The Reverse Review November 2014 by The Reverse Review

E REVERSE RE W TH VIE VIE W RE SE ER

RSE REVIEW THE RE EVE VE ER RS TH E

Realtors, lenders and the H4P

INSIDE this issue

EW VI RE

REVERSE REVIEW THE TH ER

THE

HOW TO ALLAY FEARS ABOUT THE USE OF HOME EQUITY PG. 20 TIPs FOR UNDERWRITING PROPRIETARY LOANS PG. 27 + JOE KELLY SITS DOWN IN OUR HOT SEAT PG. 18

REVERSE review n ovember 20 14

Look what people are saying about... The Reverse Review November 2014

“It’s interactive, easy to use and informative. The Reverse Mortgage Essentials (RME) course is worth it for anyone who is just starting out or for a seasoned veteran.” “It’s not easy to create a course that covers all the necessary details and aspects of this unique product but RVU has succeeded. I highly recommend this course.”

—Ann-Marie Cutcher, Office and Grants Manager Credit Card Management Services, Inc. dba Debthelper.com

—Beth Paterson, Executive Vice President Reverse Mortgages SIDAC, a Division of Greenleaf Financial

“RVU is a fantastic tool for reverse mortgage professionals. It tackles the challenges being experienced throughout the industry and provides the education needed to accelerate your business.”

“Whether you’re a new or an experienced LO, RVU helps you stay on top of the constant industry changes. Plus, you can earn CRMP credits with a company trusted to have upto-date and accurate information.” —Randy Davis, AVP Residential Lending Dollar Bank, F.S.B.

—Jeffrey Taylor, CMB Founder of Wendover Consulting, Inc.

“RV University is the most user-friendly, proactive training system for people in the reverse mortgage space.” —Bob Shields, Columbia Branch Manager The Money Source

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2 | TRR

Help your clients with higher-value homes unlock more home equity Introducing HomeSafe, a powerful new jumbo reverse mortgage option, exclusively from Urban Financial of America, LLC (UFA) • Loan amounts of up to $2.25 million • No mortgage insurance premium • No initial disbursement limitation • Condos appraised at $500,000 or more do not require FHA approval • Fixed rate, lump-sum draw

Put the power of the nation’s #1 wholesale lender* behind you. • Call 855-77-URBAN (855-778-7226) • www.ufawholesale.com/HomeSafe

UFA154 [Exp 09/2015] * Since December 2011. Based on trailing 12 months’ endorsement volume. Source: Reverse Market Insight. The HomeSafe reverse mortgage is a proprietary product of Urban Financial of America, LLC, and is not affiliated with the Home Equity Conversion Mortgage (HECM) program. For business and professional use only. Not for consumer distribution. NMLS #2285 (http://www.nmlsconsumeraccess.org/EntityDetails.aspx/COMPANY/2285); Corporate Office: 8909 South Yale Avenue, Tulsa, OK 74137. Not all products and options are available in all states. Terms subject to change without notice. ©2014 Urban Financial of America, LLC. All Rights Reserved. CALIFORNIA BUSINESS NAME: URBAN FINANCIAL GROUP OF AMERICA, LLC. NEBRASKA BUSINESS NAME: REVERSE IT! LLC. reversereview . com

8 TRR | 3

The Reverse Review November 2014

From the Editor

A note from jessica guerin

In this issue, HomeChex’s Mark Browning discusses why it is essential that we address the housing needs of America’s older homeowners. As our aging population continues to expand, the need for safe and affordable housing for this demographic will grow, and we will need to get creative in order to come up with sound solutions for our seniors.

One fantastic option, as Browning writes, is the HECM for Purchase program. By allowing seniors to access their home equity in order to purchase a new home that meets their needs as they age, the H4P program offers a solid option for those looking to downsize and save for future health care expenses.

{ J essica G uerin } Editor-in-Chief Share your ideas with your colleagues and be a part of the solution. Email jessica@reversereview.com to get involved.

Senior Publisher

Reza Jahangiri Publisher

Erik Richard Editor-in-Chief

Jessica Guerin Creative Director

Traci Knight Copy Editor

Kersten Deck Marketing Director

Alycia Greer

Printer The Ovid Bell Press Advertising Information phone : 630.207.3882 email : jessica@reversereview.com Subscriptions email : information@reversereview.com Editorial Content email : jessica@reversereview.com © 2014 Reverse Publishing, LLC All rights reserved. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, Reverse 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

Feedback is very important to us here at The Reverse Review. Send us your thoughts on this issue or comment online for a chance to see your perspective in print.

