the reverse review
er ev
r se
evie
ve
re e
e
this issue
an
th
INSIDE
r
e rs
celebrates 3 years!
2 2 2
he reverse rev ie w
w the re revie v
wt
th
Preparing for CFPB Scrutiny PG. 17 An inside look at FHA-compliant home repairs PG. 32 + Carl Rojas sits down in our hot seat!
ni Happ v TR er y R sar y
w
april 2012
The
Rise Ginnie Mae of
How mortgage-backed securities changed the investment landscape and what’s in store for the HECM program by
Theodore W. Tozer President of Ginnie Mae
The Reverse Review April 2012
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CLIENT FOCUS
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RESPECT FOR EACH INDIVIDUAL
TEAMWORK
INNOVATION
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At our core, each of us finds what truly matters. At Urban Financial Group, our path to success boils down to six unwavering principles: Client Focus, Integrity, Teamwork, Respect for Each Individual, Innovation and Responsible Citizenship. These values are woven into the DNA of our entire staff and embedded in our culture. These six principles guide our behavior and set the bar higher for each of us every day. So in a world where people and businesses are faced with and tempted by shortcuts, we at Urban resolve to take the right path – every time. It’s this determination to do the right thing that has made us a leader in Reverse Mortgage lending. When you let your values guide you, the right path becomes clear. Goals are reached. Business grows. Find out how we can partner with you. Email us today.
sandy@urbanfinancialgroup.com
* According to RMI measuring number of endorsed wholesale units January – December 2011
The Reverse Review April 2012
From the Publisher for seniors. My commitment to you is that we will continue to work hard to make The Reverse Review a forum for useful and relevant information to help grow your business and assist in pushing our market forward.
A note from Reza Jahangiri
This issue of The Reverse
Review is our fourth since we took over the magazine late last year. It has been rewarding to relaunch this unique publication. Every month, our team gets to work closely with a diverse cross section of industry participants who create the content you and I get to read each issue. The collaboration is refreshing and makes it feel as though we are less like competitors and more like partners in a small niche industry, working together to shed light on a product we are proud of. I strongly believe we need to continue to be proactive as an industry and work hand in hand to further educate the market on this important financial tool
Senior Publisher { Reza Jahangiri }
Meet the Team Senior Publisher Reza Jahangiri
Publisher
Erik Richard
Editor-in-Chief Jessica Linn
Creative Director Traci Knight
Copy Editor
Kersten Wehde
Advertising Sales Rep. Brianna Conlon
Publisher
Reverse review publishing Printer The Ovid Bell Press Advertising Information phone : 949.269.1600 email : brie@reversereview.com Subscriptions email : information@reversereview.com Editorial Content email : jessica@reversereview.com
Want to talk to Reza? Reach him at reza@reversereview.com.
© 2012 Reverse Review 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 Review 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
sign up for the newsletter at reversereview.com
ed
The Reverse Review would like to correct an error printed in the March issue. The author of our cover story, Pete Engelken, was listed as Genworth CEO. His correct title is CEO, Genworth Financial Home Equity Access, Inc. TRR apologizes to Pete and his team at Genworth for this oversight.
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| TRR
t ay ec st onn c
Correction
We are fortunate to have Ted Tozer of Ginnie Mae supporting our efforts as an industry. The fact that more investors have realized the benefits of this new liquidity source and have taken an interest in the product has been pivotal. Ginnie Mae’s rollout of the HMBS program has proved to be a big evolutionary step for the reverse mortgage. We should continue to welcome improvements and changes to the program, as it will only allow more seniors access in the long run. I hope you enjoy reading his prospective on Ginnie Mae’s involvement with the HECM program.
l
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Table of Contents
TRR 04.12 g
FEATURE
Year In Review
g
13 | This April marks TRR’s three-year anniversary.
The House and the Senate hold key hearings on the housing issue. H . W e st Ri c h a rd s
Legal
g
17 | Preparing for CFPB Scrutiny
An in-depth look at the proces
Hay dn j. Richard s , j r .
RYa n l a ro se
Originating
g
Navigating home improvement setasides Ala in Val les, CR M P
How to contest an objectionable estimate
“The secondary market for reverse mortgages has been unpredictable in recent years, but trends show investor demand is increasing and execution continues to improve, largely due to Ginnie Mae’s guarantee of full faith and credit of the U.S. government.”
Underwriting
23 | Understanding Seasoning and Occupancy
A look at how these essential factors affect the underwriting process
36 | the rise of ginnie mae
Ra lph Rosynek
g
How mortgage-backed securities changed the investment landscape and what’s in store for the HECM program.
Secondary Market
Appraising
30 | Appealing an Appraisal
19 | A state of repair
g
Servicing
29 | What Happens after a Reverse Mortgage Closes? – Part I
Proactive steps you can take to prep for CFPB examination
g
Legislative
26 | Update from Capitol Hill
Here’s a recap of our favorite stories from the past.
g
@
Want the online version? Check out reversereview.com/magazine.
Bri a n F o rb e s
g
Spotlight Article
32 | Operation Renovation A look at the home-repair side of the industry from two key players in the market M a ri a SCHUL Z E , Bay s tat e I n d e pe n d e n c e H o u sin g G ro u p F id e l i t y H o m e ASSOCIATES
T h e o d o re w. T o z e r
25 | HMBS Trading Tighter
Ginne Mae mortgage-backed securities perform well.
R SE
EVIE
E RS VE
AN
2 2 2
W THE RE REVIE VE
RS E
this issue
ER EV
RE
INSIDE
R
THE
W
C FO of G e n e rat i o n M ortgag e
EV ER
celebrates 3 years!
E
Br ought t o you by Reverse Mort gage D aily
Featuring Carl Rojas
42 | the last word
E REVIEW THE VERS RE R
THE REVERSE REVIEW
TH
B r ou gh t to y ou by R e v e rse M a rk e t In sight
The industry’s headlining stories of the past month
14 | the hot seat
PREPARING FOR CFPB SCRUTINY PG. 17 AN INSIDE LOOK AT FHA-COMPLIANT HOME REPAIRS PG. 32 + CARL ROJAS SITS DOWN IN OUR HOT SEAT!
HE REVERSE REV IE W
The industry’s latest stats and rankings
10 | industry update
E TH
WT VIE RE
07, 09 | Stats
W IE
SE
Essentials
A look at the government agency past and present
RE V
D a r ren Stumberg er
NIV HAP TR ER PY R SAR Y
APRIL 2012
The
Rise Ginnie Mae
What do we have to fear?
of
e ri k ri c h ard
HOW MORTGAGE-BACKED SECURITIES CHANGED THE INVESTMENT LANDSCAPE AND WHAT’S IN STORE FOR THE HECM PROGRAM by
Theodore W. Tozer president of Ginnie Mae
APRIL 2012
cover reversereview.com
8 TRR
|5
The Reverse Review April 2012
Contributors Want to write for this magazine? 2 Email jessica@reversereview.com for more information.
John K. Lunde
Carl Rojas
J ohn K . L und e
C ar l r oja s
07, 09 | The Industry Stats and Rankings 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. rminsight.net | 949.429.0452
14 | hot seat g Carl Rojas is the chief financial officer at Generation Mortgage. He is a graduate of the University of Texas at Austin, where he earned a B.A. in philosophy, and Texas Tech, where he earned a degree in accounting and a master’s in information systems. Rojas has more than 20 years of experience in leading teams, delivering results and providing financial and accounting leadership. Prior to joining GMC, Rojas served as the controller and chief accounting officer for Barzel Industries.
A la i n vall e s , cr mp
r alp h r os y n e k
19 | A state of repair g Alain Valles, CRMP is president of Direct Finance Corp., Hanover, MA, one of the leading reverse mortgage brokers in the country. Valles received a master’s in real estate from M.I.T., an MBA from The Wharton School, and graduated summa cum laude from the Univ. of Massachusetts. Valles’ mission is to improve the quality of life through responsible financing. 781.878.5626 avalles@dfcmortgage.com
23 | Understanding Seasoning and Occupancy g Ralph Rosynek has been The Reverse Review Underwriting columnist for more than two years. Rosynek is the vice president for National Correspondent Production at Reverse Mortgage Solutions, Inc. RMS is a premier provider of reverse mortgage servicing, a Ginnie Mae seller/servicer and offers complete mortgage banking support and services to the reverse mortgage industry. He is currently seated as a member of the NRMLA Board, co-chair of the Professional Development Committee and holds HUD HECM Direct Endorsement credentials. rrosynek@rmsnav.com 708.774.1092
h. we s t r i c har d s
De n n i s Ga s s oway
ryan lar ose
26 | Update from Capitol Hill g H. West Richards, executive director of the Coalition for Independent Seniors, served in the U.S. House of Representatives and held the distinction of serving as the youngest chief of staff in Congress. Richards worked in association with the law firm of Troutman Sanders, LLP and later headed up Business Development for Arthur Andersen Business Consulting in Atlanta.
27 | tax tip g As the national sales executive for ICG Inc., the nation’s most diverse and customizable real estate tax service, Gassoway is responsible for business development at all levels of the loan servicing field. Prior to joining ICG Inc. in 2007, Gassoway held business development positions at Transamerica, Lereta and LandAmerica. In addition to being the recipient of many achievement awards, Gassoway is an honors graduate with a B.A. in marketing and finance.
29 | what happens after a reverse mortgage closes? - Part I g Ryan LaRose is the executive vice president of Celink, an independent reverse mortgage subservicer. LaRose has more than 12 years of servicing experience and has worked exclusively in reverse mortgage servicing since 2005. In addition, he is an active member of the NRMLA servicing and technology committees. celink.com | 517.321.5491
Haydn J. Richards, Jr.
Alain Valles CRMP
Ralph Rosynek
Darren Stumberger
H. West Richards
Dennis Gassoway
Ryan LaRose
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Hay d n j. Richards, jr . 17 | Preparing for CFPB Scrutiny g Haydn J. Richards, Jr. is senior counsel in Dykema’s Financial Services Regulatory and Compliance practice. Richards advises members of the financial services industry on state and federal regulatory matters. Richards has extensive experience with the S.A.F.E. Act, has been deeply involved with the development and testing of the Nationwide Mortgage Licensing System (NMLS), and is a member of the NMLS Industry Development Working Group.
