The Reverse Review January 2014

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Hopes for the HECM in 2014

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NEW COMPLIANCE GUIDELINES IMPACT AMCs PG. 33 UNDERSTANDING THE NON-BORROWING SPOUSE ISSUE PG. 34 + Mark Browning SITS DOWN IN OUR HOT SEAT PG. 22

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THE

REVERSE January 2014

review

HUD’s

Charles Coulter4 talks hecm policy

The deputy assistant secretary for single-family housing shares his thoughts on the evolution of the reverse mortgage program and the value it offers America’s seniors.

The Reverse Review January 2014

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The Reverse Review January 2014

From the Editor single-family housing, Charles Coulter.

As a leading participant in the agency’s

overhaul of this FHA-insured loan, Coulter

Senior Publisher

adequately position the reverse mortgage

Publisher

America’s seniors with a means to support

Editor-in-Chief

to successfully provide thousands of their retirement.

first of 2014 as we officially leave behind what proved to be a challenging year

for the HECM industry. As we regroup

in the wake of drastic change, some are optimistic about the opportunity that

lies ahead. While volume may dip as the industry adjusts, the changes present a chance to rethink how we discuss the

benefits of this loan with consumers. Many are hopeful that the revisions will give the reverse mortgage a clean slate, allowing the industry to improve the public’s negative perception of this valuable product.

In this month’s cover story, we talk to HUD’s deputy assistant secretary of

Jessica Guerin Traci Knight

professionals from various sectors across

Copy Editor

cautious optimism as they reveal their

Marketing Director

the reverse space echo some of Coulter’s goals for the year ahead and their hopes

for the direction of the HECM market in 2014.

Kersten deck alycia colacion

Printer The Ovid Bell Press

Finally, while the industry adapts to a new HECM landscape, I’d like to invite our

readers to join in on the conversation. With input from dedicated reverse professionals who believe deeply in the value of this

product, we can enhance the discussion about how we can work together to advance this important product.

Editor-in-Chief

{ Jessica Guerin } Want to contribute to the conversation?

Contact jessica@reversereview.com.

Advertising Information phone : 630.207.3882 email : jessica@reversereview.com Subscriptions email : information@reversereview.com Editorial Content email : jessica@reversereview.com © 2013 Reverse Publishing, LLC. All rights reserved. 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, Reverse Publishing, 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, 3800 West Chapman Ave., Orange, CA 92868

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ed

Feedback is very important to us here at The Reverse Review. Send us your thoughts on past articles or something that is on your mind and we will publish it in this section. information@reversereview.com

Erik Richard

y ect staonn c

Feedback

Reza Jahangiri

Creative Director

In our Spotlight story, a dozen

This issue marks the

Meet the Team

expresses his support for the program

and belief that the recent revisions will

A note from jessica guerin

l

FACEBOOK AND LINKEDIN

Table of Contents

TRR 1.14

30 | Marketing How to Create Promotional Pieces That Attract Your Ideal Clients Tips for reaching your target audience

In this issue...

22 Mark Browning Hot Seat

Dawn Josephson

33 | Appraising Auld Lang Syne The CFPB rings in the New Year with the release of rule amendments that will impact real estate appraisal reports. john golden

34 | Legal 09 | Movers and Shakers

The latest developments in companies across the reverse space

11 | Industry Update

Headlining stories of the past month Reverse Mortgage Daily

12 | Report

November year-to-date volume for top reverse lenders

19 | Roundup

A collection of recent facts and surveys affecting the reverse market

20 | NRMLA in New Orleans

A photo recap of the association’s 15th annual meeting in the Big Easy

24 | Originating How We Can Help Boomers Facing a Retirement Crisis

Reverse Market Insight

A new generation of retirees is going to need options like the HECM to achieve financial security.

14 | NRMLA News

MARK O’NEIL

Read about the association’s current initiatives.

Marty Bell

26 | Originating Three Buckets and Two Silos Explaining how a HECM can lighten a senior’s financial burden

Understanding the NonBorrowing Spouse Issue

26 Jim Milano Originating

In light of a recent court ruling, we take a look at the legal issues surrounding a non-borrowing spouse of a HECM mortgagor.

Alexander J. Chaudhry

39 | HMBS New Year, New Market Landscape 2014 will be a year of change for HMBS. Darren stumberger

50 bart johnson Last Word

40 | Spotlight Hopes for the HECM in 2014 Industry participants share their business goals and their hopes for the HECM market next year.

HARLAN ACCOLA

The deputy assistant secretary for single-family housing shares his thoughts on the evolution of the reverse mortgage program and the value it offers America’s seniors.

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INSIDE this issue

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Hopes for the HECM in 2014

EVIE

THE

NEW COMPLIANCE GUIDELINES IMPACT AMCs PG. 33 UNDERSTANDING THE NON-BORROWING SPOUSE ISSUE PG. 34

+ MARK BROWNING SITS DOWN IN OUR HOT SEAT PG. 22

HE REVERSE REV IE W

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An interview with HUD’s assistant deputy secretary of single-family housing

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“I think we have an opportunity on a prospective basis to really make this program a healthy and constructive part of FHA’s offerings... So, will there be a volume impact in the near term? Absolutely. Are we in a position to come out of that in a way that is better for the program over the long term? I believe so.

january 2014 SE

jessica guerin

R SE

Policy

@

Want the online version? reversereview.com/magazine

ER EV

44 | HUD’s Charles Coulter Talks HECM

R

FEATURE

THE

REVERSE review

JANUARY 2014

HUD’s

Charles Coulter4 TALKS HECM POLICY

reversereview.com

The deputy assistant secretary for single family housing shares his thoughts on the evolution of the reverse mortgage program and the value it offers America’s seniors.

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The Reverse Review January 2014

Contributors

John K. Lunde

Marty Bell

J ohn K . L und e

Ma rty B e ll

mar k br owning

13 | Top Lenders Report g 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

14 | NRMLA News g Marty Bell is NRMLA’s senior vice president of communications and marketing.

This is Bell’s professional Act III after careers in books, journalism and the Broadway theater.

Bell is the author of two novels and four nonfiction books, and his writing has appeared in publications including Playboy and New York magazine. Bell wrote and produced the awardwinning documentary film The Boys of Summer and produced 15 Broadway shows (including Ragtime, Fosse and Dirty Rotten Scoundrels) that won 27 Tony Awards.

22 | Hot Seat g Mark Browning is founder and president of HomeChex, a firm based in Rochester, New York, that has been exclusively devoted to managing housing wealth and reverse mortgages for 15 years. Browning has been an active member of NRMLA’s Board of Directors since 2004 and has been a voice in national policy formulation for the HECM. He has a background in structured mortgage finance. Prior to becoming an entrepreneur, Browning was CEO of the U.S. mortgage banking business of a multinational bank. mbrowning@homechex.com

ma r k o’nei l

ji m mi lan o

h ar lan ac co la

24 | How We Can Help Boomers Facing a Retirement Crisis g Mark O’Neil is a regional account manager at Reverse Mortgage Funding, LLC. He has worked in the reverse mortgage field for the past 12 years, serving in roles as a closing agent, originator and wholesale account representative. While working for MetLife, O’Neil was the first account executive certified to deliver HECM courses to financial planners.

919.494.2255, moneil@reversefunding.com

26 | The New HECM Math: Teaching an Old Dog New Tricks g Jim Milano is a partner with the law firm of Weiner Brodsky Sidman Kider. Milano’s practice focuses on regulatory compliance for the financial services industry, particularly with respect to reverse mortgage issues. Milano is nationally recognized as one of the leading lawyers in the area of reverse mortgage law, and is a frequent speaker on topics of interest to industry members at various trade association conferences and webinars.

28 | Three Buckets and Two Silos g Harlan Accola is the branch manager and senior mortgage planner for Moneywise Mortgage, a division of Top Flite Financial. Accola has been in the mortgage industry for more than 15 years and is a registered financial consultant and a Certified Senior Advisor.

Based in Marshfield, Wisconsin, Accola specializes in educating retirees and pre-retirees on the advantages of using reverse mortgages for financial and estate planning. harlan@allmoneywise.com

daw n j os e ph s on

joh n gold e n

30 | How to Create Promotional Pieces that Attract Your Ideal Clients g Dawn Josephson is a ghostwriter, editor, and writing coach who helps business leaders and professional speakers create engaging and informative books, articles and marketing pieces. masterwritingcoach.com

33 | Auld Lang Syne g John Golden is the national quality control manager for Landmark Network, Inc., an appraisal management company that services clients nationwide. Golden, a former certified residential and FHA appraiser, is currently on the HUD 203k consultant roster. He relies on a 13-year background in valuation and inspection in dealing with quality control matters.

888.272.1214 ext. 718, jgolden@landmarknetwork.com

ale x an d e r j. c h au d h ry

Mark Browning

Mark O’Neil

Jim Milano

Harlan Accola

Dawn Josephson

John Golden

Alexander J. Chaudhry

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34 | Understanding the NonBorrowing Spouse Issue g Alexander J. Chaudhry is general counsel of FNC Title Services, a multistate title insurance agency.

Chaudhry works on areas of real estate law that impact title insurance agencies with a specific focus on issues associated with HECMs. He is responsible for corporate and transactional matters, licensing, and regulatory and litigation concerns. He recently worked with state insurance enforcement officers on cyberthreat issues facing the title insurance industry.

Contributors

Darren Stumberger

Jessica Guerin

da r r en s t um be r ge r

je s s i c a gu e r i n

ba rt joh nso n

39 | New Year, New Market Landscape g Darren Stumberger, managing director at Stifel Nicolaus & Co., heads mortgage trading and is responsible for HMBS/HREMIC, HECM and Jumbo reverse loan trading, distribution and risk management. Prior to Stifel, Stumberger held mortgage trading and finance positions at Goldman Sachs, Morgan Stanley and BofA Merrill Lynch. stumbergerc@stifel.com

44 | HUD’s Charles Coulter Talks HECM Policy g Jessica Guerin is the editor-inchief of The Reverse Review.

She has worked on the editorial teams of Chicago Home & Garden, Chicago magazine and Time Out Chicago. Prior to joining the magazine, Guerin managed the marketing efforts for a commodity brokerage firm in the Chicago Board of Trade.

She has a master’s degree in magazine publishing from Northwestern University and a B.S. in journalism from Boston University.

50 | Differentiate With Customer Segmentation g Bart Johnson is the CEO of Premier Home Equity. He previously served as the president of Financial Freedom, overseeing the company during the time it earned unprecedented market share, profits and value. Johnson was a co-chair of NRMLA and remains an active board member. He is a career “intreprenuer,” building ventures into valuable businesses with large corporate sponsors.

Johnson has held executive positions in virtually every important area of mortgage banking.

Do yo have wu it take hat s?

Bart Johnson

before we begin FHA Releases Status Report pg on MMI Fund Numbers reveal a $15 billion gain for the fund in 2013.

.11

Be a part of the conversation.

There’s no such thing as a stupid idea. What do you want us to write about?

Tell us! info@reversereview.com

Write for us!

We are looking for new contributors.

Share your thoughtful commentary with our readership today.

Email jessica@reversereview.com to learn more.

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888.383.8885 ops@quickcert.org Telephone counseling nationwide

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The Reverse Review January 2014

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nt e: ws on the curre and counsel vie the reverse officer, broker, n th wi loa d t, en ate oci gem and risks ass • Upper mana new intricacies landscape and the ct du pro d age rtg mo te regulation an ed federal and sta k ok and heighten w to minimize exposure to ris tlo ou t en nm s: ho • Gover reverse mortgage e Letter enforcement of to FHA Mortgage ide ues with regard iss n tio nta perty Charge Gu pleme Pro im d ing an t ark en hm sm ses • Benc CM Financial As 2013-27 and HE Letter 2013-28) e reverse (FHA Mortgage n Bureau on the ancial Protectio the Consumer Fin • The impact of ry tional) mortgage indust prietary (conven , and beyond e market and pro ck of the privat , other regulatory developments • The comeba M ention, QR products: risk ret gation trends and HECM liti age rtg • Reverse Mo to non-borrowing closures specific dis d an ing spouse rules • Non-borrow s spouse situation servicing arena reverse mortgage e opments in the ance and ensur • Recent devel promote compli lows all policies systems: how to t fol t en tha gem m na gra ma pliance pro • Compliance of an effective com implementation s ure l ced pro and ensuring ethica marketing and iding deceptive avo on ces cti • Best pra erse mortgages advertising of rev

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Movers & Shakers Read about the latest developments in companies across the reverse space.

Hav e a c o mpan y u p dat e y o u w ou ld lik e t o s e e p u b l i s h e d?

Reverse Mortgage Funding Names Alissa Prieto Regional Account Manager, Hires Linda Dellutri to Lead Human Resources Reverse Mortgage Funding (RMF) LLC has hired Alissa Prieto as a regional account manager. Prieto will be responsible for building RMF’s business on the West Coast through the establishment of thirdparty originator (TPO) relationships with brokers, credit unions and banks. Prieto, who is based in Southern California, will cover Washington, Oregon, California, Arizona, Utah, Nevada, Idaho, Alaska and Hawaii. Prior to joining RMF, Prieto served for more than nine years as vice president of sales at Premier Reverse Closings. “We are pleased to have Alissa join our growing team,” said Michael Mooney, national sales manager for the third-party channel at Reverse Mortgage Funding. “Alissa has been committed to our industry for nearly a decade. The relationships she has established with reverse mortgage originators will serve her well as Reverse Mortgage Funding grows its TPO business.” RMF has also hired Linda Dellutri as vice president of human resources. As such, Dellutri will be responsible for the overall function of the human resources department, including talent acquisition, onboarding, benefits, compensation, payroll, employee relations, training and employee development.