Correcting this problem will be no easy task, and it may require HECM specialists nationwide to put their heads together to work toward a solution. At The Reverse Review, we aim to provide a forum for industry professionals to do just that. Read our stories, comment online or write in and tell us what you think. Be a part of the conversation, offer your ideas and let’s work together to spread the word about the power of the HECM.

Meet the Team

ay ec st onn c

Feedback

The power of the H4P is no surprise to professionals in this industry. The problem is how to communicate this to senior homeowners and those who advise them. How do we connect with Realtors so that we can work together to educate the public about this important financial tool? As one South Florida Realtor writes in our Spotlight story, the vast majority of real estate agents in this country are not only unaware of the H4P, but are largely misinformed about the reverse mortgage in general.

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4 | TRR

table of contents 28

TRR 11.14 | Marketing

HECM Seminars Revitalize a Mission to Market the Product The benefits of meeting with a group to explain the power of a reverse

IN THIS ISSUE... 23 megen lawler Originating

Steven Sless Ian Sandler

| Spotlight

A South Florida Realtor Shares His Perspective on the H4P’s Potential

Joe Kelly Partner at New View Advisors

| Stats

The industry’s latest stats and rankings Reverse Market Insight

Michael Belgeri

| Originating

Allaying Fears About the Use of Home Equity

The Good, the Bad and the Ugly… in Reverse

Tips for addressing common concerns

The industry faces a challenging road, but opportunity lies ahead.

Harlan Accola

14 |

Marty Bell

Bart Johnson

NRMLA News

Read about the association’s current initiatives.

| Roundup

A collection of recent facts and surveys affecting the reverse market

feature

| Last Word

| Originating

27 ralph rosynek Underwriting

Will We See a Lifetime Mortgage? Would traditional mortgages take on a new shape as more people embrace reverses? Scott Gordon

Let’s educate Realtors on the HECM’s potential.

p.33

| Feature

Vibrant Communities

VIEW THE REV E RE ER RS SE VE RE RE VI HE

HOW TO ALLAY FEARS ABOUT THE USE OF HOME EQUITY PG. 20 TIP FOR UNDERWRITING PROPRIETARY LOANS PG. 27 + JOE KELLY SITS DOWN IN OUR HOT SEAT PG. 18

Realtors, lenders and the H4P

INSIDE this issue

“A strong and viable reverse mortgage program tailored to meet the needs of older homebuyers is essential to a healthy housing finance system.

cover Policymakers need to focus on the needs of aging homeowners.

RSE REVIEW THE RE EVE VE ER RS TH

Mark Browning

november 2014

The key to growth and stability is senior housing.

@ Want the online version? reversereview.com/magazine

E REVERSE RE W TH VIE VIE W RE SE T ER

Reverse Mortgage Daily

| Hot Seat

Headlining stories of the past month

REVERSE REVIEW THE TH ER

Industry News

25 mike gruley Originating

EW VI RE

11 |

Why one agent believes the product’s promise calls for a partnership between lenders and Realtors

THE

REVERSE review N O V E M B ER 2014

reversereview . com

8 TRR | 5

The Reverse Review November 2014

contributors John K. Lunde

Marty Bell

joe kelly

John K. Lunde is president and founder of Reverse Market Insight, Inc., a performance data analysis and consulting firm specializing in the reverse mortgage industry. RMI clients include eight of the top 10 reverse mortgage lenders, plus investors, servicers and vendors to the industry. 949.429.0452 rminsight.net

Marty Bell is NRMLA’s senior vice president of communications and marketing. This is Bell’s professional Act III after careers in books, journalism and the Broadway theater. Bell is the author of two novels and four nonfiction books, and his writing has appeared in publications including Playboy and New York magazine. Bell wrote and produced the award-winning documentary film The Boys of Summer and produced 15 Broadway shows (including Ragtime, Fosse and Dirty Rotten Scoundrels) that won 27 Tony Awards.

Joe Kelly is a founding partner of New View Advisors. Before establishing New View in 2008, Kelly managed all aspects of Lehman Brothers’ prime mortgage finance agenda, and structured the first proprietary reverse mortgage securitizations. At New View Advisors, Kelly continues to develop new reverse mortgage loan products, valuation models, quantitative research and online products for his clients.