Dar r e n Stu mb e r ger 25 | HMBS Trading Tighter g Darren Stumberger, managing director at Knight Capital Group, heads Agency MBS trading and is responsible for HMBS/ HREMIC trading, distribution and risk management. Prior to Knight, Stumberger held mortgage trading and finance positions at Goldman Sachs, Morgan Stanley, Merrill Lynch, Standard & Poor’s and KBC Group NV. dstumberger@knight.com
Report March 2012
Top Lenders Report
12345 MetLife Bank, N.A.
Genworth Financial
Endorsement
Endorsement
1132
Lender
643
One Reverse Mortgage
Urban Financial Group
Generation Mortgage Co.
Endorsement
Endorsement
Endorsement
417
Endorsements
350
Lender
267
Endorsements
SECURITY ONE LENDING
241
CHRISTENSEN FINANCIAL INC
24
AMERICAN ADVISORS GROUP
186
GMFS LLC
24
SUN WEST MORTGAGE CO INC
159
GATEWAY FUNDING DIVERSIFIED
24
THE FIRST NATIONAL BANK
147
CONTOUR MORTGAGE CORPORATION
23
REVERSE MORTGAGE USA INC
111
GREAT OAK LENDING
21
NEW DAY FINANCIAL LLC
65
OPEN MORTGAGE LLC
21
CHERRY CREEK MORTGAGE CO INC
59
UNITED NORTHERN MORTGAGE
19
M & T BANK
56
STERLING SAVINGS BANK
19
NATIONWIDE EQUITIES
55
HARVARD HOME MORTGAGE INC
19
ROYAL UNITED MORTGAGE LLC
47
WEST TOWN SAVINGS BANK
18
ATLANTIC BAY MORTGAGE GROUP
43
UNIVERSAL LENDING CORPORATION
17
SENIOR MORTGAGE BANKERS INC
41
TOWNEBANK
17
MONEY HOUSE INC
36
MAVERICK FUNDING CORP
17
NET EQUITY FINANCIAL INC
34
MAS ASSOCIATES LLC
17
ASSOCIATED MORTGAGE BANKERS
33
NETWORK FUNDING
15
GREENLIGHT FINANCIAL SERVICES
33
FIRSTBANK
15
ASPIRE FINANCIAL INC
29
PRIMELENDING A PLAINSCAPITAL
14
PLAZA HOME MORTGAGE INC
25
RESIDENTIAL HOME FUNDING
13
Trailing Twelve Month Endorsements
INDUSTRY SUMMARY Retail Endorsement Growth
10.2%
10,000
Wholesale Endorsement Growth
8,000
16.98%
6,000 4,000
Total Endorsement Growth
2,000 0 2 3 4 5 6 7 8 9 10 11 12 1 Retail
Wholesale *Numbers Represent Months
13.01%
*Figures Above Reflect Change from Prior Month
RETAIL UNITS CHG%
WHOLESALE UNITS CHG%
TOTAL UNITS CHG%
1
4,075
0.64%
2,805 16.25%
6,880
6.47%
2
4,515
10.8%
2,785
-0.71%
7,300
6.1%
3
3,704 -17.96%
2,415 -13.29%
6,119 -16.18%
4
3,106 -16.14%
2,079 -13.91%
5,185 -15.26%
5
3,535 13.81%
2,322 11.69%
5,857 12.96%
6
3,352
7 8
3,612
-5.18%
2,159
-7.02%
5,511
3,705 10.53%
2,099
-2.78%
5,804
5.32%
-2.51%
1,972
-6.05%
5,584
-3.79%
-5.91%
9
3,032 -16.06%
1,612 -18.26%
10
2,675 -11.77%
1,978
22.7%
4,653
0.19%
11
2,676
0.04%
1,891
-4.4%
4,567
-1.85%
12
2,949
10.2%
2,212 16.98%
TOT
40,936
26,329
4,644 -16.83%
5,161 13.01%
67,265
reversereview.com
8 TRR
|7
The Reverse Review April 2012
Contributors
Brian Forbes
Maria Schulze
Fidelity Homestead Associates
Theodore W. Tozer
Erik Richard
b r i a n f or b es
mar i a s ch u lz e
30 | Appealing an Appraisal g Brian Forbes has spent more than 12 years working in the reverse mortgage lending industry as a loan officer, sales and marketing director, and branch manager. Forbes has worked with Landmark Network, Inc. since its inception in 2007 and is currently a QC analyst for the company. Forbes received his degree in marketing with an emphasis in direct marketing from the University of Southern California. Forbes has been responsible for many of the direct mail and Internet marketing campaigns used by reverse companies such as Seattle Mortgage and Financial Freedom.
32 | Operation Renovation g Maria Schulze is the director of marketing for Baystate Independence Housing Group, a national contracting company that specializes in financing FHA repairs prior to closing. Schulze oversees business development by combining general contracting, project management and bridge funding to facilitate noncompliant loans. Schulze has a strong passion for helping others and volunteers with several charity organizations.
T heodor e W. Toz e r
Er i k r i ch ar d
36 | the rise of ginnie mae g Theodore W. Tozer is the president of Ginnie Mae. He has more than 30 years of experience in the mortgage, banking and securities industries. Among various other postions, Tozer has served as senior VP at National City Mortgage Company, VP at the BancOhio National Bank, chairman of the Capital Markets committee of the Mortgage Bankers Association of America, and member of Fannie Mae Midwest Secondary Advisory Group. Tozer received his degree in accounting and finance from Indiana University. He is a certified public accountant and a certified management accountant.
42 | the last word g Erik Richard is the CEO of Landmark Network, an appraisal management and compliance company serving the reverse mortgage industry. Richard is also co-publisher of The Reverse Review. Prior to founding Landmark, Richard accumulated more than 10 years of industry experience within the lender services and real estate valuation sectors. Richard most recently served as CFO for One Reverse Mortgage.
maria@independencehousing.com
independencehousing.com 410.404.3664
f i d e li ty h ome s te ad as s oci ate s 32 | Operation Renovation g Fidelity Homestead Associates provides a contractor membership registry to expedite professional home improvement and repair estimates. Our team consists of experienced personnel from the mortgage lending, home remodeling and renovation contractor industries. Loan officers often need to assist their clients by helping them to obtain an estimate from licensed and insured contractors to meet FHA standards. Our team is dedicated to facilitating this process.
Number
2
Want to write for this magazine? Email jessica@reversereview.com for more information. 8
| TRR
14%
U.S. workers who are certain they will have enough to live on comfortably in retirement
Employee Benefit Research Institute, 2012 Retirement Confidence Survey, ebri.org
Saver market share
hecm endorsement trends
2%
% % % % %
0%
Looking for more statistics? Go to rminsight.net for all of the industry’s latest stats and rankings.
1/1/12
12/1/11
11/1/11
10/1/11
9/1/11
$600.0
$400.0
$200.0
$0.0 9/1/10
8/1/10
7/1/10
6/1/10
5/1/10
4/1/10
3/1/10
2/1/10
20%
16%
14%
12% 1/1/12
Reverse Market Insight - Logo
12/1/11
October 9, 2009
11/1/11
10/1/11
9/1/11
8/1/11
7/1/11
6/1/11
5/1/11
4/1/11
3/1/11
2/1/11
1/1/11
reversereview.com
1/1/12
12/1/11
11/1/11
10/1/11
9/1/11
8/1/11
7/1/11
6/1/11
5/1/11
4/1/11
3/1/11
2/1/11
1/1/11
$800.0 12/1/10
$1,000.0
12/1/10
$1,200.0
11/1/10
$1,400.0 11/1/10
$1,600.0
10/1/10
$1,800.0 10/1/10
Fixed
9/1/10
8/1/10
7/1/10
6/1/10
5/1/10
4/1/10
3/1/10
2/1/10 ARM
8/1/11
7/1/11
6/1/11
5/1/11
4/1/11
3/1/11
1/1/10
{ FIGURE }
02
2/1/11
1/1/10
Fixed Rate Percentage
hecm endorsement trends
01
1/1/11
{ FIGURE }
03 $ in the millions
initial principal limits
hecm endorsement
Report { FIGURE }
80%
75%
70%
65%
60%
55%
50%
PANTONE COLORS 3005C
8 TRR
Process Blk C
Brought to you by:
18%
REVERSE MARKET
INSIGHT
10%
8%
6%
4%
|9
The Reverse Review April 2012
Industry Update
April 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
state has since run into problems due to a lack of counselors able to work with borrowers in person; the backers of the California bill said they do not expect this to be an issue.
1. FHA LOWERS PREMIUMS
// March 5, 2012
FOR CERTAIN REFI CUSTOMERS STARTING IN JUNE, REVERSE MORTGAGES NOT AFFECTED
The FHA has announced details on its quest to lower the cost of refinancing for its borrowers. The agency said it plans to lower upfront mortgage insurance premiums to 0.01 percent and reduce its annual premium to 0.55 percent for certain FHA borrowers starting June 11, 2012. // March 6, 2012
2. HUD CAUTIONS REVERSE
MORTGAGE COUNSELING AGENCIES AGAINST MARKETING VIOLATIONS
HUD sent a notice to counseling agencies warning them of common marketing violations. The letter specified that marketing their services directly to lenders and requesting that their name be placed on the top of the lender’s list of recommended agencies is prohibited. // March 5, 2012
3. BILL THAT REQUIRES IN-
PERSON REVERSE MORTGAGE COUNSELING INTRODUCED
A bill in California would require reverse mortgage borrowers to obtain counseling in person if it is passed. The bill comes two years after Massachusetts instituted a similar law requiring borrowers to meet with a counselor face to face. The 10
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4. OREGON’S NEW TAX
Have a news story for this section? Email your story to jessica@reversereview.com.
last as technical predictions indicate an inevitable decline. // March 4, 2012
7. NRMLA OUTLINES CONCERNS REGARDING CFPB CHANGES
An Oregon bill will ensure that reverse mortgage borrowers can continue to benefit from the state’s tax deferral program, which will allow many to stay in their homes. Last month, reverse mortgage borrowers benefiting from the tax deferral program were suddenly dropped; most reported that as a result they would lose their homes. Most states do not allow for property tax deferral beneficiaries to have reverse mortgages.