ReverseVision Announces New Partnerships With LiveWell Financial, Mason-McDuffie San Diego-based reverse mortgage software provider ReverseVision has partnered with Live Well Financial, a leading GNMA HMBS issuer of reverse mortgages headquartered in Richmond, Virginia. “As one of only a few lenders capable of placing reverse mortgage originations into the secondary market, Live Well Financial has recently added key

Email it to Jessica@reversereview.com.

management to the company to expand its wholesale and branch partner business,” said Live Well’s EVP Bruce Barnes. “Our strategic partnership with ReverseVision is a key step in rolling out our new Broker Advantage Platform that will create a new standard in reverse mortgage wholesale lending.” ReverseVision has also partnered with Mason-McDuffie Mortgage Corporation, a lender based in Ramon, California, with more than 100 years of experience helping homeowners.

Generation Mortgage Company Launches nu62.com; Continues Sales Team Growth Generation Mortgage Company (GMC) has launched nu62.com, an interactive website that shows potential borrowers and industry professionals how strategic use of home equity can help homeowners live better in retirement. The site features GMC’s patent-pending nu62 software, which graphically demonstrates the value of employing various utilization strategies to put home equity to work. To learn more about a better and more efficient way to show your clients how a conversion mortgage can play a valuable role in financial planning, visit nu62.com/rr2. GMC has also hired two new loan officers. Laura Bopp now represents the company in Colorado, while Sean Reese is serving GMC customers in the state of Iowa. Both Bopp and Reese are managed by Generation’s regional retail sales manager, Alicia Hahn. “At Generation, we are working to expand our sales team by adding talented professionals who possess significant mortgage industry experience as well as a passion for helping seniors,” said Generation’s chief sales officer, Cheryl MacNally.

Urban Financial Group Changes Name to Urban Financial of America, LLC; Names Kristen Sieffert COO, Hires Three New

Sales Managers; Launches Education Programs for Financial Advisors Urban Financial Group has changed its name to Urban Financial of America, LLC, or UFA. The name change follows Urban’s sale by Knight Capital Group upon its merger with Getco; Urban is now owned by an investor group led by Brian Libman, Walter Investment’s chief strategy officer.

“Although our name has changed, the team that our customers have come to know will continue to provide the same superior level of service and reverse mortgage expertise that sets Urban apart.

We’re excited to have a new identity that better reflects our national profile as a top retail and wholesale lender, and our position as America’s leading wholesale reverse mortgage company,” said UFA President and CEO Steve McClellan. UFA has named Kristen Sieffert COO under the new leadership. The company has also hired three new sales managers: Geoffrey Bench (New York area), Ernest Castro (Virginia) and Castulo Romero (Los Angeles region). Finally, UFA has launched education programs for financial advisors, naming Phil Walker as VP of the new division.

Industry Consulting Group (ICG) Offers HUD-Approved Tax Certification Product Industry Consulting Group, one of the largest reverse mortgage tax service solution providers, offers a pre-closing tax certificate that meets the upcoming HUD Financial Assessment requirements indicated in HUD’s Mortgagee Letter 210327. The low-cost tax certification product will provide a minimum of two years real estate tax payments demonstrating a history of timely payments of property taxes. For further information, contact National Sales Manager Chuck Burkey at 678.517.8168 or chuck.burkey@icgtax.com. reversereview.com

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The Reverse Review January 2014

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Industry Update

January Edition

Brought to you by:

an update of this past month’s breaking news

News direct to you: The industry’s headlining stories at your fingertips Want even more up-to-the-minute news? Visit reversemortgagedaily.com.

headlining news 1.FHA Report Shows

Improvement to the MMI Fund

FHA’s Mutual Mortgage Insurance Fund showed strong improvement in 2013, according to an annual independent actuarial review. Numbers indicated that the fund gained $15 billion in value over the course of fiscal year 2013, rising from negative $16.3 billion to negative $1.3 billion, a strong improvement over the course of a year. The agency’s capital reserve ratio also shot up from negative 1.44 percent to negative 0.33 percent, nearing positive territory earlier than expected based on last year’s report. The HECM portfolio showed similar improvement and is now fully capitalized, having gained $9 billion in value during the year, from a negative net value of $16.1 billion to a net present value of negative $5.5 billion.

A transfer from the forward portfolio as well as a Treasury draw led to the current net worth estimate. “The HECM portfolio is now fully capitalized and is on an increasingly sustainable path moving forward,” FHA noted in its summary of the findings. // December 13, 2013

2.FHA Keeps Reverse Mortgage Lending Limits Unchanged for 2014

HUD has announced that it will keep reverse mortgage loan limits unchanged through 2014, though it has reduced forward lending limits in some counties across the country, namely in high-cost areas. The limit for HECM loans will remain at a maximum claim amount of $625,500, with actual loan limits based on property value, borrower age and current interest rates. “As the housing market

continues its recovery, it is important for FHA to evaluate the role we need to play,” said FHA Commissioner Carol Galante.

“Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.” // December 6, 2013

3.HUD Appeals Non-Borrowing Reverse Mortgage Spouse Ruling

HUD has filed a notice of appeal of a recent court decision regarding the non-borrowing spouses of reverse mortgage borrowers.

In October, a court in Washington, D.C., ruled in Bennett v. Donovan in favor of two non-borrowing spouses, claiming HUD violated federal law when it did not protect the surviving, non-borrowing spouses of reverse mortgage borrowers in the plaintiffs’ cases. The Department of Justice filed the appeal on behalf of Secretary Donovan on November 26. // December 4, 2013

4.Program Changes COULD

MEAN Reverse Mortgage Image Makeover

Despite the negative perceptions that have plagued reverse mortgages in the past, borrower protections outlined under the new program changes could be the image makeover needed to spur utilization among future senior homeowners, according to an article from National Mortgage Professional magazine. New federal oversight from HUD in the form of changes to the HECM program announced in September could revamp borrowers’ perceptions of reverse mortgages; rules emphasize borrower protections such as financial assessments and mandatory set-asides. “The changes should help drive consumer behavior,” said NRMLA President Peter Bell in the article.

“People will be able to take out the amount they need and leave the line of credit. It will be better for everyone.” // December 3, 2013

5.Investor Group Closes

$80 Million Deal to Purchase Urban Financial

An investor group led by a former Walter Investment Management executive closed an agreement Monday to purchase Urban Financial of America (UFA) from KCG Holdings (NYSE: KCG) for approximately $80 million in cash and retained net assets.

Under the terms of the deal, former Walter Investment Management Chief Strategy Officer Brian Libman is the lead on the acquiring investor group. He has resigned his position from Walter and its subsidiaries and will hold the position of executive chairman and primary shareholder of UFA. // December 2, 2013

6.Walter Boosts Portfolio

with $30 Billion Acquisition in Mortgage Servicing Rights

Walter Investment Management, parent company of Reverse Mortgage Solutions and Security One Lending, has acquired $30 billion of mortgage servicing rights from an unnamed “national depository,” according to a company press release. The servicing rights are backed by Fannie Mae and consist of about 270,000 accounts projected to be approximately 99 percent current at transfer and more than 100,000 accounts that are eligible under the Home Affordable Refinance Program (HARP). The acquisition is part of a larger plan to acquire servicing rights with more than $62 billion in unpaid principal balance total; the company has acquired $54 billion in mortgage servicing rights to date under the plan, including the most recent transaction. // December 11, 2013 reversereview.com

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The Reverse Review January 2014

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Report November 2013

Top Lenders Report

12345 American Advisors Group

S1L / RMS

Endorsement

564

Endorsement

683

Lender

One Reverse Mortgage

Liberty Home Equity

Endorsement

Endorsement

475

Endorsements

471

Urban Financial Group

334

Lender

Endorsements

PROFICIO MORTGAGE VENTURES LLC

158

MORTGAGE SERVICES III LLC

13

REVERSE MORTGAGE USA INC

100

STERLING SAVINGS BANK

12

GENERATION MORTGAGE COMPANY

95

VANGUARD FUNDING LLC

12

CHERRY CREEK MORTGAGE CO INC

85

AMERICAN NATIONWIDE MORTGAGE CO

12

MONEY HOUSE INC

83

FULTON BANK

12

SUN WEST MORTGAGE CO INC

77

ADVISORS MORTGAGE GROUP LLC

10

OPEN MORTGAGE LLC

71

ATLANTIC BAY MORTGAGE GROUP LLC

9

NATIONSTAR MORTGAGE LLC

69

ASPIRE FINANCIAL INC

9

NET EQUITY FINANCIAL INC

58

CONTOUR MORTGAGE CORPORATION

9

M & T BANK

51

LEADER ONE FINANCIAL CORP

9

ASSOCIATED MORTGAGE BANKERS INC

49

VIG MORTGAGE CORP

9

UNITED NORTHERN MORTGAGE BANK

41

VAN DYK MORTGAGE CORPORATION

9

GMFS LLC

40

WHOLESALE CAPITAL CORP

9

HIGH TECH LENDING INC

37

TOP FLITE FINANCIAL INC

9

SENIOR MORTGAGE BANKERS INC

36

NORTH AMERICAN SAVINGS BANK

9

PLAZA HOME MORTGAGE INC

36

PRIMARY RESIDENTIAL MORTGAGE INC

8

UNITED SOUTHWEST MORTGAGE CO

34

SUCCESS MORTGAGE PARTNERS INC

8

FIRSTBANK

32

RESIDENTIAL HOME FUNDING CORP

8

NATIONWIDE EQUITIES CORPORATION

31

VALUE FINANCIAL MORTGAGE

8

MAVERICK FUNDING CORP

26

GATEWAY BANK MORTGAGE

8

TOWNEBANK

25

GEORGETOWN MORTGAGE

8

AMERICAN PACIFIC MORTGAGE

24

FRANKLIN FIRST FINANCIAL LTD

8

MCM HOLDINGS INC

23

UNIVERSAL LENDING CORPORATION

22

FIRSTAR BANK

20

DOLLAR BANK FSB

17

NEW DAY FINANCIAL LLC

17

PEOPLES BANK

16

HOMEOWNERS MORTGAGE ENTERPRISE

15

AXIA FINANCIAL LLC

14

SUN AMERICAN MORTGAGE CO

14

MAS ASSOCIATES LLC

13

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The Reverse Review January 2014

NRMLA News

On the Docket Looking Back: Last Year at NRMLA

Last year began with a fanfare of thuds at NRMLA: an audit of HUD that showed a need for a draw on the Treasury to balance the Mutual Mortgage Insurance Fund; a proposed amendment to a bill

by Sen. Bob Corker calling for a two-year moratorium on the HECM program; a request from HUD asking for the authority to make “blunt changes” to the program; and an Appeals Court ruling in Bennett vs.

Donovan that surviving spouses forced to sell their homes have a right to sue HUD. As if those were not enough discouragements and hurdles, the year also saw the House Financial Services Committee narrowly pass an FHA reform act that eliminates the HECM program entirely in two years; various holds from senators on the legislation HUD needed to shore up the MMI Fund’s future; and an FY 2014 president’s budget that showed a $5.2 billion shortfall in the HECM part of the MMI Fund that led one congressman to blurt out at a hearing, “Why does the HECM program even exist, given the costs?”

And as 2012 came to a close, our annual meeting in San Antonio coincided with a front-page story in The New York Times that attacked aggressive reverse mortgage lending 14

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and the wooing of borrowers with the promise of “free money.” But 2013 wound down on a different note, one that was optimistic and even enthusiastic. At 2013’s annual meeting in New Orleans, FHA Commissioner Carol Galante thanked NRMLA for partnering with HUD to fix the program, and our executive committee presented an annual review titled “A Year of Stabilization & Renewal.”

The primary and perhaps gamechanging effort of this past year was the grinding effort to push the Reverse Mortgage Stabilization Act of 2013 through both houses of Congress. The one-sentence bill required literally hundreds of meetings and phone calls among NRMLA senior staff Peter Bell and Steve Irwin, our legislative advocacy team (including Melody Fennell, David Horne, Scott Olson and Larry Rasky), and members of Congress and their staff. But in a year in which only 26 bills have made it through the grinder, this legislation, sponsored by Reps. Denny Heck (D-WA) and Mike Fitzpatrick (RPA) in the House and Rep. Robert Menendez (D-NJ) in the Senate, passed with bipartisan support and unanimous consent.

This bill has legs. In addition to altering the HECM program, it immediately seemed to alter the national conversation from the moment the president signed

it into law on August 8. Over the next few weeks, positive stories appeared from prominent reporters—celebrity journalist Jane Bryant Quinn recommended the use of the line-of-credit option, the Wall Street Journal’s Kelly Greene showed how the wealthier are using reverse mortgages, and The New York Times’ Tara Siegel Bernard described the shift in reverse mortgages from a desperation tool to a financial planning tool. In fact, from the day of the president’s signing until this writing, 78 percent of press coverage about reverse mortgages all across the country has been positive.

Meanwhile, on the state level, NRMLA persuaded the sponsor of a California bill requiring face-to-face counseling that the idea was not practical and the bill was dropped; the association also persuaded the Massachusetts legislature to add a third two-year delay to the implementation of its face-toface counseling initiative; and in a yeoman effort that demonstrates the power of individuals, Scott Norman of Sente Mortgage ushered a bill legalizing the HECM for Purchase through both houses of the Texas State Legislature and a popular vote in Texas.

NRMLA News

Once the good news started, it seemed to keep rolling:

<

ur Reverse Mortgage Market O Index, which measures aging Americans’ home equity, jumped to its highest level since before the Great Recession

<

national education effort A lead by Otto Kumbar of Liberty Home Equity Solutions called the Extreme Summit gained financial support from member companies and planned a firstquarter 2014 pilot prior to a wider launch

<

<

ur consumer website, O reversemortgage.org, soared from about 10,000 hits per month at the end of 2012 to more than 31,000 in October 2013 MLA’s magazine and NR consumer site were honored with awards from the International Marketing and Communications Association

As 2013 began, it was difficult to imagine it would go down as a very good year for the reverse mortgage industry. And yet here we are, entering 2014 with the pending launch of the new reverse mortgage, with many of the obstacles and objections of the past behind us and lots of promise ahead.