Harlan Accola

Scott gordon

Harlan Accola is the branch manager and senior mortgage planner for Moneywise Mortgage, a division of Top Flite Financial. Accola has been in the mortgage industry for more than 15 years and is a registered financial consultant and a Certified Senior Advisor. Based in Marshfield, Wisconsin, Accola specializes in educating retirees and preretirees on the advantages of using reverse mortgages for financial and estate planning. harlan@allmoneywise.com

Scott Gordon is the founder and CEO of Open Mortgage, LLC in Austin, Texas. Gordon is also a serial entrepreneur, investor, board member and author. Gordon is passionate about business mentoring, social media, mortgage marketing, senior finance and idea sharing.

mike gruley

ralph rosynek

12 | Stats g

John K. Lunde

Marty Bell

Joe Kelly

20 | Allaying Fears About the Use of Home Equity g Harlan Accola

Scott Gordon

Megen Lawler

25 | Airplanes, Retirement Planning and Reverse Mortgages g Mike Gruley

Ralph Rosynek

Steven Sless 6 | TRR

Mike Gruley is the director of reverse mortgage operations for 1st Reverse Mortgages. He has been in the mortgage industry nearly 30 years, 14 of which he has spent as a reverse mortgage professional. Gruley founded 1st Reverse in 1991, and in 2010 it became the exclusive HECM retail division for Success Mortgage Partners, LLC, serving Michigan, Florida, Indiana, South Carolina, Illinois, North Carolina and Texas. 800.720.7003 mgruley@firstloans.net

14 | NRMLA News g

22 | Will We See a Lifetime Mortgage? g

27 | Proprietary Pointers g Ralph Rosynek is currently a reverse mortgage consultant and seasoned HECM DE underwriter. He has written for The Reverse Review since the magazine’s launch as an underwriting column contributor and has held many leadership roles in the reverse mortgage industry for the past 15 years. rrosynek@hecmondemand.com

18 | Hot Seat g

megen lawler

23 | Educate the Industry g Megen Lawler has been in the reverse mortgage industry since 1991 and founded Bay Docs, Inc. in 1994. Prior to Bay Docs, Lawler was an integral part of the development of the Home Equity Reverse Mortgage product origination, servicing and quality control procedures. Bay Docs launched its loan origination system in 2008 to work in conjunction with its reverse mortgage document processing services.

steven sless

28 | HECM Seminars Revitalize a Mission to Market the Product g Steven Sless is a licensed reverse mortgage specialist with more than 10 years of experience. Sless is passionate about helping seniors, their loved ones and their trusted advisors to understand how a reverse mortgage can be used to fund their longevity and plan for a comfortable, happy and robust retirement.

contributors Ian sandler

Megan Hafenstein

28 | HECM Seminars Revitalize a Mission to Market the Product g Ian Sandler

Megan Hafenstein

30 | Methods of Holding Title g

Ian Sandler is a branch manager and a licensed reverse mortgage loan originator. He has more than 16 years of experience in the mortgage industry in both retail sales and management, and has been originating reverse mortgages exclusively for the past six years.

Michael Belgeri

Mark Browning

Bart Johnson

Megan Hafenstein is the vice president of business development at Premier Reverse Closings (PRC), a national reverse mortgage title and settlement company based in Rocklin, California. Hafenstein manages accounts in 22 states from the company’s headquarters and works closely with operations to ensure that clients’ files are closed accurately. Prior to joining PRC six years ago, Hafenstein worked in the California Legislature after receiving her B.A. in political science from Cal Poly, San Luis Obispo.

Michael Belgeri

33 | A South Florida Realtor Shares His Perspective on the H4P’s Potential g Michael Belgeri is a licensed Florida Realtor from the Greater Miami area. He has been a practicing real estate agent for seven years. Together with his teammate, George Bailey, he buys, repairs, rents, manages and sells properties for private investors in south Florida. belgeri@bblfla.com

Mark Browning

bart johnson

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

Bart Johnson is the CEO of Premier Home Equity. He previously served as the president of Financial Freedom, overseeing the company during the time it earned unprecedented market share, profits and value. Johnson was a co-chair of NRMLA and remains an active board member. He is a career “intreprenuer,” building ventures into valuable businesses with large corporate sponsors. Johnson has held executive positions in virtually every important area of mortgage banking.