The CFPB has yet to introduce major changes to the reverse mortgage industry, but NRMLA representatives said that they already have serious concerns about the extent of the agency’s power and how this will impact the industry. NRMLA legal counsel Jim Milano said to expect changes to financial services laws, and that so far, the bureau has indicated that it will defer to state regulators on nonbank mortgage companies. Milano said that significant change is unlikely to come until 2013 or beyond.
// March 8, 2012
// Feb 29, 2012
5. FORMER METLIFE EXEC TO
8. NEARLY ONE-QUARTER OF
Security One Lending has announced that former MetLife wholesale reverse mortgage director Peter Sciandra will run its wholesale and correspondent lending departments as senior vice president. The company also announced that Rhiannon Behnke will be promoted to director of business development.
Of the companies licensed under the Nationwide Mortgage Licensing System (NMLS) & Registry, 23 percent are now originating reverse mortgages, according to the latest data from NMLS. The total number of companies in the registry working in the reverse sector is 3,515, compared with 13,298 companies licensed to do first mortgage loan brokering and 1,376 FHA direct endorsement mortgages.
DEFERRAL LAW APPLIES TO REVERSE MORTGAGE LENDERS, BORROWERS
RUN S1L REVERSE MORTGAGE WHOLESALE
// March 8, 2012
6. REVERSE MORTGAGE VOLUME UP 4.9% IN FEBRUARY
Reverse mortgage volume was up 4.9 percent last month, according to HUD’s latest data. In February, 5,268 HECM loans were endorsed, making for the highest influx in the last five months. According to Reverse Market Insight, the high volume is unlikely to
LENDERS NOW ORIGINATING REVERSE MORTGAGES
// Feb 29, 2012
9. FINRA AND NCOA LAUNCH NEW WEBSITE FOR REVERSE MORTGAGE EDUCATION
Funded by the Financial Industry Regulatory Authority (FINRA), the National Council on Aging (NCOA)
Industry Update has launched a new consumer website focused on using home equity to aid retirement. The site, homeequityadvisor. org, discusses home equity options for seniors and is designed to help middleand low-income homeowners make informed financial decisions to plan for their future. // Feb 28, 2012
10. FHA RAISES PREMIUMS TO
BOLSTER MORTGAGE INSURANCE FUND
The FHA will implement higher mortgage insurance premiums to help boost the agency’s capital reserves. The changes will not impact HECMs, borrowers who already have an FHA-insured mortgage or special loan programs. The increase will apply to forward loans only and will take effect April 1. // Feb 27, 2012
11. HEALTH CARE COSTS
13. MAJORITY OF SENIORS
Home-related costs are the largest expenditure for people ages 50 and over, according to the Employee Benefit Research Institute. The spending category ranks even higher than health care, which came in second. On average, individuals over 50 spend around 40 to 45 percent of their budget on home and home-related items.
The majority of seniors have less than $10,000 in financial assets at life’s end, according to a recent Boston College report. The study also said that more than half of the senior population does not have any home equity at the end of their lives. While these seniors may have been deemed “prepared” for retirement, they would have little capacity to pay for unanticipated needs such as health care, or for entertainment or other leisure activities.
FOR SENIORS SKYROCKET, BUT HOUSING STILL NO. 1 EXPENSE
// March 5, 2012
12.AARP: REVERSE MORTGAGE ATTRACTING YOUNGER CROWD
HAVE LESS THAN $10,000 WHEN THEY PASS AWAY
// March 2, 2012
AARP said that nearly half of the seniors applying for reverse mortgages are now under the age of 70. In a recent bulletin, the association said that TV ads touting celebrity endorsements could be a contributing factor to this increase and that a substantial number of these loans were in default. // March 7, 2012
Repairs done … Ready to close! 3 We specialize in repairs needed prior
THE L E RESO NDER’S U GETTIN RCE FOR G MORT REVERSE GAGE S TO CLOS E
to closing
3 No repairs too large or too small 3 We finance our work and are paid at closing 3 BIHG works on a national level
BayState Independence Housing Group, LLC Repairs Done...Ready to Close
877.906.3946 | www.independencehousing.com reversereview.com
8 TRR
| 11
The Reverse Review April 2012
Three years of Client Surveys and
Those are major league stats.
Servicing that Honors a Lifetime
TM
R E VE R S E M O RT G A G E S E R V ICE R - CE L IN K .C OM
12
| TRR
(Full Borrower and Client Survey results can be viewed at celink.com)
7
Jessica Linn
Editor-in-Chief of The Reverse Review
an
th
ni
3/2012 P. Engelken
The Rise of Ginnie Mae
Reverse Mortgage Myths: Refuting the Fiction
H
app v ev er y er s se ar
er
4/2012 T.W. tozer
2 2 2
to
vi y ew
re
TRR celebrates
three years of coverage on the
reverse mortgage industry.
Review
3
Year in
a
big THANK-YOU TO OUR LOYAL READERS, WRITERS AND ADVERTISERS!
Thank You I would like to thank our valued community of readers, writers and advertisers for helping to make the magazine the leading publication for reverse mortgage professionals. Our dedicated staff works hard every day to bring you valuable content, insight and news to keep you informed of the numerous issues that continue to affect this ever changing industry. Without feedback and contributions from people like you, we would not be able to successfully accomplish this goal. Thanks for supporting us along the way!
Have you noticed a change in our look?
The Reverse Review continues to evolve its format and design to better serve our growing readership.
2/2012 H.W. Richards Another Historic Moment in Regulatory History
9/2011 D. Di Martino We are CIS
1/2012 e. Vannucci
11-12/2011 A. Valles
10/2011 k. scharf
The Changing Public Policy Landscape of 2011 and the Year Ahead
Who is Your Biggest Competitor?
Family Influence
7-8/2011 j. levonick
6/2011 j. mitchell
5/2011 s.b. Apanay
Dodd-Frank: Putting Reverse Lending on the Road Map
The Industry’s Message to Washington, D.C.
Taking Care of Seniors in Need reversereview.com
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The Reverse Review April 2012
THE HOT SEAT
20 things you need to know or may have been wondering APRIL 2012
the hot seat From what his parents taught him to what he believes to be the reverse mortgage industry’s biggest challenge, we get the personal and professional facts from Carl Rojas, CFO of Generation Mortgage, in our monthly edition of The Hot Seat.
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carl PERSONAL
Generation Mortgage CFO
>
You can’t always be everywhere; that’s why it’s important to
be surrounded by great people.
>
Ten years from now, Generation Mortgage will be
synonymous with reverse mortgage.
i can’t go without my iphone
>
My favorite magazine is Art in America. My wonderful fiancée worked there for 19 years.
>
The best job I’ve ever had is this one, CFO of Generation Mortgage. It’s extremely gratifying to be a
part of something so entrepreneurial. I love the idea that our decisions are shaping this industry. >
My parents taught me how to be polite. You’re never too old to be courteous.
>
Right now I’m listening to the Black Keys. I’ve never lost my love for alt rock.
>
I always say, “We (Generation Mortgage) only do one thing: reverse mortgages. And we do it better
than anyone else.” >
The most memorable moment in my life was when my son was born. I’ll never forget cutting the
cord and then holding him. >
Every morning I drink coffee.
>
I can’t go without my iPhone.
PROFESSIONAL >
The biggest challenge in the reverse mortgage industry is changing the public’s perception of the
product as one of last resort. >
The future of reverse mortgages is brighter than ever. We’re still a few years from the tipping point,
but the boomers will, in fact, turn out to be fervent users of the reverse mortgage. >
The greatest setback for our industry was when the bubble in home values burst.
>
Ten years from now the reverse mortgage industry will include many of the large players that
recently departed. >
The most fascinating thing about the reverse mortgage industry is the hyper pace of annual
change. Each year the industry seemingly makes itself over. >
Reverse mortgage professionals can best support the public image of reverse mortgages by
continuing to be ethically motivated and doing what’s best for our seniors. >
The most important thing financial advisors can learn about reverse mortgages is the nuances
of all of the product offerings. >
The biggest impact reverse mortgages offer to seniors is financial flexibility.
>
The most important thing seniors should understand about reverse mortgages is that it is a
mortgage collateralized by their home, so they will still have to pay taxes and insurance. >
I would encourage a family member to consider a reverse mortgage because for many people it’s a
wise financial decision. reversereview.com
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The Reverse Review
DEDICATED TO THE REVERSE MORTGAGE INDUSTRY April 2012
AMERICA’S REVERSE TITLE. OUR NAME SAYS IT ALL.
For more information, contact Bob Beverly, National Sales Director at: 16
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727.481.3626 EMAIL rbeverly@amrevtitle.com WEB www.amrevtitle.com DIRECT
Proud member of NRMLA
learn
legal
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Preparing for CFPB Scrutiny
examination, mortgage institutions should consider their compliance success with the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Home Mortgage Disclosure Act and the Equal Credit Opportunity Act. Particular attention should be given to fair lending matters, as the CFPB will focus on that area. The CFPB also intends to consider whether mortgage companies may be violating Unfair and Deceptive Acts and Practices statutes.
legislative servicing appraising
Once all of these matters are evaluated, compliance professionals, operations personnel and executive management should work together to establish an operations and compliance strategy. This strategy should be a roadmap for bolstering an entity’s compliance efforts. Doing so will better prepare mortgage companies for examination by the CFPB and their respective primary regulatory agencies. x
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spotlight
Institutions should also review their past examination reports, whether those reports were received from regulatory agencies or from third parties. The findings in those reports may identify deficiencies that require correction. When evaluating how to prepare for the CFPB and potential
secondary market
As a company prepares for future examinations, personnel must consider existing internal and industrywide best practices, as well as the historical compliance record for the company. For example, if all of an institution’s similarly situated peers have ceased using certain business practices, the company needs to re-examine its procedures, as it may be out of step with much of the industry and lead to compliance problems.