“You understood the challenges we were facing and stepped up to the plate,” Assistant Secretary for Housing/Federal Housing Commissioner Carol Galante told the 565 attendees at NRMLA’s Annual Meeting & Expo in New Orleans on November 4. “The FHA could not have [passed the Reverse Mortgage Stabilization Act of 2013] without you.”

“I am here to tell you,” Galante continued in her keynote address, “we are in this together. And when you see the problems seniors are having saving

for retirement, it’s easy to see why we invest the time and energy.”

Galante said that the way the HECM program was previously structured was not sustainable. She reiterated past remarks by both Deputy Assistant Secretary Charles Coulter and herself that they had always preferred to make “more nuanced changes” rather than use a blunt instrument or see the program done away with all together, and that the legislation that NRMLA worked on side by side with the department made that possible. The first set of these changes— including limitations on first-year draws, merging the HECM Saver and

Standard into one product, PLF table adjustments and insurance rates varying according to draw—were implemented October 1.

Then she warned the gathering, “There is no perfect policy. We are committed to monitoring the impact of the changes and make sure we’re not over-changing. But even if we hit it right, there are people who can find a loophole. We need to be able to depend on an industry that is going to respect the rules and self-police. It is going to be really important that a few bad actors don’t spoil it for the rest of us.”

In Committees

NRMLA submitted public comments to FHA in October, seeking

clarification on numerous issues pertaining to the implementation of Financial Assessment.

Starting January 13, 2014, loan originators will need to begin

performing financial assessments. It’s a highly complex topic that

revolves around capacity, willingness and compensating factors to determine whether set-asides are necessary.

The Policy Committee, with assistance from NRMLA’s outside

legal counsel, crafted detailed comments that can be broken down into six primary categories or topic areas:

ONE T he need to take into account HECM proceeds in the dissipation equation

TWO The need to remove any discounting of asset

THREE T he need to make lifetime expectancy set-asides a requirement only if the applicant fails capacity AND willingness

FOUR The need to grant borrowers the ability (or option) to retire

unsecured debt at the time of closing and incorporate the reduced debt service in the capacity calculations

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NEWS FROM NRMLA

Kudos From the Commissioner

brought to you BY MARTY BELL: national reverse mortgage lenders association

The Reverse Review January 2014

NRMLA News In Committees (cont)

FIVE The lack of minimum standards for the willingness test

SIX The lack of any quantitative guidance regarding the “borrower

authorization” to pay property charges from a monthly payment or line of credit

The Board of Directors approved two Ethics Advisories—

one that discusses anti-churning and the new single lump-sum

Welcome to NRMLA’s Board At the business meeting held each year as part of the annual meeting, the membership unanimously approved the following members to serve on our Board of Directors for the following year: Co-Chairs

• Joseph DeMarkey Reverse Mortgage Funding LLC • George Lopez James B. Nutter & Company

disbursement payment option, and a second that deals with the ethical

Vice Chairs

the Standards & Ethics Committee, with assistance from NRMLA’s

• Reza Jahangiri AAG

considerations affecting HECM initial MIP decisions—crafted by

• Jim Cory Legacy Reverse Mortgage

outside legal counsel, in response to the publication of Mortgagee

Secretary

Letter 2013-27.

“Ethics Advisory Opinion 2013-3: Ethical Refinancing of

HECM Single Disbursement Lump-Sum Payment Option Loans and

• Scott Norman Sente Mortgage Treasurer

Anti-Churning Practices” restricts members from refinancing Single

• Sherry Apanay Urban Financial of America (UFA)

closing.

Officers

Disbursement Lump-Sum Loans within the 12-month period after

“It is the view of the Committee that planned repayments

of HECM single disbursement lump-sum payment option loans into

other HECM loans, within the 12-month period following the closing

of such initial HECM loans, can seriously impede the development and vitality of the secondary market for HECM loans,” the advisory said.

“Ethics Advisory Opinion 2013-4: Ethical Considerations

Affecting HECM Loan MIP Premium Decisions” illustrates how the upfront MIP can change dramatically if the total initial loan

disbursement exceeds 60 percent of the principal limit. In the example provided, a consumer with a $200,000 home and $100,000 initial

principal limit takes a loan disbursement of $61,000. Because the

payout is more than the 60 percent threshold, the consumer pays an upfront MIP of $5,000 (2.5 percent of $200,000), whereas if the same

person had taken $1,000 less, he would have paid $1,000 in MIP (0.50 percent of the MCA).

“This Ethics Advisory Opinion 2013-4 requires that NRMLA

members describe to consumers, in a clear and timely manner,

the amounts of the Initial MIP that they will owe to HUD under

• Mark Browning Home Equity Conversion Corp.

• Nicholas Buscaglia M & T Bank

• Colin Cushman Generation Mortgage Company

• George Downey Harbor Mortgage Solutions, Inc. • Marc Helm Reverse Mortgage Solutions • Michael Hild Live Well Financial

• Sarah Hulbert 1st Reverse Mortgage USA

• Otto Kumbar Liberty Home Equity Solutions • John LaRose Celink

• Chris Mayer Longbridge Financial • Steve McClellan UFA

• Jerold McCoy Nationstar

• John Nixon Bank of America N.A.

• Robert Sivori Reverse Mortgage Funding LLC • Gregg Smith One Reverse Mortgage LLC

• Robert Yeary Reverse Mortgage Solutions Ex Officio

• Barton Johnson Premier Home Equity

• Cheryl MacNally Generation Mortgage Company • James Mahoney James Mahoney & Associates

the disbursement amount elections reasonably available to such

• Joe Morris Open Mortgage, LLC

consumers will receive as initial disbursements as a result of their

We welcome all of them.

consumers, and compare those amounts with the amounts such elections,” the advisory’s opinion stated. To read both advisory

opinions, please visit the Code of Ethics section on nrmlaonline.org.

16

NRMLA member

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•Jeffrey Taylor Wendover Consulting Inc.

wish of a lifetime a benefit for

d o in g good by granting wis hes

1

10

At NRMLA’s annual meeting in New Orleans, reverse mortgage lenders combined forces to raise money for the Wish of a Lifetime Foundation, a charitable organization that grants wishes to senior citizens. With help

2

from several leading companies in the reverse space, organizers Rhiannon Behnke (Security One Lending) and Kim Smith (AAG) hosted a benefit at the National WWII Museum in New Orleans. Conference attendees stopped by to view the museum’s historical wartime memorabilia, enjoy Southern comfort foods and hear live swing music. The event raised 3

9

more than $26,000—enough money to grant wishes to five senior citizens.

Event Sponsors: AAG, BayDocs, Celink, Coester VMS, 1st Reverse, Mortgage USA, Generation Mortgage Company, Liberty Home Equity Solutions, Mortgage Information Services, One Reverse Mortgage, PRC, ReverseVision, RMS

8

7

5 6

4

1. WWII veteran and guest of honor Don Carlson with his girlfriend, Rosemary.

Don’s wish to visit New Orleans’ historic war museum was fulfilled thanks to a donation made by RMS. 2. Guests mingle inside the museum.

3. Event organizers Rhiannon Behnke and Kim Smith 4. The Liberty Bells perform.

6. RMF’s Joe Demarkey with Brean Capital’s Bryan Faron and Jonathan Haley 7. Authentic WWII-era planes are suspended from the venue’s ceiling.

8. Liberty’s Adrian Prieto and Security One Lending’s Julie Didyoung 9. RMS’ Mike Kent talks about the foundation and the seniors it supports.

10. Celink’s Robin Rice and Jason Perez

5. PRC’s Megan Hafenstein and Alissa Scott Prieto with Liberty’s Bill Donofrio and his wife, Maria reversereview.com

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The Reverse Review January 2014

18

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Roundup

Here is a look at the latest

news and stats

affecting the market.

this month

{

Get up-to-date retirement facts, home price stats, senior trends and HECM market developments in The Reverse Review’s monthly Roundup.

Home prices

m o n e y m at t e r s

Home Prices climb in September as the Home Price Index hits a five-year high.

With prices up 12 percent in September, national home values continue to show substantial gains five years after the onset of the housing crisis. According to home price data from CoreLogic, September marks the 19th consecutive year-overyear increase in home prices. “September marked the unofficial five-year anniversary of the start of the housing crisis,” said CoreLogic’s chief economist. “The five-year home price appreciation for all homes in the nation was 3.4 percent. While there is still room for improvement, the CoreLogic HPI is at the highest level since May 2008.”

Retirement portfolios are dominated by housing assets.

the senior agenda

More seniors are carrying housing debt into retirement.

In 2008, about 48 percent of households headed by those ages 56 to 61 have mortgages, a figure that has risen 8 percent in 16 years, according to research presented at the Retirement Research Consortium. The study also indicates that these households have fewer savings, with the number of those who have less than $25,000 in savings rising to nearly a quarter. A separate study presented at the consortium revealed that 40 percent of surveyed individuals between ages 56 and 61 admitted to having “too much debt right now.”

H ECM t r e n d s

Endorsement numbers see uptick in November.

HECM endorsements for November rose 12 percent to 4,690 loans, marking the impact of standard ARM applications taken before the September 30 program changes, according to Reverse Market Insight (RMI). In its report, RMI said it expects to see endorsements “continue to be relatively strong for the next few months, but turn significantly lower toward the end of Q1 next year.” It also noted that the number of new applications since the PLF reduction will be too low to replace pipeline fundings. Despite the program changes, RMI said, it has been a period of growth for the industry with volume up 15.9 percent though November, which it attributed to the lack of significant lender exists and a substantial marketing reach that coincided with stabilized home prices.

For many older Americans, their home is the dominant asset in their retirement portfolio.

According to a report from the Mortgage Bankers Association’s Research Institute for Housing America, American seniors who own their own homes have more financial security and in general have fewer roadblocks to good health. The study assessed the housing, functionality and health of Americans in two age groups: 55 to 64, and 65-plus. “Owning a home provides the single largest asset in most Americans’ retirement portfolios, while renters have far more difficulty modifying their living space to adapt to any of the myriad physical ailments that tend to affect older people,” stated a release about the report.

47 million +

Households in America are headed by people aged 55 and older

80%

Of those are homeowners, and housing remains their dominant asset in retirement portfolios

$125,000

Median housing equity for older American homeowners

50%

Of the typical older homeowner’s portfolio is composed of housing wealth

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The Reverse Review January 2014

N R M LA

in the big easy

560 reverse mortgage professionals gathered in New Orleans

1

2

in November for NRMLA’s 15th Annual Meeting & Expo. Guests attended panel discussions to hear industry leaders sound off on recent issues affecting the space, and in the evenings they attended networking events to meet and mingle with colleagues from across the country.

Highlights of the three-day event included: 3 A presentation from Assistant HUD Secretary/FHA Commissioner Carol Galante, who spoke about the recent changes to the HECM loan program and asserted FHA’s continued support for the product 3 A panel discussion featuring representatives from leading lenders who discussed how their firms are handling the recent wave of product changes 3 A presentation from Otto Kumbar of Liberty Home Equity Solutions describing the industry’s new nationwide PR campaign, the Extreme Summit 3 A HECM program update from staff members at HUD 20

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3

1. FHA Commissioner Carol Galante asserts the agency’s support for the HECM program.

2. RMS’ Ralph Rosynek and Michael Kent 3. Professionals attend sessions on industry issues.

4. Urban Financial’s Jean Noble and AAG’s Teague McGrath

4

5. The Stonehill Group’s Michael Atwell and Wade Hamby

5

6. Urban Financial’s Jim McMinn and Townebank Mortgage’s Jerry Garner 7. Otto Kumbar of Liberty Home Equity Solutions gives a presentation on the industry’s new PR campaign, the Extreme Summit.

8. Al Benedetti (Celink), Brett Varner (Greenlight Loans), David Hickey (Nationstar), Jason McNamara (Celink) and James Mahoney (Celink) 9. Nancy Armour (Generation Mortgage Company), Joel Schiffman (Wiener Brodsky Kider) and Gail Balettie (Financial Freedom/One West Bank)

6 9

8 7

10. AAG’s Reza Jahangiri, Austen Verst, Paul Fiore, Teague McGrath and Chris Mullins

10

11. NRMLA’s Peter Bell and J.B. Nutter’s George Lopez 12. Mary Ann Rutledge (Generation Mortgage Company), Sally Bene (HUD), Linda Bridges (Wells Fargo) and Kevin Gherardi (RMS) 13. Aramco’s Mehran Aram posed a question to a panel of speakers.

14. Attendees listen to a program update from HUD’s staff.

15. HomeChex’s Mark Browning and the CFPB’s Megan Thibos with Reverse Mortgage Funding’s Robert Sivori and Joe DeMarkey

11

14

12 15

13 reversereview.com

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The Reverse Review January 2014

the

THE

REVERSE

hot

review

seat

january 2014

Mark

From his favorite movie and his first job to his thoughts about the future of the reverse mortgage market, we get the personal and professional facts from homechex

Founder and President 22

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Mark Browning, founder and president of HomeChex, in this monthâ&#x20AC;&#x2122;s edition of The Hot Seat.

P E R SO N A L >

>

If I could time travel right now, I would be rewriting HECM rules in the 1980s.

You can’t always be a conventional thinker.

>

Ten years from now, society’s rules will be

Professional

an even lighter shade of beige.

>

>

My first car was an MGB.

>

The craziest thing I’ve ever done was

mortgage industry is to evolve to be a customer-oriented (versus processoriented) product and delivery system.

deliver a live pig to a competitor on the 14th floor of HSBC’s U.S. headquarters

>

mortgagee letters 2013-27, -28 and -33

it would be Thomas Jefferson.

My favorite movie is Animal House.

>

I never miss an episode of 60 Minutes.