38 | Vibrant Communitiesg

Let’s discuss

42 | The Good, the Bad and the Ugly… in Reverse g

PG.20

How do you help clients see past mental roadblocks to accessing their equity? Read our ideas; send us yours. Comments We Loved

pg.42

“Industry representation continues to be outstanding, the only constant in an otherwise rapidly changing industry. After years of playing defense, we are on the offensive now, telling our positive story rather than reacting to political sound bites and issues that too often result from misperceptions.”

read more on page

Concerned about underwriting proprietary loans? Read our expert’s tips.

there is no such thing as a stupid idea. what do you want us to write about? tell us! info@reversereview.com do hav you it ta e what kes ?

—Bart Johnson reversereview . com

8 TRR | 7

The Reverse Review November 2014

N E I V D O N E I S! ¡B SEE YOU AT THE

NRMLA ANNUAL MEETING & EXPO NOV 10 - 12

HOLESALE W H IT W T N E M T O IN MAKE YOUR APP RE: TO F IN D O U T M O e a nd m o re .

b o rr o w in g S p o us no N , nt e m ss e ss A n, Fi na nc ia l A A G 'S Ju m b o Lo a KIMBERLY SMITH, T C TA N O C ur yo elevate out how we can LESALE LENDING HO W Miami and find F in O P LA M SV NR at Meet our team | ksmith@aag.com 79 24 9. : th 75 wi 6. ss 91 ne si bu

t rvice and suppor Best in class se rtise Marketing expe d simple approvals tion with quick an ra eg Turn-key int ds d brand industry’s best lea d and recognize Access to the d the most truste an r de lea try us ind Partner with the 8 | TRR

AAGWHOLESALE.COM

movers & shakers read about the latest developments in companies across the reverse space.

have a company update you would like to see published?

email it to jessica@reversereview.com

UFA Names Tom Evans Vice President, Marketing Director Urban Financial of America has named Tom Evans vice president, marketing director. He will lead the department and oversee all marketing communications and initiatives, lead generation and brand identity for UFA. “Tom brings a rich 10-year background in many aspects of reverse mortgage marketing,” says UFA President Steve McClellan. “His work was instrumental in transitioning UFA from a spokesperson-driven advertising model to our current successful approach, and he has managed our lead generation efforts to great results.” Evans has worked with UFA since 2011, most recently as vice president, business intelligence. UFA has also engaged a research- and technologydriven branding, marketing and thought leadership firm to assist the lender in developing additional lead generation strategies and various media loan sales and fulfillment strategies. “With just 2 percent of eligible homeowners utilizing reverse mortgages to supplement their retirement needs, UFA believes there are far more seniors who would benefit from this important financial product,” McClellan says.

FirstBank Promotes Ed O’Connor to Corporate Director of Marketing and Sales FirstBank has announced the promotion of Ed O’Connor to corporate director of marketing and sales. As such, O’Connor will be responsible for all company-wide marketing efforts and sales initiatives. He will continue to oversee FirstBank’s recruiting efforts on a national basis, will maintain the successful implementation of the company’s bank and credit union programs, and will manage its internal wholesale account executives.

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8 TRR | 9

The Reverse Review November 2014

10 | TRR

industry news

November Edition an update of this past month’s breaking news

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

headlining news 1. Generation Mortgage to Exit Reverse Originations

Generation Mortgage is winding down its reverse mortgage originations business, including retail and wholesale operations. The wind-down of the business will include the elimination of jobs across Generation’s originations platform, spanning positions based in its Atlanta headquarters and nationwide. The last day for new applications was Wednesday, October 8, though Generation is maintaining its current pipeline of loans as well as its servicing platform and business. The company is attributing the departure to a heightened and sustained regulatory environment and having seen reverse mortgage volume fall industrywide over the last 12 months as a result. “The decision to exit the origination business was not an easy one, but was made inevitable by the wave of recent regulatory changes,” GMC CEO Colin Cushman says. “As a result of those changes, the industry has seen a reduction in the number of units, as well as a reduction in loan balances, significantly reducing origination revenues while increasing expenses.” Generation is not making any changes to the servicing side of its business, which will still be operated by Generation and its parent company, Guggenheim Partners.

//October 8, 2014

2. Ginnie Mae Finalizes New

Issuer Requirements

Ginnie Mae announced several new issuer requirements and a new issuer scorecard as part of the agency’s larger strategic effort to manage risk and resources in the mortgage market. New net worth requirements will apply to forward issuers, but will remain unchanged for HMBS issuers, though all issuers will have to adhere to “Demonstrated Participation Requirements.” The new Issuer Operation Performance Profile (IOPP), or scoreboard, aims to clarify Ginnie Mae regulations and provide a framework and methodology from which issuers can gauge their effectiveness against a predetermined set of Ginnie Mae expectations (metrics), as well as how they rank against their peers. New issuer net worth and liquidity requirements will adjust the minimum adjusted net worth and liquid asset requirements for single-family issuers and issuers participating in more than one MBS program. Applicants seeking issuer approval will be required to meet these new requirements beginning on January 1, 2015.