When reviewing past audits and examinations, companies should consider whether patterns of practice exist. If an entity finds that its audits continually demonstrate problems with Truth in Lending issues, this suggests that additional resources should be focused in that area. Companies should also consider the character of any violations cited in past examinations. For example, uncovering patterns of practice that reveal technical violations is certainly preferable to patterns of practice or violations that reveal issues that could result in consumer harm. After evaluating these matters, it is important for companies to take into account their past successes in correcting deficiencies. If examination reports rarely evidence repeat violations, this might suggest that an entity successfully meets necessary compliance obligations. On the other hand, if repeat violations occur, additional compliance resources may be appropriate.
underwriting
To begin evaluating whether your company is prepared for a CFPB examination, an initial dialogue between executive management, operations managers and the company’s legal and compliance personnel is necessary. During this initial dialogue, all parties should discuss and evaluate the entity’s risk profile. Afterward, the company’s legal and compliance professionals should review existing policies and procedures to determine whether revisions are necessary. To the extent that revisions are necessary, personnel should consider, among other things: ONE | the Mortgage Origination Examination Procedures released by the CFPB;
the CFPB’s Field Guide for its examiners; and THREE | the Multistate Mortgage Committee Examination Manual. These publicly available documents set forth the criteria that the CFPB and state examiners will use to evaluate regulated institutions.
TWO |
originating
T
he CFPB is aggressively moving forward with its examination of members of the mortgage industry. Ongoing examinations of financial institutions commenced in 2011, and the CFPB is expanding its examinations to nonbank institutions. Earlier this year, the bureau released its Mortgage Origination Examination Procedures, which is a supplement to the voluminous Examination Field Manual it released during 2011. Of further note, state regulatory agencies are fully committed to working with the CFPB to enhance supervision for both groups. With this in mind, it is important that all mortgage companies, whether regulated by federal or state agencies, take proactive steps to prepare for CFPB oversight. Those proactive measures will not only assist with any CFPB examination that occurs, but will also better prepare institutions for any potential examinations with their primary regulators.
legal
h ay d n j . R i c h a r ds , j r .
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The Reverse Review April 2012
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analyze
originating
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A State of Repair Alain Vall e s , CRMP
6
servicing appraising
The repair estimate guidelines are straightforward and generally include: 3 The contractor must meet all state and local
requirements.
spotlight
Although this list is by no means exhaustive, common repair items include ceiling water damage, which is a sign of a leaking roof, visible roof issues, water staining or standing water in the basement, cracked windows, rodent droppings, insect damage, mold, and everyone’s favorite: peeling paint. Fortunately, unlike forward mortgages,
For most reverse mortgage lenders, required repairs are determined by the underwriter based on the appraisal. Sometimes additional inspections are required; for example, a structural engineer may be needed if there are sagging floors or cracked foundations. The repair estimates must come from appropriately licensed contractors, with the exception of minor repairs noted by the appraiser.
legislative
Many seniors have lived in their homes for decades and minor deferred home repairs, such as missing chimney flashing, can turn into major expenses. The potential for home repairs should be discussed with all clients to educate them about the process. They should be aware that the exact list of required repairs is not usually known until after they have incurred the cost of counseling and appraisal.
secondary market
However, at the underwriter’s discretion, certain repairs that are safety or hazard issues must be completed prior to closing. For example, my clients have been required to fix deck railings or block the door leading to the deck, install handrails and secure pool fencing. The upfront, out-of-pocket expense is challenging for some seniors, but the liability risk would be too great if the loan closed and an injury occurred before the repair was completed.
underwriting
Required “Repair Set-Aside” Guidelines
*
originating
most repairs may be completed after the loan closes. A repair set-aside is established, the funds necessary are escrowed from the proceeds of the reverse mortgage and a repair rider is added to the loan agreement.
legal
I
always prefer to meet clients at their homes; my internal alarm goes off when a senior is adamant about meeting at my office or elsewhere. When that happens, more often than not, I’m going to have a property issue.
3 The contractor must provide only one bid
per repair item. 3 The bid must be specific and detailed to the repair. 3 The bid must be on company letterhead with the
name of the contractor’s representative, as well as his address, phone number, license number and subject property address. 3 The bid must be signed and dated by a company
representative. 8
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The Reverse Review April 2012
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originating Most lenders prohibit do-it-yourself repair work and family-related contractors. The risk of the work not being completed is too great.
I’m not surprised when this occurs because a senior with a high current mortgage is often struggling to make ends meet, let alone have funds available for home repairs. Sometimes the actual repair cost or the 150 percent set-aside amount will exceed the maximum available reverse funds. I’ll encourage my client to involve other family members to fund the repairs. From a financial aspect, this may minimize future financial support from family members, protect the property’s equity, and in the event of moving, result in higher resale value.
Not all property condition issues are negative or required. I’ve had several clients with beautiful homes who want to make upgrades. They’ve decided to remain in their home for the rest of their lives and want to redo the kitchen, a bathroom, or finally add that three-season sunroom instead of moving to Florida.
The key to repair set-asides or optional home improvements is to make sure every client is fully educated about the requirements and process. Related loan processing stress is always minimized when working with a knowledgeable senior. x reversereview.com
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spotlight
On a lighter note, I had a wife keep telling me she would not schedule the appraisal until her attic was cleaned out and I kept telling her that was not a requirement. This went on for months until one day she called and said her husband finally cleaned out
Hoarding
appraising
I’ve had more than one client with a hoarding habit, which may cause valuation issues. One might not think of hoarding as a repair set-aside issue, but it becomes apparent when there are hundreds of cardboard boxes stacked in a wet basement acting as giant sponges that create a horrendous smell of mildew and mold. My approach is to invite the family to attempt a heart-to-heart conversation with the senior about the problem.
I’ve met with contractors to educate them about senior home issues. One common example is the need to make a home handicap-accessible. Sometimes, seniors settle for the less intensive solutions: installing an unattractive sloping wheelchair ramp, turning the lower-level family room into a bedroom, or installing a curtain instead of a door to let a wheelchair pass into the bathroom. For seniors whose homes are in need of repair, a reverse can offer the funds necessary to make such changes. A sloping brick walkway, a stair-lift to the second floor, refitted door knobs, proper kitchen and bathroom wheelchair counter heights and other handicapfriendly features can not only help improve the quality of life, but may actually increase the value of the property when the home is sold to future seniors.
g
*
servicing
We had a borrower with a “skylight” in her bedroom. The problem was, the “skylight” was literally a hole in her roof. When it rained, the water would run down the walls, resulting in major damage, including mold. She had no mortgage and no insurance. It was unlikely we were going to be below the 15 percent repair limit and gave up trying once we learned she had no property insurance and none
Optional Home Improvements
legislative
Repairs exceed the 15 percent maximum claim threshold and there is no homeowner’s insurance:
g
Repairs are less than 15 percent of the maximum claim, but there are insufficient funds due to the size of the current mortgage: g
secondary market
Yes, it’s critical to understand underwriting guidelines, but I’m always focused on how guidelines will impact the ability of my borrowers to close their loans. Hopefully you’ll find the following examples and their solutions helpful.
the attic. Again, I told her that was never a requirement, at which point she said she knew that all along but had told her husband it was in order to get him to empty out all of his clutter.
underwriting
Lessons from the Field
was available because of the house’s condition. My solution was to engage a trustworthy contractor willing to complete the entire job with no upfront money and to be paid after the loan closed.
originating
Seniors must be informed that the lender will also charge a repair administration fee of 1.5 percent of the total bid, usually with a minimum fee of $50. Once the work is completed, a final inspection and associated fee conclude the repair set-aside process. You should discuss with your reverse lenders and appraisal management companies their particular repair guidelines.
Fortunately, unlike forward mortgages, most repairs may be completed after the loan closes. A repair set-aside is established, the funds necessary are escrowed from the proceeds of the reverse mortgage and a repair rider is added to the loan agreement.
legal
The repair set-aside is calculated as 150 percent of the total contractor and appraiser estimates. The additional amount is reserved to cover any potential repair shortfall. Once the work is complete, any remaining funds are added to the reverse credit line. The maximum repair set-aside is typically 15 percent of the maximum claim amount. This has been problematic for me in cases where a senior had no mortgage but was unable to close because the repairs exceeded the limit.
Acco r d i n g to Alain
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The Reverse Review April 2012
To Move Forward, Work In Reverse Join a winning team in a growing industry
To learn more about becoming a reverse mortgage advisor, scan the image below or visit
www.genworth.com
22
© 2012 Genworth Financial Home Equity Access, Inc. 10951 White Rock Road, Suite 200, Rancho Cordova, CA 95670 • NMLS # 3313 | TRR (800) 218-1415 • For a complete list of licenses, visit: www.genworth.com/reverse/licenses W-030612
Assess
Underwriting
3 No evidence of paying off mortgages for a borrower other than the loan applicant
3M onths that the borrower spends in each home, and a note if the borrower splits his time between multiple homes 3S igned 4506T authorization to pull tax returns 3C opy of a recent Social Security benefits awards letter, or a copy of the monthly Social Security check mailed to the subject property
3 A detailed LOE from the borrower addressing recent title deeding
3U tility bill statements covering the period since they were deeded on the title with mailing address match verification
3 Proof of residency for the period evidenced by payment of housing tax and insurance expenses
3B ank statements covering the most recent period showing transaction history
3 Documentation of the date the borrower moved into the subject property and title evidence
3A n LOX if mail is routed to a post office box that is not within a reasonable distance of the subject property
3 An explanation of the status and disposition of the previous property the borrower occupied 3 Explanation of any alternative addresses reported on the credit report, including details on whether the borrower owns the property or not
Going to the source
3A state-issued picture ID verifying the subject property address Establishing seasoning and occupancy is a key element to mitigating fraud risk. While this is not an all-inclusive list and the underwriter may request additional documentation, it is important that files are properly processed to provide this support for successful underwriting file approval. x
spotlight
3 The current use of any other property the borrower owns and applicable documentation, such as rental agreements and evidence of sale
3A physical third-party occupancy inspection
appraising
3 A list of all other properties the borrower or spouse owns
*
servicing
Day-range parameters for lenders who have developed overlays to the basic HUD no-seasoning requirement are included in the underwriter’s file
For most lenders, documentation needed to support seasoning and occupancy issues includes:
3F uture occupancy intentions of the borrower
legislative
There are, however, specific benchmarks for occupancy that must be determined and verified, and must meet satisfactory risk underwriting so that lender/investor representations and warranties can be insured.