>

When I was younger, I wanted to be a

simultaneously are unknown. An alternative, less complicated proprietary product similar to the HECM would be helpful. >

and resulting reforms. It pulled reverse

Every morning I read the Wall Street

mortgages, a wealth and retirement

Journal. >

I can’t go without my iPad.

>

When I was a kid I rode a unicycle.

>

I’ll never forget September 11, 2001.

>

My first job was working as a restaurant dishwasher at age 15.

>

management tool, into the framework of traditional mortgage lending. The consumer objectives of reverse mortgages are entirely different from transactional mortgage lending. >

myself and my values.

Ten years from now the reverse mortgage industry will be reoriented or

My parents taught me how to respect others while also having confidence in

The greatest setback for our industry was the 2008-2009 financial crisis

pilot. >

extinct. >

I am optimistic about the reverse mortgage industry because of the

>

My favorite time of day is the morning.

>

My iPod go-to is Stevie Ray Vaughan.

the financial requirements of the aging

>

I always am interested in the “why” more

population.

than the “what.” >

compelling demographics on aging and

>

life was when my daughter, now 13, joined the world. >

For success I have sacrificed an early

If I could change one thing about the to move the product outside of the political sphere.

it’s not poisonous.

The most memorable moment in my

I can’t go without my iPad.

reverse mortgage industry it would be

The best lesson I’ve ever learned was not to pick up a cactus unless you know

>

When I was a kid I rode a unicycle.

effects of making multiple changes in

If I could meet anyone, past or present,

>

The future of reverse mortgages is in the balance. The compound

(months later it was returned as bacon). >

The biggest challenge in the reverse

>

I entered this industry because I believed the tool added value to local communities and the quality of middleclass retirement.

start on family.

My favorite movie is Animal House.

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The Reverse Review January 2014

ASSESS

originating

How We Can Help Boomers Facing a Retirement Crisis

Ma r k O ’ N e il

T

here is a growing awareness in this country that we are running full speed toward a retirement funding crisis of unprecedented proportions. Somewhere amidst the collapse of the housing market and the two most recent bear market cycles for stocks, many Americans started awakening to the reality that their retirement dreams are at odds with their financial preparedness. In fact, the National Institute on Retirement Security estimates that the retirement funding shortfall in the country could be as high as $14 trillion.

There are many factors converging that are raising this retirement red flag. First, more Americans today are reaching retirement than at any other time in U.S. history. And those who are now reaching retirement are expected to live longer than ever. Adding to the crisis, today’s retirees were given great flexibility in how (and if) they contributed to a retirement plan and how those funds were invested. As a result, we have millions of American workers nearing or in retirement who are not going to be able to maintain their current standard of living

without some radical changes in thinking.

maintaining their standard of living in retirement.

Here are some of the dire facts: A recent AARP article stated that there are 18.3 million households with people aged 45-64 with no retirement savings. According to the Federal Reserve, the average pre-retiree household (with individuals aged 55-64) with a qualified plan has saved just $100,000. The National Institute on Retirement Security reports that twothirds of working households with individuals between 55-64 years old have set aside less than a year’s worth of their annual income. The result, as stated by the Boston College Center for Retirement Research, is that more than half of all retirees are at risk of not

Given the relatively low savings rates today, it should not be any surprise that two-thirds of retirees get most of their retirement income from Social Security. According to the Social Security Administration, the average retiree is only receiving $1,230 in monthly benefits.

Try to imagine being in a position of living off of an income of $1,230 per month, with perhaps an additional savings equal to one year’s income, and needing that money to see you through the rest of your life. That’s the reality for millions of Americans today.

“Until recently, you would only rarely hear home equity mentioned as part of the retirement planning solution. Home equity accounts for a huge proportion of personal wealth. Yet, for some reason, tapping into home equity has been relegated to ‘last resort’ scenarios, when discussed at all. Fortunately, we are starting to see a greater consensus and acknowledgement that home equity release products are, and should be, part of the conversation.”

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originating

HECM Line of Credit

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spotlight

In my opinion, the industry has not done a great job of highlighting the many ways that a reverse mortgage can be used as a retirement planning vehicle. My hope and belief is that as more people establish payment plan loans, grow lines of credit, or downsize using a HECM for Purchase loan, these in turn will help raise the product’s profile. We can and should continue to reinforce the product as a legitimate, mainstream retirement income planning tool, rather than as a “last resort” loan option. x

HMBS

Though still off the highs of a few years back, Equifax and Moody’s both reported that HELOC originations in this country are bouncing back.

Meanwhile, the HECM Line of Credit is much more flexible and offers many more benefits to a retiree than a HELOC. HELOCs are callable, they don’t grow, they are not insured and they are not life term. HELOCs also cannot be converted into a term or tenure monthly payment. Though reliable figures on the size of the HELOC market are hard to come by, I think it is safe to say that the market is large and that we should be targeting it. Aside from the potential to tap into the HELOC market, the growing HECM LOC stands on its own as a unique and valuable financial planning tool. As an industry, we should continue to advocate for increased use of this option.

Less money spent on upkeep, taxes and utilities means greater monthly cash flow. One other advantage not to be overlooked: For those who are planning on paying cash for a new home, the HECM for Purchase option frees up some of that money, which can be used to fund longevity. As we are coming to learn, Americans want to age in place. And aging in place is far less expensive than assisted living facilities. From multiple perspectives, the HECM for Purchase program is an ideal retirement planning tool.

*

legal

Cash flow is very important for retirees on a fixed retirement income. For the same reason that many retirees invest in an immediate annuity—guaranteed cash flow for life—so, too, will retirees find that a monthly check from their HECM mortgage will provide the same sort of comfort. Remember our average retiree, living off of $1,230 a month from Social Security and a small nest egg? For this individual, adding even a few hundred dollars a month to his or her cash flow will be lifechanging. Of course, in many cases, borrowers will have some debts to pay off. Retiring debt also increases cash flow, so the net effect is the same. This is not a new concept, but if we want our product to be taken seriously as a planning tool, we need to talk more about a guaranteed cash flow that one cannot outlive.

The HECM for Purchase option has been available for five years. However, most real estate agents have not been trained on the program. Meanwhile, Del Webb, the largest builder of retirement homes, released a survey showing that 41 percent of people between 50-60 years of age said they are likely or very likely to move at some point in the future. That works out to more than 1 million older adult households moving each year. Imagine if we could tap into 10 percent of that market. The message in a conversation about retirement and income planning is that the HECM for Purchase product can be used to downsize. In many cases, retirees can relocate into smaller, newer and less expensive homes.

appraising

Every borrower comes to you with a unique set of needs. Reverse mortgages are a very flexible financial planning tool that can be customized to maximize the benefit to each individual borrower. There really is no limit to the number of ways the HECM program can be adapted for this purpose. What I want to do is give some examples and share some concepts that are being used today in a retirement and income-planning context. This is not anywhere near an exhaustive listing. Rather, these are just a few of the more common ways that a reverse mortgage is used as part of a retirement plan. My hope is that this article will serve as an inspiration

Guaranteed Cash Flow for Life

HECM for Purchase

marketing

As reverse mortgage professionals, we know we have a great financial planning product with much more potential than is currently being utilized. But how do we articulate these benefits to those outside of the industry? For starters, we need to know our products inside out. We also need to be comfortable with, and conversant in, the many ways that a reverse mortgage loan can be custom-tailored to solve the needs of individual borrowers. Reverse mortgage practitioners do not need to be financial planners, accountants or attorneys. But we do need to be experts in our product and ready to explain the many ways it can be utilized as part of an overall retirement plan.

and will spur further thinking and conversation around the many ways that a reverse mortgage can be used to help retirees lead a more fulfilling retirement.

originating

Clearly, there is going to have to be some rethinking about how and when people retire and how they pay for it when they do. Until recently, you would only rarely hear home equity mentioned as part of the retirement planning solution. Home equity accounts for a huge proportion of personal wealth. Yet, for some reason, tapping into home equity has been relegated to “last resort” scenarios, when discussed at all. Fortunately, we are starting to see a greater consensus and acknowledgement that home equity release products are, and should be, part of the conversation.

The Reverse Review January 2014

originating

The New HECM Math: Teaching an Old Dog New Tricks Jim M i la n o

W

ith FHA Mortgagee Letters 2013-27 and 2013-33, originating FHA-insured HECMs now comes with new intricacies. Loan officers, counselors and those who market HECMs have been and will continue to raise their game on how they present these products to seniors.

Mortgagee Letter 2013-27 introduced the concept of the initial disbursement limit and mandatory obligations; a first 12-month disbursement period; an additional 10 percent of the principal limit above mandatory obligation; and a new single disbursement lump sum option. Further, depending on a senior’s mandatory obligations, and whether the senior elects to take more 26

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than 60 percent of the principal limit as part of the initial disbursement limit, the up-front mortgage insurance premium (MIP) will be either 50 basis points (.50 percent) or 250 basis points (2.50 percent). Therefore, these calculations and elections will be very important.

As we know, a FHA-insured Home Equity Conversion Mortgage allows a senior to borrow against the equity in their home without having to make regular monthly repayment obligations until the loan matures.

Senior HECM borrowers of course do have to pay their real property taxes and hazard insurance and maintain their home.

The amount of money available to a senior under a FHA-insured HECM loan is called the principal limit. The principal limit is generally determined by the home’s appraised value, subject to an overall program limit of $625,500. The lesser of the home’s appraised value—the sales price of the home (for purchase money HECM loans) or the HECM program loan limit of $625,000­­—is called the maximum claim amount (MCA).

The principal limit is calculated by multiplying the MCA by a principal limit factor (PLF), which is based on information published by HUD and varies based upon certain factors, including the age of the youngest borrower and the interest rate on the HECM loan.

originating

It is possible in some scenarios, for instance, where a senior’s mandatory obligations equal 61 percent, that a senior could bring cash to close (or a lender could waive or reduce an origination fee or offer credits), thereby bringing mandatory oblations to or below 60 percent. Savvy originators will work these scenarios into their informational processes and presentations. Of course, such

Reverse mortgages were never truly a product that merely could be sold.

Marketing of such loans has always been more conducive to an iterative informational process. Users of the product have to be informed, as opposed to being sold. For HECMs, with Mortgagee Letter 2013-27, as updated and revised by Mortgagee Letter 2013-33, this informational and educational process has now become even more important. Loan officers who were previously merely selling loans will now have to educate and inform seniors more than ever before about this dynamic loan program and its new, more intricate features and important up-front elections. x

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spotlight

Further, subject to the initial disbursement limit described above, a senior may receive HECM loan proceeds as monthly payments, a line of credit or a combination of both. With the revisions under Mortgagee Letter 2013-27, a HECM loan now allows a senior to limit the amount he or she borrows to a single disbursement lump sum option. The single disbursement lump sum cannot exceed the initial disbursement limit described above. However, if a senior elects a single disbursement lump sum option, he or she will receive the available loan proceeds only at closing, and the borrower will not be able to receive any further disbursements under the loan (other than amounts disbursed from a repair or property charge set-aside), nor elect payment plan changes after closing.

HMBS

Under certain circumstances, electing to receive or have access to additional principal limit during the initial disbursement limit period may increase the cost of the HECM loan.

If the amount the senior has access to and elects to receive at closing or during the first 12 months of the HECM loan exceeds 60 percent of the principal limit, the initial MIP will be 2.5 percent of the MCA. For example, this could occur if the mandatory obligations exceed 50 percent of the principal limit and the borrower elects to take all of the additional 10 percent of their principal limit at closing and/or during the first 12 months of their HECM loan. This also could occur if mandatory obligations exceed 60 percent of the principal limit (regardless of the senior’s election as to the additional 10 percent). However, if the amount the senior has access to and elects to receive at closing or during the first 12 months of their HECM loan is equal to or less than 60 percent of the principal limit, the cost of the HECM loan will be lower because the initial MIP will be 0.5 percent of the MCA.

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If a senior’s mandatory obligations are greater than 50 percent of his or her principal limit, they may elect to take up to an additional 10 percent of his or her principal limit at closing and/or during the first 12 months of their HECM loan. If the mandatory obligations are greater than 50 percent of the principal limit, the borrower must decide, prior to loan closing, whether and what amount of this additional 10 percent of the principal limit, if any, the borrower wishes to receive, and if so, under which type of payment plan. If mandatory obligations are greater than 60 percent of the principal limit, the borrower must decide under which type of

pricing options will have to be offered pursuant to clearly documented plans that are offered and applied consistently in a neutral manner, and such borrower elections will have to be memorialized in the loan file.

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The initial disbursement limit is equal to the greater of 60 percent of the principal limit, or the sum of the senior’s mandatory obligations plus 10 percent of the principal limit.

Mandatory obligations include items such as paying off a current mortgage loan secured by the senior’s home and any closing costs and mortgage insurance due with the HECM loan.

Disbursements cannot exceed the principal limit established at closing.

payment plan they wish to receive this additional 10 percent of the principal limit. The borrower must make this election and inform the lender of their choice prior to the closing of their HECM loan.

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The amount of principal limit that a senior can access at the closing of their loan and/or during the first 12 months of the loan (or the first 12-month disbursement period) is further limited to the initial disbursement limit. After the first 12 months of a HECM loan, a senior can obtain the remainder of his or her available principal limit.

“Reverse mortgages were never truly a product that merely could be sold. Marketing of such loans has always been more conducive to an iterative informational process. Users of the product have to be informed, as opposed to being sold.”

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Pursuant to the Reverse Mortgage Stabilization Act of 2013 and FHA Mortgagee Letters 2013-27 (September 3, 2013) and 2013-33 (September 25, 2013) for HECM loan applications logged in FHA’s records effective on or after September 30, 2013, the amount of the principal limit that a senior can access at the closing of a HECM loan and/or during the first 12 months of the loan is now further limited. The senior must make important elections prior to the closing of their HECM loan.