//October 20, 2014

FHA Close to Rebuilding Troubled Mortgage Insurance Fund The FHA is close to replenishing its troubled mortgage insurance fund to minimum required levels, according to a Bloomberg article that cited research from Moody’s Analytics. The FHA is required to keep enough funds on hand to pay for all future costs of defaulted loans, plus a 2 percent cushion.

Though the FHA’s reserves have been below mandated levels since 2009, its fund “will have close to the 2 percent required minimum this fiscal year,” the chief economist at Moody’s Analytics wrote in a report. Last year, the FHA had to take $1.7 billion in taxpayer funds to balance its books for the first time in its 80-year history. The agency previously said that losses from the 2007-2009 legacy books and HECM program were responsible for the most severe strain. At the time, the federal reverse mortgage program was about $5.2 billion in the red.

//October 20, 2014

California Governor Passes Reverse Mortgage “Cooling Off” Bill California Governor Jerry Brown signed a bill into law that will add new protections for reverse mortgage borrowers in the state. The legislation, known among industry members as AB 1700, or California’s “cooling off” bill, was introduced and sponsored by Assemblyman Jose Medina (D-CA) and will take effect January 1, 2015. The bill requires that a new reverse mortgage worksheet be presented to and signed by all borrowers during the counseling process, and mandates a “cooling off” period of seven days after counseling before a lender can accept a loan application or assess any fees. The worksheet includes a list of items that the borrower is advised to consider and discuss during the counseling process.

//October 5, 2014

reversereview . com

8 TRR | 11

The Reverse Review November 2014

stats September 2014

Top Lenders Report

12345 American Advisors Group

One Reverse Mortgage

Liberty Home Equity

Endorsement

1,050

395

372

Lender Endorsements

RMS/S1L

UFA

Endorsement

219

209

Lender Endorsements

REVERSE MORTGAGE FUNDING LLC 122

AMERICAN PACIFIC MORTGAGE

PROFICIO MORTGAGE VENTURES LLC 111

ATLANTIC PACIFIC MORTGAGE

GENERATION MORTGAGE COMPANY 92

MORTGAGESHOP LLC

LIVE WELL FINANCIAL INC

SUN AMERICAN MORTGAGE

MAVERICK FUNDING CORP

HOMESTEAD FUNDING CORP

NET EQUITY FINANCIAL INC

GEORGETOWN MORTGAGE

UNITED NORTHERN MORTGAGE

CHRISTENSEN FINANCIAL INC

SUN WEST MORTGAGE CO INC

VAN DYK MORTGAGE CORPORATION 9

ADVISORS MORTGAGE GROUP LLC

THE FEDERAL SAVINGS BANK

OPEN MORTGAGE LLC

DOLLAR BANK FSB

MOUNTAIN AMERICA CREDIT UNION

PLAZA HOME MORTGAGE INC

MORTGAGE SERVICES III LLC

8 7

HIGH TECH LENDING INC

FIRSTBANK

LAND-HOME FINANCIAL SERVICES

M & T BANK

AMERICA FIRST FEDERAL CU

NORTH AMERICAN SAVINGS BANK

BROKER SOLUTIONS INC

UNITED SOUTHWEST MORTGAGE

AMERICAN FINANCIAL NETWORK INC 6

GMFS LLC

EASTERN BANK

FIRSTAR BANK

MONEY HOUSE INC

TOWNEBANK

NATIONWIDE EQUITIES CORPORATION 19 MLD MORTGAGE

Brought to you by:

AMERICAN NATIONWIDE MORTGAGE 18 CHERRY CREEK MORTGAGE CO INC 17 MCM HOLDINGS INC

360 MORTGAGE GROUP

TOP FLITE FINANCIAL INC

UNIVERSAL LENDING CORPORATION 14 VIP MORTGAGE INC PEOPLES BANK

12 | TRR

%%%%% looking for more statistics? Go to rmsinsight.net for all of the industry’s latest stats and rankings.

