Mortgage Post Closing Activities
Remember, it is easier to prevent a problem than to repair an existing issue; post closing processes can help ALAN CARLOW I.
Post Closing Overview
secondary market investors will regain confidence when (among
The goal of post closing is to ‘perfect’ the collateral. This means:
originated according to industry, lender and investor guidelines.
• • • • • •
Closing documents are reviewed for correctness;
Collateral is reviewed for completeness and sent to the investor;
The loan is set-up correctly to service;
The secondary system has the correct loan data;
Trailing recorded documents and the final title are received and correct; and
The loan must be insured if for an agency origination.
The objective is to identify exceptions and have an effective,
other things) they are provided with assurance that loans are
Performing these post closing activities are critical to a lender’s survival in order to reduce risks, losses and costs.
II. Defining Reverse Mortgage Post Closing Activities
Most companies take a narrow look at post closing activities and therefore a fragmented approach in addressing them
effectively and efficiently. Instead, a more holistic approach to
looking at all these activities should be taken and then you can determine the proper approach to coordinate them.
efficient, and timely process to correct exceptions.
Post closing is a document review and a data review. Post
Post closing isn’t glamorous; it is not a profit center. However, if
before the documents are executed. It is easier to prevent a
handled correctly, it can reduce risk, reduce costs, and ensure that loans are completed correctly.
Mortgage lenders have always focused on front end systems and
processes, from the application to funding. This is understandable
since this is how they get paid. As a result, post closing activities have
normally been neglected to date and internal solutions are mostly ad hoc. In today’s mortgage environment, secondary markets are reluctant to purchase loans for whole loan sales and security pools. The
closing tasks should start at closing document preparation, problem than to fix a problem.
In breaking down these post closing activities from a reverse mortgage lender’s perspective, we have the following: •
Closing – A review should begin when the closing
documents are prepared and before the borrower executes them. This review will verify that the closing documents are correct and that all underwriting conditions are
completed. This is more than a closing doc review done July / August 2010 TRR
| 21
“
by title agencies. Catching errors at this point, rather than after signing can save a lot of time. Often, these errors are not even found before key documents are already recorded. •
A lender needs to determine if they have good processes, adequate resources and the proper technology platform in order to perform their post closing activities effectively, efficiently and timely.
Funding – This includes funding review for table funded loans and pre-funding reviews for lenders buying
loans from wholesalers. This review ensures the closing
documents are executed properly and that no changes that do not agree with the LOS are made. •
Delivering Collateral – This process entails delivering collateral documents to the custodian. The funding
review should include a complete review of the collateral documents. Post closing exception activities also must
include resolving exceptions identified by a custodian. •
Servicing Boarding – This process verifies the data
transferred to the servicing system. This is a document-todata review.
•
Selling to Secondary Markets – This process verifies the
data on the secondary market transfer data file. This is a document-to-data review.
•
IMIP Payment – The Initial Mortgage Insurance Premium for a reverse mortgage HECM loan is paid by 15 calendar days. This process reviews the Payment Plan and closing
documents to IACS to ensure the correct amount of IMIP
is paid to HUD. IMIP shortage is automatically drawn by HUD, but overage takes time to collect from HUD. •
Final HUD1 Review – This review balances the Initial Loan
servicer may not be able to assign the loan to HUD if there are
document or data errors when HUD reviews the documents for assignment.
HUD issues Notices of Return (NORs) if the HUD case binder
submitted to the HUD Home Ownership Center does not pass the pre-endorsement review. NOR case binders need to be
managed to determine if processing, underwriting, closing, funding or post closing changes are required. •
Amount and performs a fee tolerance of the closing costs.
loan, a recorded assignment is also required. A final title
policy is required to ensure adequate title insurance and
Government Insuring – Reverse mortgage insurance
that the lender is in first lien position. A document review
processing entails pre-endorsement review for submission
should be performed on these documents to ensure they
by 60 calendar days and post-technical reviews conducted
were recorded correctly and that the final title policy
by FHA and VA. Government insuring validates that
correctly covers the lender’s interest.
the required credit and closing documents included
agency regulations. This process includes reviewing the
•
case binder documents, retrieving and/or correcting
Connection data input.
22 | TRR
July / August 2010
Compliance Reviews – An approved HECM lender is
required to have a Quality Control program implemented, according to HUD guidelines. This review should be
documents, and submitting for insuring. The lender
must also complete HUD’s electronic case binder - FHA
1st mortgage to Lender and the 2nd Mortgage to HUD
has a 1st lien that must be recorded. If it is a purchased
and TILA regulations.
in the case binder are completely in compliance with
Trailing Document Management – For a HECM loan, the must be recorded; a conventional reverse mortgage only
Additionally, this review should address RESPA GFE, APR
•
”
Even if a loan is pre-endorsement insured by HUD, the
•
designed to identify control or process weaknesses.