The Reverse Review January 2014

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Three Buckets and Two Silos Ha r la n Ac c o la

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hat does dairy farming have to do with explaining a reverse mortgage to your clients and referral partners? I grew up on a dairy farm in Wisconsin and even though I have not milked a cow since I was 18, I’ve found that it’s a great way to communicate with my clients. I rarely speak to a client or a financial planner without pulling out my legal pad and drawing one or both of the two diagrams accompanying this article. First, let’s talk about the three buckets that are not filled with milk, but with financial assets.

Silos of Income Distribution I n c o m e A l l o c at i o n

assets liabilities 401(k) Savings IRAs

Home mortgage

Buckets of Wealth retirement income

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monthly income stream

nest egg liquid assets

Social Security Pension Part-time W2

401(k) IRA Annuities Lump Sum Savings

Three Buckets My three buckets represent sources of income. The first bucket represents monthly income like Social Security payments, wages and pension income. Some people can tell you the value of this bucket to the penny.

The second bucket represents retirement savings or the nest egg—a lump sum of everything from savings accounts, IRAs, CDs and 403bs to change jars and gold coins. This value is harder to determine, but this bucket spins off a certain amount of income, either in interest and dividends or simply cashing in the principal. This money was put away years ago and was designed to be spent in retirement. My clients’ biggest worry is that they’ll outlive the life of this bucket.

Financial professionals spend almost 99 percent of their time analyzing, projecting, sifting, calculating and recalculating the value and use of the first two buckets. Most never consider the third bucket.

The third bucket is the equity in my client’s home.

Interestingly enough, the third bucket—depending on my client’s other assets—is usually valued at 30 to 50 percent of my client’s net worth. Yet most financial professionals largely ignore bucket No. 3.

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real estate Home Equity L.O.C. Guaranteed to increase regardless of market conditions and home value with HECM

Of course, as reverse mortgage professionals, we spend a majority of our time on bucket No. 3. I spend a significant amount of time explaining to my clients that their home is fungible, that it can be reduced to dollars. Clients must be able to understand the fundamental difference between their home, perhaps the most intimate object of their lives, and their home equity. The fact that we live in this asset dramatically affects our attitude toward using it as a

originating retirement tool. But the truth is, we can’t take it with us and sooner or later our house will be liquidated and denominated into dollars just like our IRAs.

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The bottom line is those two buckets of milk from my farm were the same milk. It did not matter which one you sold to the dairy; both had the same value when you poured it out.

We need to work with our clients to help them realize this.

We need to show our clients that it is OK to stop making payments to real estate that must come out of our asset silo.

While our left pocket might be losing some change, our right pocket has more, so we are not going backward as far as our overall net worth goes. Some of the research by Dr. John Salter at Texas Tech proved that most who properly used their reverse mortgages to keep the asset silo preserved actually had a better net worth than those who did not use a reverse mortgage. Math is factual—there has to be a loss somewhere for there to be a gain elsewhere. As long as the gain is better than the loss, your clients will be ahead of the game.

Unfortunately, many clients (and advisors) make emotional decisions instead of logical, mathematical ones. But a picture can be worth a thousand words, so maybe my two very basic diagrams can help your clients see the clear advantages of reverse mortgages in retirement, even if they have never been on a farm! x

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Obviously, if you take money from the third bucket, there will be less home equity for the heirs, especially once you consider the negative amortization of a reverse mortgage. But, there will be more money and appreciation in the second bucket. I encourage my clients to ask their children which bucket they would rather have more assets in—the second or the third— and most choose the second bucket. Those assets are easier to quantify and, ultimately, easier to distribute. Anyone who has ever tried to sell houses in an estate can relate to that. You have to pay utilities, taxes and upkeep, and take care of the place while dropping the price to find a quick buyer. Preserve bucket No. 2 with bucket No. 3.

So how does this apply to the emotional aversion to taking out a reverse mortgage? Well, many of our seniors have almost emptied out their liability silo and are glad that their mortgage is almost down to zero. Now we come along with the idea of increasing debt instead of decreasing it, which many seniors have been doing for years. It is certainly true when you take out a reverse mortgage that your liability silo volume will start increasing. It is important that we show our reverse prospects that the cash silo will now start increasing, or simply not decrease as fast as it was.

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First, the heirs should be more concerned about Mom and Dad—and they usually are. But sometimes Mom and Dad are the ones who worry about how much they are passing on.

This discussion simply addresses the emotional need to eliminate mortgage debt. We stored haylage and corn silage in our silos on the farm. The contents of the silos were used to feed the animals in the winter when they could not graze on the snow-covered pasture. I draw a picture of the two silos for my clients who are worried about having mortgage debt.

When they are young, first-time homebuyers or middle-aged clients refinancing or moving up, I encourage them not to be so concerned about using all their excess monthly income to make extra monthly payments to try to get their liability silo down to zero. While that seems to be a good goal, it stops them from filling their asset silo. The more effort and money poured into decreasing debt, the less money will go into their future retirement. They would like to drop all of their debts and mortgages to zero, but that comes at the high cost of not being able to save as much when they are young and enjoying the effect of compound interest. There are many mathematical calculations that prove saving, instead of doubling up on your payments, is better for your long-term net worth.

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I have used this simple drawing to help my clients and their advisors overcome the psychological barrier of withdrawing money from the third bucket. Of course, there is still one argument that comes up often: What about the heirs?

The Two Silos

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Because of this psychological brick wall, many clients refuse to consider their home equity as a source of income and choose instead to use it as a retirement drain. (See the two arrows by the third bucket, as they can go either way.) The typical retiree takes money out of the first two buckets to fund the third bucket. They pay taxes, insurance, maintenance and often a continued monthly house payment when they are past the age of 62. They no longer have to do that using buckets Nos. 1 and 2. How many retirees are still contributing to IRAs? Very few! But how many are still contributing to bucket No. 3 and plan to do so until the end of their life in the home? Most of them. Why do most retirees and their advisors have no problem with taking money out of the IRA or savings account to fund retirement income, yet when we suggest a reverse mortgage, they are sometimes aghast at the suggestion and decide to wait until bucket No. 2 is empty before calling us right around age 92? After all, they put money into the second bucket so they would have something when they retired. We must remind our clients that they also religiously put money into their home in the form of payments, improvements, taxes, etc. In its simplest form, a reverse mortgage is nothing more than a tool that turns home equity into cash without affecting your ability to live in your home. It allows you to withdraw money from bucket No. 3 instead of continuing to contribute to it.

The money is the same in both buckets Nos. 2 and 3. When you pour out both buckets, your income will be greater and your retirement money will last longer. Was that not the plan from the beginning?

The Reverse Review January 2014

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How to Create Promotional Pieces That Attract Your Ideal Clients Daw n J o s e p h s on

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hether you’re creating a sales letter, a brochure, a newsletter or any other business promotional piece, you need to write in a way that not only explains your product or service, but also compels your prospects to contact you.

Unfortunately, many promotional pieces miss the mark. Outrageous claims, weak calls to action and boring text are the common mistakes that plague most people’s writing. Such errors accomplish only one thing: They destine your promotional piece for the infamous “round file.” They also show prospects that you’re lazy, uncreative and possibly incapable of delivering quality work.

In order to entice prospects to contact you based on your promotional mailings, you need to keep your writing both lively and factual. The following guidelines will help you write promotional pieces that even your toughest prospects can’t resist.

ONE // Write a headline that gets to the point.

You have less than five seconds to impress your prospects to read on.

And the first thing any prospect reads is the piece’s headline. So craft a compelling headline that immediately conveys why this information is important to your prospects.

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The four main headline formulas that work are: How To * The formula is “How to” + verb + product/ service/noun + benefit.

Example How to Create a Store Promotion That Increases Revenue new * The formula is “New” + product/service + benefit.

Example New Tax Law Saves You Money power verb * The formula is “Power Verb” + product/service + benefit.

Example Prepare a Business Plan that Boosts Company Profits free * The formula is “Free” + product/service + benefit.

Example Free Booklet Reveals the Secret to Lowering Your Interest Rate

Since your headline determines if the prospect keeps reading, craft yours wisely.

TWO // Keep the hype to a minimum.

Many people think that in order to get people to read their promotional piece, they must write something outrageous. To some degree, this is true. Saying something outrageous is a great way to generate interest, as people naturally love controversy.

Plus, if you can stir things up, you’ll get lots of exposure. The thing to remember, however, is that you must be prepared to answer questions and prove everything you write. So if you want to write something just for sensationalism but can’t back it up, don’t. You must be able to support everything you print.

THREE // Go easy on the posturing.

While you may produce the best products or offer the most unique services in the world, that is for your prospects to decide. Every superlative

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FOUR // Evoke images.

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As you write, evoke more than one of the five senses. Paint a picture with your words so prospects see, hear, smell, taste and feel what you’re describing. Contrary to popular belief, the best promotional writers think in pictures, not words. They see the image they want to convey to their prospects, and that’s what they write.

So if you were a candy manufacturer or a florist, for example, you would

What do you want the person reading your sales letter, brochure or other

write so that promotional piece to do? Buy your product? Call you for more information? Visit your readers your website? Whatever action you want your prospects to take, state it clearly. smell the the product, but they never tell the candy or the prospects to actually do anything. For flowers, not just see what they look example, in a sales letter or brochure like. If you’re writing about business you could write: “Please call our office productivity, help your prospects immediately for more information hear the hustle of productivity and on how we can help.” In a newsletter feel the rush of a sales call. If your you could write: “Visit our website for goal is to describe the appeal of a more information about this financial reverse mortgage loan to a consumer, tool.” Tell prospects precisely what use descriptive language that paints you want them to do. a picture of the comfort financial security can bring. Do more than just Make Your Promotional Pieces Work tell prospects what’s going on. for You FIVE // Always make a compelling When your promotional pieces call to action. present your information in the most compelling and factual manner, your What do you want the person prospects will find them and your reading your sales letter, brochure company irresistible. So as you write or other promotional piece to do? future sales letters, brochures or Buy your product? Call you for more other promotional pieces, keep these information? Visit your website? guidelines in mind. When you do, Whatever action you want your you’ll create a promotional piece that prospects to take, state it clearly. Too delights prospects and makes them many promotional pieces ramble on eager to do business with you. x about all the features and benefits of

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you use in your promotional piece will reduce the prospect’s trust in what you say. So instead of telling prospects that your product is “the most extraordinary thing to ever hit the market” or that your service is “capable of revolutionizing the industry,” show your prospects how these claims are possible. Give the benefits of using the product or service as it pertains to your prospects’ lives so they can determine just how extraordinary or revolutionary the product or service really is.

ng goi the to urce so

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The Reverse Review January 2014

We Leverage reaL Data to Manage Your Assignment

Visual Assignment using Google Maps allows us to select the best appraiser for your assignment while focusing on quality, proximity and turn time statistics and ensuring appropriate rotation.

888.272.1214

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appraising Auld Lang Syne Joh n G o l d e n

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changes from a previously submitted version. It should be noted that the delivery requirements associated with this requirement apply whether the loan is consummated or not. In the case of a loan that is not consummated, the creditor must provide copies no later than 30 days after it is determined that consummation will not occur.

There is a waiver option under ECOA for the consumer regarding the requirement to receive a copy at consummation or account opening, but this waiver must be received at least three business days prior to consummation or account opening, unless the specific appraisal or other written valuations pertain to a report that contains only clerical

Certainly, the possible onslaught of appraisal and other written valuation reports may prove to be overwhelming to the average consumer. This is especially true as it relates to senior consumers consummating reverse mortgage loans.

Most consumers find it challenging to understand a routine residential appraisal report; value-producing field and desk reviews, AVM and BPO documents will create a special challenge related to discernment and applicability to the loan process. Only time will tell how we as an industry respond to such consumer issues. However, these situations will undoubtedly require our special care, diligence and patience. x Detailed information regarding these amended regulations is readily available via the CFPB website at consumerfinance.gov. Landmark Network, Inc. is interested in your views, suggestions, plans and experiences surrounding these legislative changes. We invite you to contact us for discussion via our online blog forum referenced above.

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Under the amended ECOA Regulation B requirements, a creditor must provide an applicant with copies of the final version of each appraisal and other written valuations that were developed in connection with an application for a loan secured by a first lien on a dwelling, and to require creditors to notify consumers in writing within three days of the application that copies of these appraisals or other valuations will be provided to them promptly. Such copies must be provided to the consumer at either (1) the completion of the appraisal or other written valuations or (2) within three business days prior to consummation or account opening, whichever is earlier. The requirement is automaticâ&#x20AC;&#x201D;the consumer does not need to request the copies, and there is to be no fee charged to the consumer in providing these copies.

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3 Appraisals for Higher-Priced Mortgage Loans Under the Truth in Lending Act (TILA) (Regulation Z)

The burden for compliance with these regulations rests on the creditor. Many are formulating compliance procedures into their own in-house operations, while others are seeking assistance through a partnership with an AMC or other third-party solution providers. In either case, adaptation and implementation of these requirements will prove to be a challenge to some creditors, and it will no doubt be met with increased operating costs for all.

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3 Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuation Under the Equal Credit Opportunity Act (ECOA) (Regulation B)

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The CFPB has issued the following final rule amendments, which will take effect in January:

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his new year will bring about more than a celebration of auld lang syne; it also will bring about the implementation of some significant legislation that affects matters of real estate appraisal reports.

The amended TILA Regulation Z requirements specifically pertain to higher-priced mortgage loans with provisions related to the manner in which an appraisal is performed, who can perform the appraisal and situations that require two appraisals to be completed, as well as provisions surrounding the delivery of the appraisal report to consumers. Reverse mortgages are excluded from these provisions; as such, those interested in a more detailed summary of these regulations can find that information on our Landmark Network, Inc. blog at bloglandmarknetwork.com, or through the CFPB website.