3E xplanation of any address discrepancies in the file
secondary market
HUD does not have a seasoning requirement. That is, there is no minimum time requirement for property ownership prior to closing. Individual investors have seasoning requirements that can range from zero to 90 days, to six months to a year.
For example, a borrower who is deeded on a title 30 days prior to application would meet the seasoning test for some lenders. However, when questions about occupancy arise, the transaction could fail because there may not be enough proof that the borrower will occupy the property as their primary residence at a minimum of 183 days per calendar year.
underwriting
W
hen it comes to a reverse mortgage, the true definitions of seasoning and occupancy continue to puzzle many. Partially due to a lack of HUD guidance and individual investor interpretation, conflicting ideas about these two issues have emerged and caused confusion in regard to the underwriting process. It is important to separate the two issues and understand the pathway to successfully meeting the underwriting test for both.
3E xplanation of any property attached to other mortgages on the credit report
originating
Ralp h ro s y n e k
as part of the approval process by reviewing support documentation and processed verification results.
legal
Understanding Seasoning and Occupancy
Like what you see? Find all of our archived articles about underwriting at reversereview.com.
HUD does not have a seasoning requirement. That is, there is no minimum time requirement for property ownership prior to closing.
reversereview.com
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The Reverse Review April 2012
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| The TRR
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HMBS
secondary market
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substantial price depreciation throughout 2011, and this trend will likely continue, barring materially better servicing performance.
Prepayments dipped 18 percent month over month after a similar increase the month before. 2009 fixed rates came in at roughly 50 percent of HPC with floating rate coming in at roughly 35 percent. There may be some scheduled prepayments mixed into these numbers, so involuntary speeds are likely a few percentage points below the numbers quoted.
*
secondary market legislative
2010 fixed rates came in slower at 36 percent of HPC as a whole, with floaters at 66 percent of HPC. It’s no mystery why these bonds have been have bid well in the secondary market—speeds are much slower than originally expected and lower prices create a neat cash flow profile with the 98 percent buyouts dominating future cash flows.
servicing appraising spotlight
With Yieldbook (YB) on board now (kinks are still being ironed out), we expect YB Option Adjusted Spreads for HECMs to be close or through the nominal spread at 100 HECM
HECM Saver production still trades behind Standard production, but there’s been a notable tightening of the gap recently. For production levels to increase meaningfully, originators need to better market the Saver to this class of borrowers. Given recent price g oing to the performance, sour ce wholesale and correspondent pricing should increase and HECM Interest Only (IO) demand help create has remained supply. Nonrobust, with an agency HECM appetite for a lot MBS remain more than what at historical is being created. There’s also been wides and may several hundred deteriorate million dollars further due of secondary to higher flow in the past than expected several weeks as investors losses for have gotten very bondholders. strong liquidity These 2006 and and have taken 2007 securitized capital gains. deals experienced
underwriting
O
Prepayment Curve (HPC), although this depends on base case speed assumptions.
ver the past several weeks, Ginnie Mae reverse mortgagebacked securities (GNMA MBS) have performed well across the fixedand floating-rate product. Generic fixed-rate spreads have tightened on the order of 45 basis points during 2012, with rates trading in a tight range (slightly lower). Directionally, floating rate HMBS initially lagged behind their fixed counterparts, but spreads have rallied by 20 basis points in the past few weeks. HECM Interest Only (IO) demand has remained robust, with an appetite for a lot more than what is being created. There’s also been several hundred million dollars of secondary flow in the past couple of weeks as investors have gotten very strong liquidity and have taken capital gains. Most of the agency MBS universe remains between negative and 30 Libor Option Adjusted Spread (LOAS), so even with the recent tightening, there’s a case for more of the gap between forward and reverse MBS to close in the very short term.
originating
Da rre n S t u m b er g er
legal
HMBS Trading Tighter
February HMBS volume ended up at roughly $760 million with the top five GNMA issuers split between MetLife at 33 percent market share, Knight/Urban at 28 percent, RMS at 20 percent, Generation at 10 percent and Sunwest at 4 percent. In regard to securitized transactions, there’s been $325 million of HECM Collateralized Mortgage Obligations done in the first two months of the year; expect another three or four transactions in March.
2011 fixed speeds have begun to slow down after paying 70 percent to 75 percent of the ramp throughout the year. In terms of the macro landscape, higher gas prices, Middle East tensions, Greece’s economic problems, gridlock and uncertainty in D.C., and the continued decline of home prices should keep growth challenged and rates bid well in the five-year point of the curve. x reversereview.com
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The Reverse Review April 2012
monitor
legislative Update from Capitol Hill H. W e s t R ic h a r ds
Want to comment on this article? Comment online at reversereview.com.
and Urban Development.” Witnesses included five assistant secretaries from the Department of Housing and Urban Development and the hearing focused on the potential insolvency of the Federal Housing Administration’s capital reserve fund and the proposed budgets for housing assistance programs in fiscal year 2013. Both witnesses and representatives stressed that HUD must learn to operate with a smaller budget.
Senate Banking Committee Holds Hearing on State of the Housing Market
A
s we approached the first week of March, both the House and the Senate held key hearings on the issue of housing. The significance of these hearings was substantial. While the Senate tackled the overall state of the housing market, the House tackled the potential insolvency of the FHA Mutual Mortgage Insurance (MMI) and, in particular, the MMI’s capital reserve fund. Ultimately, both hearings focused almost entirely
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on the solvency of the FHA. Obviously, this is an issue the reverse mortgage industry must continue to follow. Here is a summary of the hearings that took place:
House Subcommittee Holds Hearing on Oversight of HUD On Tuesday, February 28, the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity held a hearing titled “Oversight of the Department of Housing
Also on Tuesday, February 28, the Senate Banking and Housing Committee held a hearing titled “State of the Housing Market: Removing Barriers to Economic Recovery, Part II.” HUD Secretary Shaun Donovan testified about the administration’s refinancing plan, which extends eligibility to mortgage owners who have been paying their monthly mortgage and who meet other requirements to refinance. Secretary Donovan outlined the importance of refinancing to help Americans build equity and to improve the U.S. housing market. Federal Reserve Board Governor Elizabeth Duke and Federal Housing Finance Agency Director Ed DeMarco also spoke on the importance
of refinancing options for homeowners. Both agreed that the worst thing for the housing market right now is continued foreclosures. Both stressed that avoiding foreclosures assists all homeowners by creating market stability in pricing. According to those in attendance, what originally began as an economic analysis by a University of Pennsylvania professor quickly developed into an all-out inquiry into the financial solvency of the FHA. Ultimately, it was a culmination of testimonies and audits that put the agency’s possible need of a taxpayer bailout at 50 percent. With the FHA growing its loan support in the marketplace from 3 percent to 33 percent in recent years, and with housing being the driver of most (if not all) economic recoveries, the idea of an unstable, potentially insolvent FHA is indeed a disturbing one.
Summary The FHA guarantees loans to homebuyers with relatively low interest rates and down payments. The agency’s role in homebuying has never been more important in the wake of tightening credit standards at private banks and the soaring demand for FHA financing. Despite this, all of the costly boom-era, subprime loans on the agency’s books are wreaking havoc on its balance sheets, fueling
legislative concerns that the FHA will need a Fannie Mae/ Freddie Mac-style bailout from taxpayers.
“The FHA is not broke,” Galante said to the lawmakers. ”It would take very significant declines in home prices in 2012 to create a situation where the FHA would need additional support.” x
servicing appraising spotlight
Considering the ever changing landscape of the reverse mortgage industry, a concern is gaining steam: homeowner associations and their ability to charge excessive fees for nonpayment of monthly dues. In some states, they even have the ability to eliminate first lien position with a lender and potentially force foreclosure and tax deed sales. One must now do extensive research to investigate these HOAs as they change board members annually, change management companies more often than
*
legislative
Funds at the FHA had been operating under precarious circumstances. In 2008, the agency’s
secondary market
The premium changes would assist the FHA in gracefully exiting the pre-eminent role it has uncomfortably played in the mortgage markets since 2008. The FHA currently has an elevated market share of 32 percent, and in 2009, it endorsed $360 billion in new mortgages. That number fell to $236 billion in 2011, and the agency intends to decrease it further to $150 billion in fiscal 2013.
Just when analysts were predicting a bailout of the agency, though, the mortgage settlement between the state attorneys general and the nation’s five largest banks arrived, and as part of the agreement, the banks injected $1 billion into the FHA’s capital reserve fund to compensate for the monetary damages due to fraud and foreclosures. Although many credited the settlement for saving the agency’s books, the premium hikes suggest the FHA is not taking its return to solvency for granted.
underwriting
“After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” Galante said.
MMI fund fell below the 2 percent threshold Galante referred to, mostly because of a growing number of distressed properties on the FHA’s books. In 2011, it fell to 0.2 percent, a level that inspired many to warn of an impending insolvency for the firm.
originating
The FHA has made attempts to raise its revenue. Since 2010, it has raised insurance premiums three times, which are the primary revenue method for the agency. There is a definite limit, though, to how high the rates can be raised, Donovan said. Raise premium rates too aggressively, and fewer prospective homebuyers will have access to FHA financing. The fewer who can access financing, the fewer homes will be sold, further driving down prices in an already delicate housing market.