Due Diligence – This involves document review for
portfolio sales and servicing transfers. Due diligence is
critical to reduce portfolio risk and potential additional
default servicing costs. Due diligence entails making sure
that documents are correct, and that loans were processed, closed and serviced correctly. III. Approach Needed
flexibility to the lender to do certain post closing tasks internally and outsource some tasks as needed. The benefits include: •
A better cost-benefit analysis model;
•
Relying on external expertise when needed; and
• •
A lender needs to be able to develop processes, train people, and
could perform the review process, while the lender could
current on regulatory requirements. Companies can perform
perform the exception-clearing activities in order to take
these activities internally or outsource some or all of the activities.
advantage of the lenders’ relationship with their settlement
For internal processing, a system with review requirements and
service vendors. Also, some of these exceptions could be
workflow is essential to reduce risk and additional cost. This
post closing tasks that are outsourced.
Regardless of which approach is used, the key focus should be
based on cost-benefit analysis and reducing risk (timely resolution, accurate compliance resolution, etc.). Internal Post Closing Solution Often, if there is a very small volume of loans for post closing
cleared internally.
There are many other additional benefits to this type of an approach. However, the key factor this is based on is the ability for the
lender and outsources company to be able to work off of the same technology platform, which is itself based on: •
•
activities, companies handle these functions by employing a few key knowledgeable people. However, this process is usually done on a loan-by-loan or Error-Code by Error-Code basis off of inadequate
technology platforms. The problem comes when volume increases
•
•
the system. This could include features like:
•
•
Being queue driven for better workflow and allocating of
•
Handling exceptions on a contact basis for reduced
• • • •
resources;
workload;
•
Providing an automating review process (OCR);
•
Providing good tracking capabilities (by exception, status,
•
Providing blast faxing and/or email capabilities; shipping, etc.); and
Providing, reporting capabilities by project, metrics, error code, contact source, etc.
Hybrid Post Closing Solution In many ways, a hybrid post closing solution could be the ideal solution for most medium or larger lenders. This provides the
done at multiple locations (allows leveraging experience from anywhere);
Allowing for all post closing functions (government
insuring, trailing documents, etc.) to be performed on addressing different activities;
Having a system, which automates most of the work. The
system should know the process and queue the work to be completed, including automated review and automated
this type of post closing model is to purchase/build a software
solution, which builds expert knowledge and efficient processes into
A workflow process which is queue driven, so work can be
one platform, rather than having multiple applications
and there are no adequate process or technology solutions, which causes both costs and backlogs to increase. The key resolution for
perform some of the tasks and the outsourced company
a process government insuring the outsourced company
activities, especially exceptions. Additionally, they need to keep
management and government insuring are the two predominate
Breaking up tasks within the workflow so the lender can can perform other tasks. An example of this would be in
have a system that tracks and reports on all of the post closing
could also reduce the need for outsourcing - trailing document
A true capacity planning approach;
contact to reduce FTE resource requirements;
Providing flexible task assignment at several levels and alerts for staff to escalate issues;
Allowing for quick customization (regulatory changes, investor requirements, customer specific needs);
Handling exception clearing issues by contact source rather than individual loans/error-codes in order to reduce FTE resources;
Real time metrics, reporting and cost tracking capabilities; and
Built-in accuracy (programmed business rules, automated cross-checks, consistent documented process).
A lender needs to determine if they have good processes, adequate resources and the proper technology platform in order to perform
their post closing activities effectively, efficiently and timely. Based
on this analysis, they can then conclude which approach should be
used to best reduce risk, reduce costs, and ensure that their loans are completed correctly.
July / August 2010 TRR
| 23
Reverse Mortgages: A Compelling Product For Forward Originators Seeking New Business
A forward mortgage company looking to get into reverses should totally segregate the reverse product from the forward product ROBERT D. YEARY Practitioners know the reverse mortgage sector is undergoing some
Currently, there are 34 million Americans aged 65 or older. By 2030, that
insurance standards, all of which have left less equity for seniors to tap.
of the population. Moreover, there are presently more than 12 million
serious changes, from declining home prices to tighter government
As the amount of funds available to borrowers drops and insurance
mandates rise, underwriting standards will continue tightening. But that doesn’t mean all is lost. Larger originators are cutting fees to
attract more business, and for those working on the forward side of the mortgage market, times might even be considered tougher.