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Appraisal and other written valuations under ECOA would include: a report prepared by an appraiser including the estimate or opinion of the real estateâ&#x20AC;&#x2122;s value; a document prepared by the creditorâ&#x20AC;&#x2122;s staff that assigns value to the property; an automated valuation model (AVM) estimate; and a broker price opinion by a real estate agent, salesperson or broker. Any attachments or exhibits that are a part of the valuation would also be applicable.

The Reverse Review January 2014

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Understanding the NonBorrowing Spouse Issue Ale x a n d e r J . C ha udhry

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osing a husband or wife may be one of the most devastating experiences a person will ever endure. If that loss also exposes the surviving spouse to the threat of losing their family home to foreclosure, the stress and strain will surely be life shattering. The grief might even make the front-page news, if the surviving spouse is facing foreclosure because they changed title to their home in order to qualify for a reverse mortgage.

Recently, the United States District Court for the District of Columbia ruled in favor of two widowed spouses of homeowners with reverse mortgages who faced foreclosure by mortgage lenders after their spouses died. The widows alleged that their mortgage lenders assured them they would be protected from displacement if their spouses died. Reassured by this protection, they removed their names from their homes’ titles during the loan origination process. However, when their spouses passed away, the mortgage lenders demanded the widows immediately repay the loans or face foreclosure proceedings. The District Court found that HUD violated federal law when it failed to protect the widows’ interests in their deceased

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spouses’ homes. To fully appreciate the court’s ruling and to understand the ramifications of removing a spouse from title during the reverse mortgage loan process, professionals should first understand how married couples generally hold title to real estate and what that means when a spouse dies.

There are different forms of real estate ownership that married couples can utilize when purchasing real estate.

The most recognized form for a married couple is to own their home as tenants by the entirety. A tenancy by the entirety is ownership in real estate under the fictional assumption that a husband and wife are considered one person for legal purposes. This method of ownership conveys the property to them as one person. An estate by the entirety can only be created between two persons who are legally husband and wife. They must be married and their ownership interests cannot be conveyed without the consent and signature of both spouses. In theory, the individuality of each spouse is lost because the husband and wife take ownership as one person.

Under this form of ownership, when one spouse dies, title to the property passes to the surviving spouse entirely without the need for probate. An advantage of this form of ownership is that no legal proceeding needs to take place at the death of one’s spouse. In many states, if a married couple owns property and the title deed does not stipulate the form of ownership, then a tenancy by the entirety is presumed under state law. In other states, the tenancy must be explicitly stated in the deed to create the tenancy and right of survivorship. Not all states recognize this form of ownership.

Married couples might also hold title in joint tenancy, wherein a couple will hold title to their real estate jointly with equal undivided interests and with rights of survivorship. An undivided

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Going to the source

To fully appreciate the court’s ruling and to understand the ramifications of removing a spouse from title during the reverse mortgage loan process, professionals should first understand how married couples generally hold title to real estate and what that means when a spouse dies.

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Because married couples may hold title to their homes in different forms, extreme care and caution must be exercised when changing a couple’s tenancy. Doing so without careful planning can have profound, unforeseen effects on the couple’s property rights and estate plans. When a federal trial court in Washington, D.C., ruled that HUD violated federal law, it found that the agency did not protect the surviving spouses of reverse mortgage borrowers. The two plaintiffs, represented by the AARP Foundation Litigation (AFL), had owned their homes jointly with their spouses for decades. However, during the loan process, the plaintiffs allowed their names to be taken off the deeds to their homes so that their spouses could qualify and obtain a reverse 8

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A couple might also hold title to their home as tenants in common. In a tenancy in common, the couple will

hold title to their real estate jointly with equal rights to enjoy the property during their lives. However, unlike a tenancy by the entirety or joint tenancy, tenants in common hold title individually for their respective part of the property and can convey or mortgage their portion of the property without the consent or joinder of the other tenant in common. Unlike a joint tenancy or tenancy by the entirety, there is no right of survivorship in a tenancy in common. When a tenant in common dies, their property interests will pass to their heirs or their devisees specified in their last will and testament. The death of a tenant in common, therefore, will likely require a legal proceeding to determine the rightful owner of the deceased tenant’s interests.

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interest is an ownership right to use and possess the entire property.

However, no single co-owner can mortgage, sell or otherwise convey the real estate without the consent of the other joint tenant. When a joint tenant dies, the right of survivorship entitles the surviving co-owner to the deceased’s share without the need for probate or legal action. An advantage of this type of ownership is that the parties on title need not be married or related and that title automatically passes to the surviving co-owner in the event of a death, although in some states, the title deed must explicitly confer the right of survivorship.

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TENANCY TERMINOLOGY y Intestate Refers or relates to a person who has died without a valid last will and testament.

y Probate The judicial procedure by which a last will and testament is established to be a valid will. Probate means “to prove” and in the context of a decedent’s estate, it refers to proving the will to be the valid will of the decedent to the satisfaction of the court.

y Tenancy in Common A tenancy by two or more persons, in equal or unequal divided shares, each person having an equal right to possess the whole property but without the right of survivorship.

y Tenancy by the

y Joint Tenancy with Rights of Survivorship A tenancy with two or more co-owners who take identical interests simultaneously by the same instrument and with the same right of possession. A joint tenancy differs from a tenancy in common because each joint tenant has a right of survivorship to the other’s share. In some states, this right must be expressly stated in the deed.

Otherwise, a tenancy in common will be presumed.

A joint tenancy that arises between husband and wife when a single instrument conveys realty to both of them as a “marital unit.” When a spouse dies, the surviving spouse takes the entire estate without the need for probate.

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=

Entirety

y Tenancy The possession or occupation of real estate by right (lease) or title (deed) and period of such possession.

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y Testate Refers or relates to a person who has made a will and has died leaving a valid last will and testament.

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legal also HECM loan mortgagors.” The court determined HUD’s HECM y The recent decision on the non-borrowing regulation to be spouse issue is from Bennett v. Donovan, Secretary invalid because of HUD, Civil Action No. 11-0498 (D.D.C. 2013). A in contrast to copy of the opinion can be found on the website Subsection (j), for the United States District Court for the District of it provided that Columbia at: ecf.dcd.uscourts.gov/cgi-bin/show_ the HECM loan public_doc?2011cv0498-42 obligation was due and payable in full if “a mortgagor dies and the mortgage. Both plaintiffs were property is not the principal residence younger than their respective spouses of at least one surviving mortgagor.” and the court recognized that by The court agreed that the law protects removing their names from title, it both reverse mortgage borrowers likely allowed their older spouses to and their spouses from foreclosure obtain more favorable loan terms than until they die or sell the property and if they had been on title and included also found that HUD’s regulations on the loan as well. interpreting the law were illegal.

When their spouses died, the lenders The judge did not award any damages asserted their right to the immediate and did not provide any relief to payment of the loans, demanding the plaintiffs. Instead, the matter that the balances became due and was remanded to HUD to fashion payable because the borrowers died appropriate relief and for further and the property was not the principal proceedings consistent with the residence of at least one surviving opinion of the court. Essentially, the borrower. Because the plaintiffs were court directed HUD to resolve the not borrowers under the mortgage conflicting rules concerning the rights contracts, the lenders demanded the of non-borrowing spouses under the surviving spouses pay off the loans in HECM program. Because HUD’s full or face foreclosure. policy is not to comment on litigation, Facing foreclosure, the plaintiffs it is uncertain exactly how the agency turned to the AFL, which filed suit on will respond. their behalf. The plaintiffs contended In light of this recent decision, it does that the foreclosures were illegal appear certain that there will be some because HUD’s regulations and sort of HECM reform to address mortgage documents conflicted with the non-borrowing spouse concern. the law Congress passed authorizing Until that reform arrives, reverse the federal HECM program. The trial professionals should understand the judge agreed, finding that HUD’s different forms of tenancy and the regulations were not valid because implications of removing a spouse they were inconsistent with the from title during the reverse mortgage plain and unambiguous language process. Seniors will have many contained in the National Housing

going to the source

Act, informally known as Subsection (j), that protected non-borrowing spouses. According to the court, Subsection (j) provides that “the HECM loan obligation is deferred until the homeowner’s and the spouse’s death, even if such spouses were not

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reasons for wanting to obtain a HECM, but some married couples may only have one spouse over the age of 62 who qualifies for the loan. In other instances, one spouse may be older than 62 but significantly younger than their counterpart. When this type of situation occurs, the implications of not including the non-borrowing spouse on the HECM mortgage note and deed must be fully explored with the clients. The clients should never be encouraged to remove a spouse from title in order to qualify or receive a higher loan amount. Companies should immediately review their underwriting policies in light of this ruling.

If a situation does arise where it is absolutely essential to remove a spouse from title, this conveyance should never occur at the closing table. Rather, the applicants should be directed, in writing, to seek independent counsel who can prepare their deed, have it executed and recorded outside of the closing process. The nonborrowing spouse should be required to provide a signed and notarized letter describing the reason he or she is not participating in the transaction and acknowledging that the risks associated with their decision have been fully explained. Additionally, the non-borrowing spouse should attend HECM counseling and should sign and date the counseling certificate to acknowledge their participation and completion of HECM counseling.

Copies of these documents should remain in the file.

Until the non-borrowing spouse concern has been addressed by HUD, reverse professionals should exercise extreme caution if it ever becomes absolutely necessary to remove

according to alexander “In light of this recent decision, it does appear certain that there will be some sort of HECM reform to address the non-borrowing spouse concern. Until that reform arrives, reverse professionals should understand the different forms of tenancy and the implications of removing a spouse from title during the reverse mortgage process.”

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PROTECT YOURSELF AND YOUR BUSINESS y Require nonborrowing spouses to attend all HECM counseling sessions to ensure the non-borrowing spouse completely understands the ramifications of being removed from title.

y Make it a company policy to require both husband and wife on title if they are over the age of 62.

y Require a written, notarized letter of consent from anyone being removed from title.

y Require nonborrowing spouses to sign the HECM counseling certificate.

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y Advise clients to responsibly use the equity in their home as a long-term retirement planning tool.

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y Never change title at the closing table. Instead, have the borrowersâ&#x20AC;&#x2122; independent counsel prepare, execute and record the title deed outside of the closing process.

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y Never encourage or suggest changing title to qualify for or receive better loan terms.

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a spouse from title. Reverse professionals should always seek to protect their clientsâ&#x20AC;&#x2122; property rights rather than expose them to risk by removing their name from title in order to qualify for a loan. A reverse mortgage is an excellent financial planning product for senior citizens, but the product must be used sensibly.

Understanding the risks associated with removing a non-borrowing spouse from title will help reverse professionals guide their clients on how to responsibly use their home equity. x

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The Reverse Review January 2014

CHANGING PERCEPTIONS ABOUT CONVERSION MORTGAGES.

Anyone can talk about the advantages of strategic home equity use, but only nu62 actually demonstrates how your clients can put their home equity to work to support a better retirement. nu62.com is the only public website that provides you the tools SM

to allow your prospective borrowers to plan their optimal use of home equity over time and understand the impact of their utilization decisions. It’s your new resource to open minds about the conversion mortgage – and close more loans.

nu62 is the only financial tool of its kind, and it is available only from SM

Generation Mortgage Company. To learn more, please contact us at 1.800.560.2394, or visit us at www.nu62.com/rr2

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©2013 Generation Mortgage Company. 3565 Piedmont Rd. NE, 3 Piedmont Center, Suite 300, Atlanta, GA 30305. NMLS ID#1319. All rights reserved. nu62 is a service mark of Generation Mortgage Company. Patent Pending. For our state(s) legalese, visit www.generationmortgage.com/statelegalese

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New Year, New Market Landscape Da rre n S t u m b e r g e r

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In terms of volumes, Urban Financial Group, now Urban Financial of America, led the pack of issuers with just over $200 million and a 23 percent of market share. RMS came in second with $199 million at a 22.8 percent market share. Industry-wide, more than $870 million was issued, which exceeded Octoberâ&#x20AC;&#x2122;s total of $760 million and Septemberâ&#x20AC;&#x2122;s total of $662 million. There are currently 10 Ginnie Mae issuers, with Plaza Home Mortgage most recently coming online to issue directly versus selling closed loans. In all, the top five issuers comprise 83 percent of issuance. In regard to HREMICs, there was only one transaction brought to market in November by Stifel Nicolaus for $86 million. This is down from October, when there was $226 million brought to market by Stifel and BAML; and

appraising

Saver collateral is also being flushed out with spreads for fixed rate in the mid- to high 80s to swaps and Libor in the high-90s to low-100s discount margin. This collateral has always paid at elevated speeds and pool sizes have been pretty small. Once Bank of America, Wells Fargo and MetLife exited the market, this product became less and less relevant. New 2014 production has been trickling into the market in low volumes at spreads 20 to 30 points wider than old production.

Whether we go tighter or wider from here will largely be driven by how this new production prepays. Secondary activity has remained lumpy as the most routine activity stems from small community banks and credit

unions, and every once in a while a large list from institutional players.

In December, we saw $90 million of seasoned fixed rates out of a money manager, and average life profiles ranged from one to three years at 100 HPC (HECM Prepayment Curve).

Additionally, there was $185 million of HECM IOs that traded very well from the 2012 vintage.

Prepayment speeds in the HECM sector continue to slow down with seasoning. Fixed Standard speeds run from 80 to 100 percent of the HECM prepayment curve in the first 12 to 18 months, and then slow all the way down to 15 to 30 percent of the curve over the next three to four years. Monthly CPRs (Conditional Prepayment Rates) start at around five and slow to below two. These numbers reflect just the unscheduled prepayment activity (as opposed to scheduled prepays/98 percent buyouts), which is the correct way to illustrate prepayment behavior. Libor Standard prepays are faster and a bit more volatile. They typically run 100 to 200 percent of the HPC for the first three years after origination and then start to slow to 50 to 80 percent in years three to six. Saver speeds have been wildly erratic, running between 300 to 500 percent of the HPC and fixed rate 100 to 300 percent.

marketing

Production has been dominated by the Libor Standard collateral and the last remaining $100 million is being flushed from the pipelines as we head into the new year. Libor Standard spreads are out to the low to mid70s with more room to widen after touching the high-50s discount margin.