The FHA has officially announced that in an effort to boost its MMI, it will raise its insurance premiums in April. Acting FHA Commissioner Carol Galante said it will raise premiums from 1 percent of the base home loan amount to 1.75 percent, regardless of the loan’s term or LTV ratio. The percentage is based on funding measures authorized by Congress’ latest payroll tax-cut increase and will add an additional $1 billion to the FHA’s insurance fund, as the annual insurance premium will rise by 10 basis points for loans under $625,500 and 35 basis points for loans above. Both reverse mortgages and special loan programs will be exempt from the
changes. Galante said that the premium increase was primarily instituted to meet congressionally mandated thresholds for FHA solvency.
legal
HUD Secretary Donovan testified before the House Financial Services Committee back in December of 2011 that although the FHA’s finances are worrisome, he remained confident about how the agency was operating. His comments instigated a wave of harsh feedback from Republicans and Democrats alike, who said the agency was in denial.
A recent FHA audit predicted that upcoming losses on the agency’s $1.1 trillion balance sheet would leave just $2.6 billion in reserves for the next 30 years, which account for only 0.24 percent of the agency’s mortgages. Although federal law requires reserves to be at 2 percent of mortgages, the FHA has exceeded that limit in the past two years.
not, and basically do not publish their data on any public real estate news source. There are new companies building platforms to support the pathway to HOA databases and this will eventually be a great resource. Until these databases are complete, be diligent in your research and take a chill pill as the HOAs are not always the happy guys on the other end of the phone. Have a question for this column? Email information@reversereview.com.
reversereview.com
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The Reverse Review April 2012
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Have a question for our servicer? Email us at information@reversereview.com and your question will be answered in a future issue.
What Happens After a Reverse Mortgage Closes? – Part I Rya n L aR o s e
Some servicers have found it useful to provide information to new borrowers that answers frequently asked questions and provides them with an overview of their responsibilities once the loan has been closed. This booklet provides new borrowers with a wealth of information, and borrowers can save it for future reference too. In addition to welcoming borrowers to the reverse mortgage experience, servicers will answer all of the questions that arise post-closing, as well as those raised to borrowers by well-meaning relatives and friends. The importance of confidence and sensitivity on the part of the servicer as the borrower moves forward from closing cannot be underestimated and should never be undervalued.
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Going to the source
secondary market
Let’s move forward in the typical life cycle of the reverse mortgage as it is passed to the servicer. The sales and closing process of a reverse mortgage can often take up to six months, sometimes even longer. When the servicer receives a loan after closing it is being entrusted with a valuable asset that will be in its possession an average of seven years. There are multiple touch points that frontline industry professionals will have with
underwriting
A great deal has been written about the origination process of reverse mortgages, and appropriately so. Counselors, loan officers, processors, underwriters and closing/title agents are the first points of contact for
the borrower. These first points of industry contact shape the reverse mortgage experience for every borrower. It is the responsibility of these individuals to ensure that the borrower has an understanding of the product, that the origination documents are properly executed, and that everyone is working hard to ensure that borrowers have a pleasant experience.
originating
With a forward mortgage, borrowers rarely interface with their servicer and several forward mortgages may be held throughout one’s lifetime. With a reverse mortgage, servicing functions for the majority of borrowers will proceed without incident for the life of the loan. For others, phone calls to a service center will initiate shortly after the loan is closed and will continue for the life of the loan. Reverse mortgages will typically be held through the remainder of the borrower’s life and through a period of life—retirement and beyond—that is being redefined every day.
These touch points begin with the servicer’s initial contact with the new borrower. On forward loans, a call from the borrower may be as brief as 45-60 seconds. Not on the reverse side! In the reverse world, borrower calls can average four to six minutes and it is not uncommon for these calls to go on for 30-plus minutes. In the aftermath of years of turbulence in the housing industry, a senior borrower requires more explanation and more patience, and those of us who service this product understand and accept this responsibility willingly.
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t’s no surprise that forward mortgages differ in many ways from reverse mortgages, and the servicing responsibilities involved in both processes reinforce those differences.
borrowers in the origination process, but they are far fewer than the touch points a servicer will have with the borrower over the life of the loan.
The next installment in June’s issue will explore customer service and statement processing. Stay tuned! x
With a forward mortgage, borrowers rarely interface with their servicer and several forward mortgages may be held throughout one’s lifetime. With a reverse mortgage, servicing functions for the majority of borrowers will proceed without incident for the life of the loan.
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The Reverse Review April 2012
value
appraising
Have a question about appraising? Email us at information@reversereview.com and your question will be answered in our next issue.
Appealing an Appraisal Bria n F o rbe s
Y
ou know the situation: You have your application ready to go to the lender. The only thing you need is the appraisal report and your file can be submitted. The appraisal report comes back, you go through it and the value isn’t even close to what you expected. Now you have to break the bad news to your borrowers. Plus, you’re sure that the appraiser didn’t give this evaluation a fair shake. After all, your borrowers have done so many improvements to
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their property, and you even had a real estate agent run listings and comps and found the value to be much higher. Since you can’t contact the appraiser directly to question him about his valuation, you contact the AMC and tell them that you are questioning the value and want to appeal the appraisal. How does an appeal request actually work? Can an appraiser change the value of an appraisal report? How can you improve your chances of getting the appraiser to seriously consider a modification?
Generally speaking, the appeal process in the appraisal business is not intended for changing value simply because the borrower or broker may be dissatisfied with the outcome. The appeal process is intended to address actual errors in the reporting of data or in the selection of suitable comparables in the report, resulting in an inaccurate value opinion or major underwriting conditions. But there are occasions when an appraiser doesn’t have access to information regarding one or more usable comparables and
therefore wasn’t able to include them in the report. If these comparables would make a difference, then the appeal process allows the client the opportunity to get this vital information to the appraiser for review and perhaps even reconsideration. In order to appeal an appraisal report, you must complete an appeal request form that can be provided by your AMC and include any comparable data that might call the appraisal into question. Once the form is received by the AMC’s appeal department,
The appeal process is intended to address actual errors in the reporting of data or in the selection of suitable comparables in the report, resulting in an inaccurate value opinion or major underwriting conditions.
appraising the appraiser is forwarded the form and supporting documentation with a request from the AMC to address the issues outlined in the appeal and respond. Most appraisers will respond to the appeal with notes in an addendum to the original report and resubmit.
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underwriting
In most appraisal complaints, a borrower claims that the reports don’t take into consideration all of the improvements made on the home, and that the assessed value is higher than the appraisal report. Borrowers and
The sole reason that a lender requires Also, be sure to leave your emotions a market approach appraisal is to give out of any communication. More often him an idea of what your borrower’s than not, appeal requests property could will be received with harsh reasonably sell language, name calling and for if it had to Acco r d i n g t o critical comments about be taken back Brian the appraiser and how he and sold on the performed the inspection In most appraisal market today. or put together his report. The appraisal is a complaints, a The old adage “You can snapshot of what borrower claims catch more flies with honey your borrower’s that the reports than with vinegar” certainly house is worth don’t take into applies here. A well-spoken, in relation and consideration all of courteous request for review response to the will motivate your appraiser the improvements surrounding to take a compassionate market. made on their second look at the report. home, and that the There are several assessed value is By being professional in things you can higher than the your appeal request and do to increase researching recent sales your chances appraisal report. early on, you may be in for a successful Borrowers and a better position to set outcome of brokers need to reasonable expectations an appraisal understand that for your borrower and for appeal. The most an appraisal for yourself. If you prepare important thing lending purposes properly, you will have is to complete comps ready to submit for thorough research is not based on the consideration in the event from the very cost approach in that the appraisal is much beginning, the same way that lower than you expected. even before an appraisals for appraiser is Most appraisers will give assessment or assigned. If you careful and thoughtful insurance purposes have access to consideration to additional MLS data, you may be. comps and other evidence of can easily use the market valuation during the database to find appeal process. In general, information on the appraiser will do his recent comps. If absolute best to turn out a you don’t have quality product the first time this resource, you around and is often aware may use sites on that there may be market the Web, such as information that he has Zillow or missed. x Realtor.com, and focus on the recent sales information. When using these
originating
Because the appraisal process continues to become increasingly regulated, there are changes that drastically affect appraisers’ decisions in terms of what comparables they use in their reports, as well as the adjustment formulas and percentages they will make on comparables. For example, if there are a large number of foreclosures or REOs within a subject’s market area, the appraiser must use them, even if there may be comps of higher value that are farther away in distance or a little older (please see “Ask the Appraiser” in The Reverse Review, March 2012, page 27).
sites, be sure to ignore any indication of actual value. Remember to look at the big picture when you do your research. When you select comps, don’t just select ones that obviously fit your goal.
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An appraiser can change the value in an appraisal under certain circumstances, but it isn’t done very often. The fact is that most appraisers do a competent job the first time around, though you may not believe it at first. You have to remember that the appraiser may go through as many as dozens of comps before they complete an inspection of the property. In most cases, when you appeal and send additional comps for consideration, the appraiser has already reviewed them but decided they were not appropriate at the time. Appraisers will use comparables that give an “apples to apples” comparison of the subject property and relate to current market conditions. Comps they use tend to be the closest in distance to the subject property, the closest in room count and gross living area, and the most recent in terms of dates sold.
brokers need to understand that an appraisal for lending purposes is not based on the cost approach in the same way that appraisals for assessment or insurance purposes may be.
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The Reverse Review April 2012
spotlight article Here’s a look at the home repair side of the industry from two key players in the market.
April on editi
1W
Maria Schulze Baystate Independence Housing Group
hen an individual applies for a reverse mortgage, the first story application must be approved by the FHA, which requires the home to meet specific health, safety and soundness standards. This can be problematic, as most homeowners applying for reverse mortgages do so because they are short on funds and often lack the money to address essential home repairs. Furthermore, many homes may require repairs that exceed the 15 percent allowable for escrow. (If the repairs do not involve health and safety issues and are under 15 percent of the appraised value, they can be escrowed.) Many times, lenders will set aside 150 percent of the estimated repairs. But with values where they are, there is often not enough equity to make this happen.