Admittedly, the reverse mortgage industry is currently under a lot
of pressure. Major changes in the FHA’s Home Equity Conversion Mortgage (HECM) program are likely to take effect with the 2011
federal fiscal year, which begins Oct. 1. Unless HUD, FHA’s parent, can secure $250 million in new funding to support the HECM program,
the industry will have to devise ways to make HECM a self-sustaining program and less reliant on the federal government. With a great deal
of pressure on the Congress to cut the Federal budget, unless members
of Congress can be made aware of the positive impact that the program
number is expected to more than double, to 71 million, or fully 21% seniors in the U.S. who own their homes free and clear, owning an
estimated $4 trillion in equity. That is a lot of collateral to be tapped. What’s more, the reverse industry has achieved only 2 percent
market penetration, so there is obviously a lot of room to grow. In addition, there is a lot of pent-up demand for securities backed by reverse mortgages; indeed, there is more demand than supply.
Until about a year ago, Fannie Mae was the biggest buyer of reverse mortgages, but the agency has pulled back on pricing. The loans
are being shifted to Ginnie Mae’s HMBS, a popular product with investors, who like the fact that those loans are backed by FHA
insurance, as well as the Ginnie Mae government wrap, giving the
securities a double guarantee. The bonds are typically purchased by traditional zero-coupon bond buyers.
has for seniors, the appropriation may not pass.
Big lenders are starting to take notice
However, the need for reverse mortgages will be driven upward by
So, instead of looking at the glass as half-empty, let’s consider its
the reverse sector should not be put off by today’s concerns, but
The reverse mortgage business is still largely a cottage industry, but
demographics, and those in the forward world eyeing a move into they should proceed with eyes open.
24 | TRR
July / August 2010
fullness. To mix clichés, we’ve barely scratched the surface.
some big lenders are starting to take notice. For example, Quicken
Loans recently moved into reverse mortgages through One Reverse Mortgage, an existing company that it acquired and retooled.
But, before forward mortgage lenders consider getting into the
occurrence, perhaps, but exemplary nonetheless. The point is you
cannot push borrowers to make such an important decision. There is no instant gratification for loan sales reps.
reverse market, they should be aware that while there are apparent
As a result, reverse mortgage sales representatives require greater
fundamental differences between the two, both on the originations
require a formal testing period. This holds true for people on the
similarities between the two businesses, there are some significant, side as well as the servicing side.
training than those on the forward side. These sales people will also servicing side of reverse mortgages as well.
Unlike a purchase or refinance forward mortgage, in which the
In fact, if you are a forward mortgage company looking to get into
pays the borrower, up to the size of the loan. Borrowers may pick
product from the forward product, both on the sales side and the
borrower pays the lender back, in a reverse mortgage the lender
one of five separate payment plans, ranging from equal monthly
payments for as long as at least one of the principal borrowers lives, to a line of credit, which the borrower draws down as needed until the line is exhausted. Funding in both markets is similar.
reverses, I would strongly advise you to totally segregate the reverse servicing side. You shouldn’t have the same sales people selling both products; they must focus on one product or the other, not both. The same goes for the servicing end. Ideally, you should have sales and servicing staffs dedicated to one product or the other.
FHA requires that borrowers make any necessary repairs to
To be successful as a reverse mortgage loan originator, you must truly
participate in a consumer information session given by an approved
can help a lot of seniors, it is not for everyone. The senior, armed with
the property using proceeds from the loan, and they must also
HECM counselor. But, there are no credit qualifications, asset or
income limitations, and closing costs may be financed as part of the
be concerned about what is best for the senior. While the program information, will make the decision based on his or her needs.
transaction.
Along with a longer gestation and sales training period, marketing
Indeed, there are only three items that reverse mortgage originators
on the forward side. On the forward side, customer leads tend
are required to obtain from the borrower: proof of age, proof of
title, and a home appraisal. Credit scores do not matter. And, while we ask for the borrower’s income, we are currently not required to validate it – income is not part of the underwriting process. By contrast, of course, in the forward mortgage business, the
originator and underwriter must obtain all of these items – and more. While the underwriting process in the reverse world is much
simpler than in the forward world (focusing primarily on the
appraisal), the sales process in the reverse world is much more involved than in the forward market. Indeed, in the reverse
mortgage business, it is not so much a sales process as it is an explanation endeavor.