Typically, we see Libor collateral execute best in HREMIC form, but given the tightening in October through early December, HREMICs were non-creatable and most if not all Libor production was sold in pool form.

originating

from September, when Stifel, BAML and Nomura brought $533 million to market.

s we move into late December, spreads for HMBS are drifting wider. After the May/June swoon, spreads retraced about onehalf to three-fourths of the widening in the third and fourth quarters.

However, spreads were wider by 10 in mid-December from the local tights and I expect more widening in the last couple of weeks of the month and in the early part of January.

All in all, the immediate outlook looks fairly challenging for the industry. After this year-end surge, volumes will come under significant pressure in the early months of the new year. Originators will hope to get nonconforming origination going and it will be interesting to see what volume this brings forth to subsidize lost HECM volume.

Paring of overhead and possibly more consolidation may come over the next 12 to 18 months as originators will be forced to increase penetration rates and rebrand this mortgage to consumers. x

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The Reverse Review January 2014

spotlight article

Reverse professionals talk about their hopes for the HECM market in 2014.

Hopes for the HECM in 2014

A do z e n p r of e s s i onal s w o r k i ng i n v a r i ou s s e c t o r s ac r o s s t h e r e v e r s e mo r t gag e s pac e s h a r e t h e i r goal s fo r t h e com i ng y e a r and t h e i r h op e s fo r t h e HE C M ma r k e t i n 2 0 1 4 .

w

In month’stehis dition,

our and g hopes oals f or 2014.

Brien Brandenburg TowneBank Mortgage

John Mitchell Reverse Mortgage USA

“We will look to engage in marketing and advertising efforts that are new and have not been tried before, and will couple this effort with our tried-and-true methods of networking and advertising. Our goal is to not only maintain the number of HECMs done at TowneBank Mortgage, but also to grow where possible by adding successful reverse mortgage loan officers and by assisting our existing team members in maintaining and growing the business they currently are doing. We cannot do what has always been done and get what we’ve always gotten.”

“Our goal for 2014 is to truly up our game at the art of originating reverse mortgage loans. At our company, we have a defined methodology and discipline that revolves around building relationships with our customers. With the help of some worldrenowned experts in the relationship business, I know we can accomplish this.”

“I have four main hopes for our industry: I hope that Financial Assessment does not cause our business to drop 30 to 50 percent by excluding seniors that would otherwise benefit from a HECM. I hope that we will see new proprietary reverse mortgages that can fill gaps where the HECM cannot help or is not appropriate.

I hope that if rates do go up, and I know they will, that HUD will consider adjusting principal limit factors in response. I hope, finally, that our industry can set the tone regarding HECM and get our message out, rather than allowing others to sway public opinion.”

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“Regarding my hopes for the HECM market in 2014, I think it is astonishing that we as an industry have a 2.5 percent penetration rate. That’s a marketing problem caused by making the product appear too complex. That is particularly problematic in the media-driven world we live in today. There is so much information coming at us all the time that we tune everything out, and anything that appears to be complex, we really tune out.

It’s the ‘clutter factor.’ In the end, this is really a simple product that serves a fundamental need in society that is growing every day. In 2014, we intend to get this message across in a simple way.”

spotlight article Trevor Gauthier Accenture Mortgage Cadence

“2014 is arguably the most critical year the industry has ever faced.

While I believe Financial Assessment will be a game-changer for all of us, I also believe the prospects for a flourishing industry are literally limitless. For those of us in the arena, there may never be a better business opening than we have now. My hope is that we can seize the opportunities that are right in front of us.”

“Our aspiration for our industry is to see our sales force expand its market share through the continued education of financial professionals, Realtors and public relations campaigns. We firmly believe that with the total percentage of eligible homeowners who have a reverse mortgage at a mere 2 percent, the challenge is not so much the product itself but the perception bias and the public’s continued unfamiliarity with the product.”

“Our hope is that the industry can achieve a volume of 100,000 loans. Also, that everyone in the industry comes to recognize, and enthusiastically pursue, the potential in the new HECM product to meet retiree needs and generate business.”

“HECM program changes are likely to cause overall volume to drop in the first half of 2014. That said, housing prices are expected to continue appreciating, which bodes well for the future of the reverse market. Consequently, we expect volume to begin increasing in the latter half of next year.

Changes to the program may invite the return of proprietary reverse products since the new rules limit the amount of equity homeowners may draw upon.

Draw restrictions, too, are another factor that may entice proprietary reinvention.” 8 reversereview.com

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spotlight

“Our goals for 2014 are to partner with leaders in the industry to provide ideas and tools that enable increased loan volumes; to educate and encourage forwardonly originators to offer reverse loans; and to empower originators with additional system capabilities and integrations that speed up lending transactions and reduce defects.”

HMBS

“Reverse Focus’ mission in 2014 is to further equip industry professionals with strategic training, which exposes the true flexibility of the new HECM program despite recent changes.

In addition, we will be expanding the integration capabilities of our groundbreaking CRM Sales Engine for both origination and business relationship management.”

legal

“There are 10,000 seniors retiring every day, most with less than two years’ worth of funds saved for retirement. If we don’t seriously start to embrace the concept of monetizing home equity in the context of retirement planning, I believe our economy will continue to drift until state and local governments hit that really big iceberg in the distance. Having said that, I have one primary goal: to educate one financial planner or CPA every day on the true benefits of reverse mortgages. If I can embrace that process, the end goal will work itself out.”

appraising

John Button ReverseVision

marketing

Shannon Hicks Reverse Focus

originating

Scott Norman Sente Mortgage

“In 2014, Accenture Mortgage Cadence will remain focused on delivering technology and services to lenders that enhance the experience for borrowers, increase efficiency for lenders and aid compliance throughout the mortgage cycle. The mortgage market is obviously shifting to purchase lending. It would be easy to say we have been here before, but we have not. This shift to purchase marks the first time in 30 years that rates are likely to steadily rise as the next phase in the rate cycle begins. We’re focused on this fundamental change and all it means, helping our customers take full advantage of the opportunities ahead.”

The Reverse Review January 2014

spotlight article Steve M c Clellan Urban Financial of America (UFA) “With our new ownership group in place and Brian Libman on board as our new executive chairman and primary shareholder, 2014 will be an exciting time. We’ll continue to build and expand our best-inclass sales and operations platform. Our commitment to and relationships with

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our wholesale partners remain paramount, and we’ll continue to enhance the business resources that are available to them. In this ever-changing industry, now more than ever it’s important to focus our attention on the details—what processes we can fine-tune, and what technology we can implement to make the machine move more efficiently. We’ll certainly be investing in our technological infrastructure in the year ahead. Also, with the company name change behind us, we’ll continue to build our brand and

establish a clear identity that reflects our principles, our eye toward the future and our commitment to reverse mortgages as an essential retirement tool.”

“Armed with all the necessary product changes, the industry can finally break down the barriers that have kept financial advisors, Realtors, attorneys and consumers from embracing HECMs as a safe and smart retirement instrument.

The baby boomers are in need of income-generating financial products, and they

have more than $3 trillion in home equity that they will have to access to remain comfortable during retirement.

We have some work to do to broaden understanding of the product and overcome misconceptions. But fortunately, we as an industry have a great story to tell.

And with the enhanced public relations campaigns that UFA and others are funding through NRMLA, I hope and expect that we’ll see the needle move, and product acceptance will be attainable.”

David Peskin Reverse Mortgage Funding (RMF)

Cheryl Chargin AAG

David Stroop Mortgage Information Services

“Our primary goal is to continue to focus on the rollout of our exciting new product, which we believe will help fill a void in the current marketplace.

Our new product will appeal to both consumers and lenders and provide a benefit to both. In 2014, our goal will be to educate both consumers and partners on our new product and provide ample training and support for our lender partners. We also plan to diversify our revenue model and expand into new origination channels.”

“AAG has developed wonderful sales and marketing resources, and we plan to continue to revise and expand these materials in 2014. We recently invited our partners to a two-part training webinar titled ‘How to Sell the New HECM,’ and we intend to develop similar programs that will address whatever challenges our partners may face in the coming year. We aim to be a valuable resource and will continue to work hard to offer the highest level of support to our partners.”

“I’m hoping lenders will be able to adjust to this new environment, the changes to principal limits and mandatory obligation limitations. Lenders will need to learn to adjust their business model to account for changes in loan economics, more stringent underwriting and a potential adjustment in overall volume. If lenders can adjust and right-size their business operationally, we should see a very bright future. Our hope is that we can continue to offer new products to help lenders adjust in this new environment as well as provide them with tools to become more operationally efficient, driving down their internal cost per loan.”

“I hope industry participants continue to educate consumers about the value of the product and highlight the amazing ways a HECM can help senior borrowers. Those benefits are not lost after the recent changes. We still have a lot of room to help a lot of people, and we need to get that message out.”

“In 2014, Mortgage Information Services (MIS) will continue to develop and implement new technological solutions that further streamline the title/closing and appraisal process for our clients. We will use all available sources—social media; traditional print advertising; attending, sponsoring and speaking at industry conferences and events—to increase brand recognition. I also expect MIS’ reputation as a high-quality provider and customer service-oriented company to expand, bringing in new client opportunities via word of mouth as leaders in the industry look to see what is working for their peers.”

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“Overall, I see 2014 as being positive for the reverse market. Interest rates will continue to rise, which should lead to more senior borrowers exploring the opportunities presented by reverse mortgages, as opposed to traditional refis or home equity loans. And maybe more importantly, I believe that more financial advisors will turn to the reverse mortgage as a viable financial tool for their eligible clients, counteracting the misconceptions that some borrowers have with the product.”

spotlight article Rob Awalt Premier Reverse Closings (PRC)

“My personal goals to advance my business in 2014 are to remain steadfast in my message to financial advisors that it’s crucial to look at the suitable use of home equity as a retirement income solution for their older clients. Keeping their clients’ goals at the forefront of their planning and addressing their concerns about outliving retirement assets due to longevity risk has got to be a high priority. I will also aim to continue to inform and educate the general public, Realtors, builders and financial planners about the ‘awesomeness’ of the HECM for Purchase program. My goal is to EDUCATE, EDUCATE, EDUCATE!”

“My goal is to continue to do what got us to where we are today. PRC has become the company it is by doing things the right way, not basing things on economics or the pressure of getting a deal done. We aim to continue to make a concerted effort to get out and see our partners and customers and to solidify our relationships. We want to determine our partners’ goals and support those goals along the way. In the first quarter of 2014, we’ll also be transitioning to a new, robust platform that will give us the tools to be relevant on a go-forward basis.”

appraising

“With the recent product changes, I’ve seen the industry pulling together and looking at how to collectively create new products and promote positive action in our space. We’ve all talked about this and tried to do it over the years, but it was never truly a collective effort. My hope is that this will continue. There’s a silver lining in the challenges we’re facing: It’s an arduous path, but at least we know now what path we need to take. We now know what to expect and what we need to do to adapt. If we can get through these hurdles, those of us who will remain in the space will benefit. On the other side of this there is going to be a defined benefit to those who stay the course.”

marketing

“With the revolutionary changes to the HECM program still fresh in our minds and Financial Assessment right around the corner, my hope for the new year is that the public perception of reverse mortgages takes a more positive turn. If we can break down the previous negative connotations associated with this program so that it is viewed as a fundamentally sound option for mainstream America, there will be a very bright future for not only the HECM market, but for older homeowners across all income brackets.”

originating

Christopher Bruser Security One Lending

legal HMBS spotlight

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The Reverse Review January 2014

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D e p u t y a s s i s t a n t s e c r e t a r y f o r s i n g l e - f a m i ly h o u s i n g

c h a r l e s c o u lt e r

HUD’s

Charles Coulter talks hecm policy

f A look at the HECM program from HUD’s perspective

The deputy assistant secretary for single-family housing shares his thoughts on the evolution of the reverse mortgage program and the value it offers America’s seniors. By JESSICA GUERIN As HUD’s deputy assistant secretary of single-family housing, Charles Coulter supervises the FHA’s Home Equity Conversion Mortgage program. Coulter, who has more than 20 years of real estate and finance experience, served as vice president of business transformation at Freddie Mac before he was appointed to HUD’s ranks in January 2012

by President Obama and Housing Secretary Shaun Donovan.

Coulter’s demanding job requires him to oversee HUD’s policy development and manage all aspects of single-family housing from an operational perspective—everything from the maintenance of the agency’s handbooks to communications, quality assurance, institutional risk, and servicing and asset dispositions.

Following HUD’s recent changes to the HECM program, which the agency has called necessary to ensure the program’s long-term viability, Coulter spoke with The Reverse Review about the potential impact of the program revisions, the growing need to access home equity and his hopes for the future of the HECM market. 8 reversereview.com

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The Reverse Review January 2014

: TRR // The HECM program has come a long way since its inception.

What do you think of its constant evolution?

CC4The HECM is obviously a more complex program than a typical 30-year fixed-rate product, and it’s not unusual for a program to be evaluated and to change over time. Given the relative complexity of the HECM product, I think it’s a perfectly natural process for us to evaluate it and to make changes. I view it as fairly consistent with how I expect all of our programs to be managed. I think we had reached a point where this program was in need of a fairly significant overhaul, which we did back in August and we’re continuing to focus on through the Financial Assessment piece. I would expect us to continue to evaluate both the HECM program and our other programs on a periodic basis and make changes as necessary to ensure that they work well from a consumer perspective and in terms of the economics of the MMI Fund. : TRR // Do you think this recent wave of change has made the reverse mortgage a stronger financial tool that offers the maximum benefit to the consumer?