The Right Contractor for FHA Compliance In these situations, homeowners can seek help from general contractors who specialize in repairs for noncompliant FHA reverse mortgage properties. Such companies are familiar with the nuances of FHA-backed mortgage loans, educated in the reverse mortgage process and sensitive to the issues facing seniors as they go through the process of obtaining a reverse mortgage. They often provide general contracting, project management and bridge funding to facilitate noncompliant loans.
This month’s Spotlight features insight from leaders in FHAcompliant home repair.
Want to see more articles like these? Go to reversereview.com.
Operation Renovation //
In order to obtain a reverse mortgage, a borrower must address any needed repairs to meet FHA standards. Here are some pointers from expert contractors fluent in this specific kind of compliant renovation.
Homeowners can seek help from general contractors who... are familiar with the nuances of FHA-backed mortgage loans, educated in the reverse mortgage process and sensitive to the issues facing seniors as they go through the process of obtaining a reverse mortgage. 32
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I have helped dozens of seniors complete the renovations their homes need in order to obtain a reverse mortgage. One loan that comes to mind involved a single woman whose home needed a large amount of work, including plumbing, wall repair, painting and deck work. Her grandchildren were coming over in less than a week, and she hadn’t seen them for a couple of years. We were able to come in and take care of all her repair needs in time. She called me, crying, to thank us for making her home safe and sound for her family. My experience illuminates how important it is for seniors in need to work with a specialized contractor who is willing to go the extra mile to ensure they can age comfortably in their homes.
Bridge Funding These specialized contractors will not only renovate and repair the home, they will provide bridge funding to support the construction. This means that the
spotlight article homeowner will not incur any upfront, out-of-pocket expenses as they work to achieve FHA approval, and won’t have to struggle to handle the cost of repairs. Instead, the contractor will cover the expense, and the homeowner will commit to repaying the cost when the reverse mortgage loan closes.
Fidelity Homestead Associates Acc or ding to Ma r ia
The Process
t this point, essential repairs are addressed. The most A common repairs for noncompliant homes are often related to the structure’s foundation, mold and lead paint remediation, leaking roof and water damage, the absence of a heat source, inadequate electrical systems, local and state code violations, and inoperable doors or windows. Other renovations include retrofitting the home to address accessibility issues, such as grab bars, hand rails, ramps and wider doorways.
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nce the repairs are finished, the borrower must sign a O completion report. Final documents are then sent to the loan officer and the lender’s title company to ensure that all documentation is properly processed and ready to take to closing.
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nce the home is determined to be FHA-compliant, the loan O officer can finalize the application for the reverse mortgage and, ideally, obtain approval. When the mortgage funds come through, the contractor is paid for the home’s repairs at closing.
In Closing I have helped many seniors through the renovation process so that they can obtain much-needed funds from a reverse mortgage. I have seen firsthand how many senior homeowners need our assistance. Each story is different; I listen to each one, find out how I can help and then—together with my crew—work to help that senior achieve his goal. I take great pride in knowing that each day I am making a difference in someone’s life. I am helping seniors all across the United States stay in their homes—their safe and comfortable homes. x
In Need of Repair
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In some cases, homeowners who seek reverse mortgages are also saddled with excessively high property taxes. It’s important to note that a visit to the tax assessment office might help solve this issue. A reverse mortgage holder can often register as a senior property owner with limited income and potentially receive a credit toward his taxes that would alleviate the burden of this expense.
appraising
Tax Assessment
This disconnect is exactly what gave rise to contractors who address the need for home repairs so that loans can be efficiently executed. The companies assist loan officers so that they can successfully close “problem” loans and provide homeowners with a trusted and qualified team to handle the required home repairs and renovations.
servicing
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he contractor will present a proposal for repairs, typically within T 48 hours. Once that proposal is approved, the repairs should be scheduled immediately so that construction can get under way.
secondary market
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discuss the home’s repair needs to qualify for FHA loan approval.
underwriting
A homeowner or the loan officer contacts the contractor to
originating
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The most common repairs for noncompliant homes are often related to the structure’s foundation, mold and lead paint remediation, leaking roof and water damage, the absence of a heat source, inadequate electrical systems, local and state code violations, and inoperable doors or windows.
n today’s market, loan officers and mortgage companies are often licensed to do business in several states. Because of the physical distance between the parties involved, there is rarely an opportunity for the loan officer to personally visit the property at the beginning of the process. As a result, loan officers often overlook essential repairs that are required to close the loan. The need for renovation is sometimes not discovered until they receive an appraisal, at which point a significant amount of time and money has already been invested.
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Here’s a rundown on the steps to achieving FHA compliance:
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second story
Many seniors are turning to reverse mortgages as a much-needed source of income so they can keep their home. Seniors who have not been in the financial position to upgrade and repair their homes for many years before this opportunity rarely know a trusted contractor to assist them. 8 reversereview.com
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The Reverse Review April 2012
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spotlight article loan officers about how helpless they felt because they were unable to get repairs done prior to closing and help restore normalcy and dignity to these people’s lives.
underwriting secondary market
In any case, repairs to the property may be needed in order to close the loan. Generally, the responsibility to locate, research and schedule contractors to visit the property and provide an estimate for repair will fall on the loan officer or the processor. Sometimes loans are lost due to program or rate changes that occur while the loan officer is still working to obtain an estimate for repairs.
Other times, loans are shelved and forgotten because the loan officer is occupied closing “easier” loans that do not require the extra steps incurred by the need for repairs. Overseeing the repair of a property under consideration for a loan can be extremely time-consuming and frustrating for the loan officer and the homeowner. This valuable service enables loan officers to delegate the repair process to a renovation expert so they can concentrate their efforts on procuring and closing loans. x
originating
In other cases, underinsured or uninsured seniors have been displaced by hurricanes or other natural disasters. In these instances, the repairs are significant and essential because of basic health and safety issues. Required repairs can sometimes exceed the amount allowable by a repair set-aside and must be completed before closing. We’ve heard many stories from
legal
These contractors are screened to ascertain integrity and are required to be licensed and insured in their trade. They are all part of a limited county/ parish rotation designated by the service they provide and are contractually bound to give a fair and professional repair estimate.
legislative servicing
Do you have what it takes?
THE
REVERSE review
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spotlight
Email information@reversereview.com to start the conversation and possibly see your name in print!
appraising
It takes a lot to create an attention-grabbing, informative article and we know there are people out there who can get the job done. The Reverse Review is on the hunt for contributors to join the team and be a part of the industry’s premier publication.
The Reverse Review April 2012
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by
Theodore W. Tozer President of Ginnie Mae
The
Rise Ginnie Mae of
How mortgage-backed securities changed the investment landscape and what’s in store for the HECM program
photo by joshua roberts reversereview.com
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The Reverse Review April 2012
numbers
HMBS volume hit a program high in December 2009 with
nearly $1.6 billion in securities... 2010 was a record year, with nearly $11 billion.
I
t has been more than five years since Ginnie Mae entered the reverse mortgage market with its Home Equity Conversion Mortgage mortgage-backed security (HMBS). The Ginnie Mae HMBS program has had a significant impact on our industry by generating liquidity and a long-term option for secondary market execution. In addition to enhancing liquidity, our goal in creating the program was to lower interest rates for borrowers, thus helping Ginnie Mae fulfill its mission of providing affordable housing opportunities. Since October 2007, Ginnie Mae has guaranteed more than $30 billion in HMBS securities, providing a safe, secure secondary market for the Federal Housing Administration’s HECM program. In recent years Ginnie Mae has clearly dominated the secondary market in reverse mortgage financing. Fannie Mae, at one point the only investor purchasing HECMs, has stepped away from the reverse mortgage market. Fannie Mae’s share of the total market of outstanding reverse mortgage loans was approximately 90 percent in December 2008. However, by September 2009, that had fallen to 10 percent. Fannie Mae’s change in pricing strategy in early 2009, coupled with changes in market conditions, played a significant part in its decreasing role. In addition, reverse mortgage lenders started issuing securities through Ginnie Mae’s HMBS program. The Ginnie Mae HMBS program began slowly after its announcement in 2006. The first loans were not securitized until November of the following year by Goldman Sachs. This delay was caused by the intensive Ginnie Mae HMBS issuer approval processes and the necessity to provide issuers enough time to understand and learn our program. The program continued to move slowly, averaging less than $136 million per month in securitizations until May 2009 when issuance hit $262 million, and consistently continued to show growth. By that time the economic upheaval was well under way. The single-family and multifamily housing markets were beginning to feel the impact of the credit crunch; homes were rapidly losing value, and even credit-worthy borrowers had trouble securing loans. Similar stresses were occurring in the reverse mortgage market. Many older Americans were beginning to lose much of their retirement savings in the economic collapse, and 38
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the only viable vehicle to obtain funds was through the equity in their homes. HECM originations began to dramatically increase in 2009, which translated into soaring securitization volume for Ginnie Mae’s program. Ginnie Mae’s yearly HMBS volume increased from $1.36 billion in 2008 to $8.54 billion in 2009. For the first time in the program’s history, HMBS volume crossed the $1 billion threshold in just one month’s time, hitting a program high in December 2009 with nearly $1.6 billion in securities. The momentum continued: 2010 was a record year, with nearly $11 billion in securitized MBS. HMBS volume in 2011 was down slightly, finishing just under $10 billion for the year. Although the Ginnie Mae program has existed for only a few years, it has significantly changed the dynamics of the reverse mortgage industry and has been successful in providing a viable secondary market alternative to Fannie Mae. The reasons for the success of the Ginnie Mae HMBS are clear. It is an attractive investment opportunity that carries the full faith and credit guarantee of the United States government, the same as any other Ginnie Mae MBS. The HMBS enjoys the superior liquidity and execution of the Ginnie Mae securitization program, and the security is insulated from the risk of tax and insurance defaults—risks that are borne by the HMBS issuer.
$
Since October 2007, Ginnie Mae has guaranteed more than $30 billion in HMBS securities, providing a safe, secure secondary market for the Federal Housing Administration’s HECM program.