A long gestation period Unlike the forward mortgage origination process, which is
relatively quick, there is a long gestation period in the reverse mortgage world. Not only is there a government-mandated
and advertising costs tend to be higher in reverse mortgages than
“
to come from real estate agents and banks. By contrast, reverse
To be successful as a reverse mortgage loan originator, you must truly be concerned about what is best for the senior. While the program can help a lot of seniors, it is not for everyone. The senior, armed with information, will make the decision based on his or her needs.
education process, but the prospective borrower also needs to think long and hard about whether this is the right thing to do. Often he
or she consults with adult children and other family members – and even a financial adviser. Some years ago, I talked to a senior about reverse mortgages and recently, when I saw him again, he told me
he is now ready to apply for a reverse mortgage. That’s an unusual
July / August 2010 TRR
| 25
mortgage lenders rely heavily on more expensive informative channels, such as television commercials and direct mail. However, the higher
marketing costs on the reverse side are somewhat offset by the higher fee income.
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Big commercial banks have an advantage over independent reverse
mortgage lenders in this area and may be able to avoid some of those high marketing costs. Unlike independents, banks can piggyback
reverse mortgage messages onto their other products. They can also use their lists of existing customers, such as retirees and retirement account holders, to better target reverse mortgage marketing. Reverse, forward worlds different Not surprisingly, loan servicing systems in the reverse and forward worlds are totally different, which stands to reason - instead of
receiving checks each month from borrowers and then paying lenders, investors, insurance companies, and tax authorities, reverse mortgage
servicers send out checks to borrowers. As noted, borrowers have five options on how they want their money sent to them, from a monthly check to a line-of-credit they tap as needed, similar to a home equity line, but without required payments from the borrower.
Reverse mortgage servicers, by contrast, do not need to set up escrow accounts to make tax and insurance (T&I) payments; borrowers are
required to make those independently. However, sometimes borrowers
fail to make those payments, either because they forget or because they don’t have the money to pay them.
As a result of these servicing differences, reverse mortgage systems tend to be custom-built. There are currently five or six servicing
systems used in the forward industry, and all of them are very similar. But, there is no one standard for servicing in the reverse mortgage
industry. Each company tends to have a completely different system
p PLUS u t E s hly FREE ur mont
that was built from scratch according to its own specifications.
by sign up ode RF3REVIEW
specializes in this area. Indeed, it is usually not cost-effective to do your
yo 10% off ip fees forever. sh 10! member 4/30/20 E nte r c
For that reason alone, it makes the most sense for a company getting into reverse mortgages to outsource the servicing function to a company that own servicing unless you have at least 20,000 loans in your portfolio. Finally, of all the many differences between forward and reverse
mortgage operations, there is one element on the reverse side that cannot be ignored, and that is character. Working with the senior population exclusively, we believe in compassion, integrity, and doing the right
The Ultimate Resource for Ordinary people. Extraordinary results. Reverse Mortgage Originators
www.
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JulyExtraordinary / August 2010results. Ordinary people. 26 | TRR
thing. It really does take special commitment to succeed in this segment.
S A V E
T H E
D A T E
National Reverse Mortgage Lenders Association
2010 Annual Meeting and Expo November 3-5, 2010 New Orleans, LA The Roosevelt New Orleans Hotel
for more information, visit www.nrmlaonline.org
July / August 2010 TRR
| 27
st
everse
FINANCIAL SERVICES, LLC
A
SUBSIDIARY OF WILMINGTON SAVINGS FUND SOCIETY, FSB
A Subsidiary of Wilmington Savings Fund Society, FSB
www.1streverse.com 877.574.1000
www.avisionreversesolutions.com 877.250.8333
Capital Consulting Group www.ccgcap.com 770.242.8029
www.guardianfirst.com/jobs 800.682.1577 option 3
www.ireverse.com/employment 800.486.8786
nrmlaonline.org
www.remalo.org 877.262.7656
www.reverserateleads.com 877.262.7656
28 | TRR
July / August 2010
www.AttorneyTrustReview.com 631.669.4370
www.allproprinting.com 866.472.3982
www.celink.com 517.321.9002
www.loanwellrm.com 877.700.0555
www.reversevision.com 919.834.0070
www.S1L.com 619.794.0674
al@deltagroupsolutions.com 928.458.5884
www.mortgagecadence.com 888.462.2336
www.rminsight.net 949.429.0452
How a Reverse Mortgage Can Lower Taxes
Perhaps a reverse mortgage should be considered for more than just an income enhancement JONATHAN NEAL When we (CCG) work with retired people or people who are about
Although tax rates can, and most likely will, change for our
lifetime income, protect against any loss in principle, and reduce taxes.
following chart. I do not give tax advice and certainly don’t want to
to retire, we try to design a plan that is focused on three goals: insure
We are not always able to do all three, and in many cases, our clients are fortunate enough not to have to worry about ever
running out of money, but I can assure you that I have never met
anyone, regardless of their age, income, or retirement status, who wasn’t interested in reducing their taxes.