CC4I do. We’re very confident that we’ve brought the program back to a place where it will have a negative credit subsidy, which basically means that the value of the program’s revenue stream will be greater than the projected losses. I know it works well in terms of our own projections related to the MMI Fund, and I also think it will be a healthy thing from a consumer perspective. I think the program evolved to a place where it was predominantly fixed rate, full draw, and I don’t think that was in the best interests of seniors. I think the changes that have been made ensure that the program is used in a way that is more consistent with the way it was intended, which is to provide for the

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senior throughout their retirement years versus [offering them] one lump sum upfront. : TRR // Did the shutdown impact the HECM program to any significant degree and is the department still recovering from the hiatus?

CC4I would say the most significant issue was that the shutdown happened at the same time that our new policies were going into effect. It’s challenging enough to [institute] fairly complex changes, both from a HUD perspective and an industry perspective, and when you couple that with a government shutdown, that obviously created an environment that was ripe for confusion.

Now, I think we’ve managed through that reasonably well. We’re completely caught up with endorsements; there’s no backlog. As you might recall, we were not able to endorse HECM loans during the shutdown, so we did have a backlog when we came back, but that has been taken care of. But it did affect our ability to continue our policy writing.

We’re going to be putting out additional information in response to comments on the Financial Assessment, and we did lose a few weeks that have affected that. We’re moving ahead aggressively, but it still took away some time that we certainly could have used.

a series of appropriate changes, both from an economic and a consumer perspective, and as a result of that I wouldn’t expect housing financial reform to force prospective changes to the program. I think we’ve already done the appropriate course correction. : TRR // How do you think the industry will be impacted by the program changes? Do you think volume will dip as significantly as some industry analysts have projected?

CC4I don’t want to get into any projections around volume, but at the same time I wouldn’t want to understate the significance of the changes we made. They were material, and I would expect a dip in volume in the near term as a result of those changes. Having said that, I think that the industry will adapt and I hope it will adapt in a very constructive way. I think we have an opportunity on a prospective basis to really make this program a healthy and constructive part of FHA’s offerings and ensure that it does what it’s supposed to do, which is service the needs of seniors who want to age in place. So, will there be a volume impact in the near term? Absolutely. Are we in a position to come out of that in a way that is better for the program over the long term? I believe so.

: TRR // Do you expect current discussions in the House and Senate about FHA reform to have an impact on the HECM product?

: TRR // Do you expect the changes to affect the way the product is marketed and sold?

CC4In terms of additional impacts on a go-forward basis, I would not expect so, but everything is tied together in a sense that the HECM program is part of the MMI Fund, so the economics of the HECM program impact the MMI Fund.

The status of the MMI Fund is obviously relevant to how the House looks at FHA and looks at its administration of the program, so all of these things certainly are interrelated, but I think we’ve made

CC4I absolutely do, yes. We already went through one evolution with this product when we went from a predominantly ARM portfolio product to a predominantly fixed securitization product. Now we’re evolving back to what will probably be more of an ARMbased product, where the borrower is realizing the benefits of the program over time. So I think how you approach consumers with that is going to be very

f Given the relative complexity of the HECM product, I think it’s a perfectly natural process for us to evaluate it and to make changes. I view it as fairly consistent with how I expect all of our programs to be managed... I would expect us to continue to evaluate both the HECM program and our other programs on a periodic basis and make changes as necessary to ensure that they work well from a consumer perspective and ensure that they work well in terms of the economics of the MMI Fund.

different. I think the most thoughtful way to do that is to [present] it in the context of a responsible, balanced financial plan for the senior that ensures that they’re getting the funds that they need over time, and getting away from this notion of cashing out their equity at the beginning of the loan. : TRR // Do you view the changes that were made as complete, or might we see more amendments down the road?

CC4They’re not complete. [FHA Commissioner Carol Galante] talked at the NRMLA conference about the fact that Financial Assessment was supposed to go into effect in mid-January, but we will be putting out a notice pushing that date back.

One of the things that we know we need to come back and clarify are the parameters around Financial Assessment. We’ve asked for feedback, and we’ve received the feedback. Karin [Hill] and her team are thoughtfully going through that, and I think that we will come out with a program that is stronger and better than what was initially released because there was a comment period. So that is pending, and then we have a proposed rule that is also going into effect, which we view

as really a parallel effort to the mortgagee letters that we put in place. The mortgagee letters, we were granted that authority

by Congress, but at the same time we feel the need to ensure that this program is appropriately documented in the regs through a proposed rulemaking process.

Karin and her team are working on that effort as well. I know the rulemaking process won’t have an impact on near-term changes, but I think it can give us some flexibility down the road. I’ll just point to one possible example: We’ve talked to the industry from time to time about the notion of a hybrid program that would be a fixed, upfront draw coupled with an ARM term or tenure payout, and I think that really blends the best of the fixed-rate and the ARM programs into one product. That’s something that we’ll look to gain the flexibility to implement through our rulemaking process. : TRR // Does HUD have a revised deadline set for the implementation of Financial Assessment?

CC4We don’t. We’ll be putting out a mortgagee letter that clarifies what our expectations are about timing. I can’t give you an early indication of what that looks like. As the commissioner said at the NRMLA conference, we will be pushing that date back. We are sensitive to the needs of the industry to adapt thoughtfully to the policies that we put out, so that will be factored in as we make changes based upon the notice and comment period. : TRR // Do you think HUD would ever consider revisiting the PLF reduction, perhaps raising it in the

future if things look up for the MMI Fund?

CC4Certainly the MMI Fund is relevant, but I also think there are a number of other factors that come into play when we look at PLFs. House price path is relevant; how the program is used is highly relevant; how the industry markets to consumers and therefore what the draw patterns look like, that’s highly relevant. All of those things we need to manage and monitor. We’ll take a look at those things and there may come a point where it is appropriate for us to revisit PLFs in a way that would be positive and provide more flexibility.

I don’t want to mis-set expectations; that’s certainly not going to be done in the very near term, but it’s something that we’re absolutely open to and we’ll continue to evaluate. : TRR // HUD has made statements in the past about the need to strengthen counseling. Have such measures been taken? What do you think still needs to be done?

CC4Over the last several years, we’ve actually introduced quite a few enhancements to counseling with the FIT tool and different financial evaluations that the counselors do. With all these new changes, we’re working closely with HUD’s housing counseling office to identify what kind of updates need to be made to the tools that are already in use, and also to provide more training to the counselors so they are familiar with the new Financial Assessment and the new program guidelines. One of the challenges frankly is the money aspect. Housing counseling agencies have supported 8

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The Reverse Review January 2014

a lot of the training for HECM counseling and have had restricted fund availability both in terms of restricted grants from HUD and general access to funds. And with the ramp-up in the changes, of course, there’s a real need for [more education], so we’re coordinating with the housing counseling office and also the counselors themselves. We’re doing internal webinars with them to help support their training. It is a bit of a challenge, but everybody is very committed to taking the right steps because the counseling is so critical to ensure that the borrowers understand the program. : TRR // Do you expect loan limits to return to $417,000 once the current extension expires? If so, how will that impact the program?

CC4There are two things I can tell you right now: One is we are going to the HERA limits effective January 1. Obviously that is more relevant to the forward product than it is to the HECM. As we look forward, FHA will be thoughtful about how its loan limits should evolve over time, consistent with its mission. When we do that, I expect us to look at both the forward product and the HECM product and ensure that they make sense in the context of what each of those products is meant to do. So we’ll go to $625,500 effective January 1, and I think beyond that we’ll be laying out a strategy for both the forward and the HECM program, but we’re not in a position today to communicate directionally what we’re thinking there.

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: TRR // Do you anticipate the development of a proprietary market with or without a loan limit reduction?

CC4I would be shocked if a private market doesn’t develop for this type of purpose, just because the

demographics are so compelling. When you look at the fact that you have an aging population, you have a virtual elimination of the five benefit plans, stress on the Social Security program— people are going to need to leverage their home equity as a way to retire in a way that comes close to their standard of living pre-retirement. So I do think that these types of programs that allow consumers to responsibly leverage the nest egg that they’ve built in their home are very important and I would be very surprised if a private market doesn’t evolve here. : TRR // Would a proprietary market impact FHA’s offering?

CC4It could. We coexist with other mortgage offerings on the forward side of the business, and what we do

there is make sure we are appropriately positioned to serve the segment of the market that we’re there for, specifically borrowers who are not served constructively by private capital.

Could I envision a situation where a private offering comes in and forces us to re-evaluate the size of our footprint, the type and makeup of the consumers we are serving for the offering? Absolutely that could happen. Is that going to happen in the next year or two? Unlikely, but it could certainly happen over the longer term. : TRR // Do you think policymakers and members of Congress have a proper understanding of HECM and its value? What can be done to further their understanding?

CC4This is a complex product. I’ve been in this business for more than 20 years and it was a concerted effort on my part to come up to speed on this…

It’s not an easy or intuitive product to understand. Certainly for members of Congress and for consumers who are not grounded in mortgage finance, this is not an easy program to wrap your mind around. I do think there needs to be a concerted effort by FHA, by the industry, and by groups like NRMLA and MBA to ensure that people are responsibly informed about what this program can do for seniors. We need to make sure that we’re managing this program collectively in a way that is responsible for seniors so that it’s viewed in a positive light both on Capitol Hill and by consumer advocates.

: TRR // Do you anticipate the market ever reaching past its 2 to 3 percent penetration rate?

CC4Getting into projections about penetration rate is tough. I think this is an important and viable offering if used responsibly. I think we got off track in the course of the last several years—we in terms of our policy and the industry in terms of how it leveraged our policy—and I think we have got to work together to get this program back to where it needs to be. I think on a prospective basis, we’re in a good position to see this product be a key component of FHA’s product suite.

Whether that means growth or stability, it’s tough to say at this point in time, but I think it’s an important offering and I think we’re well-positioned to get this product back to where it needs to be in terms of economic viability and consumer friendliness.

: TRR // What do you think potential borrowers need to understand about the product? Are there elements to the product that you think are often misunderstood or that are feeding the public’s negative perception?

CC4It’s not the most straightforward product in the world; it takes some time to understand. When you couple that complexity with the fact that you have negative press and T&I defaults, it does put us in a position where the public is bound to raise some questions [about whether or not] this really is a good and constructive product. That’s why I think it’s so important that the changes we put in place are leveraged responsibly by the industry to get this program back on the right track. If we do that, [and establish] a strong education program both for consumers and other stakeholders, I really think we can shift the perception about the program. But

do I think we have a bit of a hill to climb on that front? Yes, I do. : TRR // What are your hopes for the HECM program in the future?

CC4I would love to see this program become one of the key elements of FHA’s offerings in the marketplace. I’d like to see it be used responsibly as part of a long-term retirement plan for seniors and I’d like to see us—FHA and the industry and trade associations— work cohesively together to ensure that we get this product back on the right track, because I think it can be a useful financial instrument. x

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The Reverse Review January 2014

last word

reflect

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Differentiate With Customer Segmentation B art J o h n s o n

W

ho’s always right? The customer’s always right!

Who’s the boss? The customer’s the boss! Except when he or she isn’t…

After 30 years, our industry remains less than 3 percent market penetrated, and the market is growing faster than the industry! With too few products too narrowly defined, we have tried to spin differently in order to sell to all potential borrowers. That seldom works, and it’s not working now.

We have survived a mostly government-sponsored business while that sponsor has systematically reduced its targeted customer niche. Our smattering of proprietary products disappeared with the Great Recession. We cannot sell only what we have today if we ever intend to reach the mass market. We must listen carefully to all customers in order to design and offer the products that they actually need and want (and will buy).

The idea is to study customer profiles and circumstances to identify homogenous categories with finite and similar requirements, document the generic wants and needs of each segment, then identify (or build) solutions custom-designed for each. That effort can range from simple to extremely complex.

At the most fundamental level, customers either need or want a reverse mortgage, and that distinction is essential to the approach we take with them. And we already recognize the huge opportunity around the use of reverse mortgages as a financial planning tool.

FHA understandably prefers “income-driven” customers, but that doesn’t help the much larger group of “debt-driven” customers who are now even more underserved.

We hear daily of the importance of being able to age in place, but what about those customers who would prefer to age somewhere else? We don’t get to decide; they do!

Thought leadership is available, free on the Internet or for the price of a book. As company leaders, we are duty-bound to obtain the knowledge and apply it to our businesses.

George Moschis offers a gerontographic model based upon the theory of aging, and he identifies basic segments that represent four possible combinations of physical/biological and social/psychological changes that naturally flow from 50

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“The idea is to study customer profiles and circumstances to identify homogenous categories with finite and similar requirements, document the generic wants and needs of each such segment, then identify (or build) solutions custom-designed for each.”

the aging process. A Healthy Indulger devolves either into a Healthy Recluse or an Ailing Outgoer, which can then become a Frail Recluse. Placing customers into these segments predicts behaviors (and thus buying patterns). Segmentation identifies watering holes and dictates what we sell and how we sell it.

Meanwhile, Shalom Schwartz and Wolfgang Bilsky identify eight distinct groups of seniors: Hearth and Homemakers, Fiscal Conservatives, Woeful Worriers, Intense Individualists, Liberal Loners, In-Charge Intellectuals, Active Achievers and True Blue Believers. Each of these groups has remarkably different beliefs, attitudes and behaviors, and can only be successfully engaged via targeted messaging.

So pick your favorites, but don’t ignore the others. And don’t forget that these are “photos” when we should be thinking “videos.” Change is constant, and even if you properly identify a customer with the right segment, that segment can (and likely will) change. Life events occur that thrust people into different life stages, which require different answers (and products). Remember, it’s not about the ages; it’s about the stages! x With thanks to Monte Rose and Marlon Fuentes, who have inspired me to embrace segmentation!

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reversereview.com 8 TRR | 51 For further information, contact: Ralph Rosynek 281-404-7970 Email: rrosynek@rmsnav.com

The Reverse Review January 2014 TM

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