At the same time, borrowers have been taking the maximum amount of money available, often using it to pay off any remaining money owed on the home. Adding to the risk profile of HMBS loans, home prices continue to slide.
HECM originations began to dramatically increase in 2009, which translated into soaring securitization volume for Ginnie Mae’s program. Ginnie Mae’s HMBS volume increased from $1.36 billion in 2008 to $8.54 billion in 2009.
The Impact on Ginnie Mae’s HMBS Program
25%
Bank of America and Wells Fargo were responsible for nearly 25 percent of Ginnie Mae’s HMBS issuances.
HMBS Issuances by fiscal year 11,792
12 10
10,699
8 5,095
6 4
1,982
2
1,159
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0
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The top three issuers in November 2010 Given the rapidly changing housing were Bank of America ($246 million), finance market, Ginnie Mae had to adjust Wells Fargo ($229 million) and Reverse its program to protect the American Mortgage Solutions ($135 million). taxpayer. To that end, we recently made According to quarterly data reported in several critical changes to the standards November 2011, the three Ginnie Mae for financial institutions that participate in issuers with the highest original principal the HMBS program. balance were Urban Financial ($178 The changes to our million), MetLife The reasons for the success of the standards require ($136 million) and Ginnie Mae HMBS are clear. It is issuers to increase Reverse Mortgage an attractive investment opportunity their net worth, liquid that carries the full faith and credit Solutions ($117 assets and capital guarantee of the United States million). Although asset requirements government, the same as any other volume is clearly Ginnie Mae MBS. The HMBS enjoys to participate in our decreasing—in the the superior liquidity and execution of program. The net wake the Bank of the Ginnie Mae securitization program, worth requirements America and Wells and the security is insulated from the increased from $1 Fargo exits (from risk of tax and insurance defaults— million base net $610 million to $431 risks that are borne by the HMBS worth to $5 million. million), other Ginnie issuer. Existing issuers were Mae issuers are required to meet these working to fill the requirements October void. And, despite 1, 2011. We also instituted a new liquid the relatively steady volume, it is clear asset requirement, stipulating that HMBS that reverse mortgage loans have become issuers have liquid assets of 20 percent of increasingly risky propositions for lenders. the agency’s net worth requirement. The new liquid asset requirement will help There are a number of unique features ensure funds are 8 about the HECM program, one of which
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Bank of America and Wells Fargo were responsible for more than 40 percent of reverse mortgage originations before they left the market in 2011, according to Reverse Market Insight. The two were also responsible for nearly 25 percent of Ginnie Mae’s HMBS issuances. Wells Fargo, the largest provider, left after citing the inability to assess borrowers’ financial health, and Bank of America said that declining home values made fewer people eligible for reverse mortgages. Although there are signs that other lenders are stepping into the void, the long-term impact of their exits is yet to be determined.
quick facts
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After years of slow but steady progress, the reverse mortgage market is beginning to experience some challenges. Two of the industry’s leading lenders, Bank of America and Wells Fargo, have withdrawn; borrower delinquencies are hitting new heights; and Ginnie Mae issuers are now faced with new net worth requirements.
is that it does not require escrows. Homeowners with reverse mortgages do not have to make monthly payments on the reverse mortgage loans; however, they must continue to make tax and insurance payments. A growing number of borrowers are becoming delinquent on their reverse mortgage loans because they have stopped making property tax and home insurance payments. As a result, banks are seeing a rise in “technical defaults,” when homeowners fall behind on their taxes or homeowner’s insurance, both of which are required to avoid foreclosure. According to Reverse Market Insight, about 4 to 5 percent of active reverse mortgages, or 25,000 to 30,000 borrowers, are in default on at least one of those items.
OPB ($Millions)
The Current Landscape
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The Reverse Review April 2012
available when there is a need for cash to fund borrower advances, loan buyouts and/or potential indemnification requests from insuring agents. And we adopted institution-wide capital requirements. Capital requirements provide better assurance that issuers have sufficient capital to cover their financial risks on an institution-wide basis. Regulated banks and thrifts must maintain 5 percent of Tier 1 capital/total assets, 6 percent of Tier 1 capital/ risk-based assets and 10 percent of total capital/risk-based assets. Nonbanks, credit unions and subsidiaries are required to maintain a minimum 6 percent of total equity/total assets. We firmly believe that issuers who retain more capital and liquidity are better positioned to absorb losses and advance principal and interest payments on delinquent mortgage loans. Our goal was to ensure that all issuers of Ginnie Mae HMBS have adequate capital and liquidity to protect the program and taxpayers from unnecessary risk. These
The Secondary Market Appetite for Reverse Mortgages The secondary market for reverse mortgages has been unpredictable in recent years, but trends show investor demand is increasing and execution continues to improve, largely due to Ginnie Mae’s guarantee of full faith and credit of the U.S. government. Private label HECM securitizations never got off the ground due to the collapse of the non-agency securitization market, so the Ginnie Mae HMBS program was the logical outlet. This, coupled with the zero percent risk weighting on securities for domestic banks, makes Ginnie Mae’s HMBS an appealing securitization vehicle. The appetite for the HMBS in the secondary market has been centered on the Ginnie Mae fixed-rate product, leading to a much higher premium paid to lenders on these loans when compared to LIBOR-based adjustable rate mortgages. This interest is most likely due to the fact that there are fewer variables to analyze compared with adjustable rate HMBS. Joe Kelly, a partner at New View Advisors, a Wall Street boutique specializing in reverse mortgages, has described Ginnie Mae’s HMBS as the “holy grail” of fixed-income securities, “one of the most important developments in the U.S. fixed-income markets in the past couple of years.” However, that could change. Some analysts say that as demand continues to build in the fixed product, some investors will start looking at adjustable reverse mortgage products. But it’s impossible to tell if pricing currently available to lenders and consumers will last forever.
The Future of the HMBS Market The ongoing financial crisis will no doubt continue to increase the appeal of reverse mortgages, as many elderly homeowners are still reeling from losses suffered in their retirement accounts. Ginnie Mae’s HMBS program is the only source of liquidity for reverse mortgages. Our HMBS program offers attractive investment opportunities for fixed-income investors. They enjoy the same full faith and credit guarantee of the United States government as any other Ginnie Mae MBS and have superior prepayment characteristics. The Ginnie Mae HMBS program has made a positive impact on the reverse mortgage industry by generating liquidity and a long-term option for secondary market execution. At the same time, it does require a higher level of interaction, as well as integration across servicing operations, information technology, investor accounting and secondary marketing. Lenders must fully analyze and understand the balance between reward and risk that comes with participation in the HMBS program.
The Ginnie Mae HMBS program has made a positive impact on the reverse mortgage industry by generating liquidity and a long-term option for secondary market execution. At the same time, it does require a higher level of interaction, as well as integration across servicing operations, information technology, investor accounting and secondary marketing.
HMBS requirements provide a critical layer of safety for our program and reflect the significant capital and liquidity required to manage an HMBS portfolio in a financially sound manner. These changes will make the Ginnie Mae HMBS program stronger and, in turn, better ensure that our issuers are well equipped to handle challenges.
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It is obvious, however, that there are lenders willing to step up and enter the program. There are several new lenders already in Ginnie Mae’s HMBS approval pipeline, and there are a few already approved Ginnie Mae single-family issuers that are active in the forward market and interested in expanding their status by also becoming HMBS issuers. The reverse mortgage market is dynamic and changing, with lenders leaving and entering, but there is one clear message: Older Americans will need to tap into equity in their home to supplement retirement savings and Social Security. The capacity is there. And in order for lenders to continue originating reverse mortgages, the market needs to be liquid. For that liquidity, you need Ginnie Mae. x
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The Reverse Review April 2012
Opinion
last word
Want to comment on this article? Comment online at reversereview.com.
What Do We Have to Fear? Er i k Ri ch ar d
A
t a certain point when I was growing up, I simply stopped fearing the boogeyman and checking for monsters under my bed. I know this may sound like a simple way to dismiss the fears many of us have of the CFPB, but the truth is, at this point, they are just that: baseless fears. In the past, new federal regulations and agencies have tended to confuse borrowers and lenders and increase the budgets of our compliance departments. However, I believe that in the reverse mortgage business, we need to take a
step back. We need to tone down the rhetoric, embrace this new agency and help educate their team, especially since they are open to suggestions and constructive input from knowledgeable people in our industry. Every day I hear somebody verbalize a new fear about what the CFPB is sure to do to ruin our industry and livelihoods. But as of yet, we have no facts or recent actions that remotely back up any of these fears. With the Mayan calendar running out this year, maybe it doesn’t matter either way. All kidding aside, at the very least let’s
watch the agency closely and derive our opinions or predictions from the bureau’s actual actions. In the meantime, let’s lead the way in guiding the bureau as the most ethical segment of the mortgage industry. The CFPB has launched consumerfinance.gov. I encourage everyone to visit the site and look at the section titled, “Time to simplify mortgage disclosure.” We can all appreciate how past changes to disclosures and documents have done nothing more than create problems rather than provide so-called solutions. However, if
We need to tone down the rhetoric, embrace this new agency and help educate their team – especially since they are open to suggestions and constructive input from knowledgeable people in our industry. 42
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the draft test disclosures named “Butternut” and “Hemlock” are any indication, the agency may actually be on the right track. Not only does it look like the bureau is saving a few trees by reducing the number of pages by 50 percent, but I also commend it for creating disclosures that are actually easier to read and understand than past government documents. It has been some time since I’ve had to roll up my sleeves and personally work with these documents on a regular basis, but so far, I like where the CFPB is taking these and I agree with its intent. Loan officers should compare these new disclosures to what they’re currently using to explain the bottom line to seniors, and consider for a moment that something positive and truly helpful may be going on here. None of us know what may lie ahead, or the exact effect the actions taken by the CFPB will have on the reverse mortgage industry. However, I do believe the more publicly we protest an agency with the words “Consumer” and “Protection” in its name, the more likely we are to invite criticism of ourselves. After all, we proclaim to be the most ethical segment of the mortgage industry, so do we really have anything to fear? x
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The Reverse Review April 2012
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