Beyond all the hoopla, what makes reducing taxes such a great deal is that every dollar you save in taxes automatically converts into
additional disposable income. In other words, reducing your taxes is equivalent to giving yourself a raise.
In order to reduce federal taxes, we must start by identifying
the origin or source of income. All income has to be generated
from somewhere, and it is the “where” part that results in how
income is taxed. Since the IRS does not treat all income the same, understanding the different classifications is the key to legally reducing taxes owed.
We could spend a lot of time talking about the different tax classifications employed by the IRS, but for this article let’s focus on ordinary income and the current federal tax rates that apply to ordinary income.
Before we go any further, I want to make sure that we are all on the same page. It is imperative that anyone dealing in the 62 and older marketplace understands that all federal tax brackets are the same for everyone and that income determines how much, if any, of a person’s Social Security is taxed.
purpose, I am using the 2010 federal tax rates as illustrated in the
give the impression that I am a tax expert. As such, I am not ready
to swear that the following table is indisputably accurate, so use it at your own peril. Of course, if you want to be absolutely certain, you can always go to the IRS.org, pull down the instructions for Form 1040, and print out all thirteen pages. Either way, keep in mind
that tax rates are based on the taxpayer’s Adjusted Gross Income (AGI). There are however, four different tables depending on the
filer’s status, which are “single”, “married filing jointly”, “married
filing separately” and “head of household”. For the sake of time and space, I am only listing the “married filing jointly” table. For married couples filing jointly: AGI From
To
Percentage
Amount Due
Cumulative Total
$0
$16,750
10%
$1,675
$1,675
$16,751
$68,000
15%
$7,687
$9,362
$68,001
$137,300
25%
$17,325
$26,687
$137,501
$209,250
28%
$20,090
$46,777
$209,251
$373,250
33%
$54,120
$100,896
$373,251
$1,000,000
35%
$219,362
$320,259
The second constant is how much, if any, of a person’s Social
Security will be taxed and at what rate. Here are the basics: for
single filers with income over $25,000 and married individuals
filing jointly with incomes over $32,000, fifty percent of their Social July / August 2010 TRR
| 29
Security will be taxed. However, it doesn’t stop there, once income
Now if this couple would take just $1,000 per month in a reverse
exceeds $44,000, the percentage of their Social Security benefits
qualified accounts by $10,000 annually. This simple change would
for single filers goes over $34,000 and married filing jointly filers being taxed goes up to 85%.
Fortunately, the IRS doesn’t consider money generated from a
mortgage, they could reduce the money they are taking from their set a number of things in motion that will result in what most people would consider a positive outcome.
reverse mortgage as income, which is something you definitely
The first thing that happens is that the adjusted gross income drops
there are aspects of this tax issue that far too few people take into
would be $5,687, which would indicate a savings of $3,383 or 37.30%.
want to make sure your clients and prospects are aware of. But,
consideration. The following scenario is an example of one married couple that is part of a very large group of people who qualify for, but normally won’t consider, a reverse mortgage.
The married individuals are 65 years old, have an annual income,
after deductions, of $70,000, and live in a $500,000 home, which they
by $22,550. That’s a 34.14% decline to $43,500. Their new tax bill
But the benefits of that one simple move doesn’t stop with just the tax savings, it also provides them with the opportunity to add, rather than subtract, from their qualified accounts, which will continue to grow tax deferred income.
own outright. Their income comes from two sources: $33,000 from
Of course, like always, I am only giving you an overview from
important to take into consideration that when withdrawn, 100% of
accountant, a CPA, or tax advisor, and I don’t give tax advice to
Social Security and $37,000 from qualified retirement accounts. It is
the qualified money is taxable as ordinary income, and that amount is counted in their tax return as ordinary income. Which means an
additional $28,050 is added to their taxable income. The end result
about 10,000 feet, and as such, I want to reiterate that I’m not an clients. I do, however, discuss ideas about how people can use different products to legally reduce their tax burdens.
is that they pay federal tax on an adjusted gross income of $66,050.
If you would like to get more in-depth on this topic or any of the
their gross income.
to consider attending one of my upcoming educational seminars.
Based on those numbers, their federal tax bill is $9,070 or 12.96% of
30 | TRR
July / August 2010
others we have introduced over the last few months you might want
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