stats HECM Endorsement Stats Through August 2014 INDUSTRY SUMMARY

Trailing Twelve Month Endorsements

UNITS CHG%

1,782 -20.73%

4,517 -15.93%

-16.17%

2,510

-8.23%

1,676 -5.95%

4,186

2,734

8.92%

1,951 16.41%

4,685 11.92%

2,594

-5.12%

1,629 -16.5%

4,223

2,789

7.52%

2,265 39.04%

5,054 19.68%

Wholesale Endorsement Growth

-26.3%

2,614

-6.27%

2,545 12.36%

5,159

2,358

-9.79%

2,256 -11.36%

4,614 -10.56%

2,362

0.17%

1,806 -19.95%

4,168

2,651 12.24%

1.99%

4,493

7.8%

Total Endorsement Growth

2,413

-8.98%

1,747 -5.16%

4,160

-7.41%

2,319

-3.9%

1.43%

4,091

-1.66%

1,944 -16.17%

4,000

2,000

-20.56%

9 10 11 12 1 2 3 4 5 6 7 8 Wholesale *Numbers Represent Months

* Figures Above Reflect Change from Prior Month

1,842 1,772

-9.86% 2.08% -9.67%

3,250 -20.56%

1,306 -26.3%

30,023

TOT

-7.33%

22,577

52,600

70%

{ figure }

60% 50%

fixed rate percentage

40% 30% 20%

8/1/14

7/1/14

6/1/14

5/1/14

4/1/14

12/1/13 12/1/13

3/1/14

11/1/13 11/1/13

2/1/14

10/1/13 10/1/13

1/1/14

9/1/13 9/1/13

7/1/13

6/1/13

5/1/13

4/1/13

3/1/13

2/1/13

1/1/13

8/1/13

arm

{ figure }

12/1/12

11/1/12

10/1/12

9/1/12

10% 8/1/12

hecm endorsement trends

UNITS CHG%

TOTAL

2,735 -12.48%

Retail Endorsement Growth

Retail

WHOLESALE

6,000

RETAIL

fixed

$1,200.0 $1,000.0

$600.0 $400.0 $200.0

8/1/14

7/1/14

6/1/14

5/1/14

4/1/14

3/1/14

2/1/14

1/1/14

7/1/13

6/1/13

5/1/13

4/1/13

3/1/13

2/1/13

1/1/13

12/1/12

11/1/12

10/1/12

9/1/12

$0 8/1/12

in the millions

hecm endorsement

initial principal limits

$800.0

reversereview . com

8 TRR | 13

The Reverse Review November 2014

nrmla news In the States: California Governor Approves Reverse Mortgage Consumer Protection Bill

On the Docket Issues We Can Tackle One of our responsibilities at NRMLA is to closely monitor the national press. Each morning, with the support of our public relations firm, Rasky Baerlein/ Prism, we collect as many stories from around the country as we can find via press aggregators such as Google Alerts and PR Newswire. At this month’s meeting of our Board of Directors, I presented an assessment of where we stand with the press, looking at the topics that have attracted negative press in the past: those that seem to have been eliminated, and those that linger.

The list of issues over the past few years included: 2 2 2 2 2 2 2

N on-borrowing spouses T ax and insurance default H igh or full upfront draws Costs A pproach to advertising M MI Fund treasury draws I ndustry behavior

Of these, the changes to the HECM program over the past year have minimalized press fingerpointing on tax and insurance default, high or full upfront draws, MMI Fund treasury draws and nonborrowing spouses for loans that closed after August 4 of this year. The issues that linger are costs, our approach to advertising, industry behavior and non-borrowing spouse cases that occurred before August 4. What we find interesting here is that the issues that have been eliminated needed program alterations from HUD. But, with the possible exception of the non-borrowing spouse cases occurring before August 4, the issues that linger are under our control. If we choose to as an industry, we can address costs, advertising and behavior as a path toward further improving our reputation.

Ethics Committee Updates Refinance Guidelines NRMLA’s Board of Directors has adopted Ethics Advisory Opinion 2014-1: Ethical Refinancing of HECM Reverse Mortgage Loans and AntiChurning Considerations. The document updates prior advisories that addressed ethical refinance activities, so that new FHA program changes enacted over the past year are considered. For example, prior guidance permitted members to refinance HECM reverse mortgages six months after closing if there was a bona fide advantage to the borrower. However, Mortgagee Letter 201327 limits upfront draw restrictions during the initial 12 months after closing, so these concepts must now be considered when members develop refinance policies. The advisory opinion was developed by the Standards and Ethics Committee, with advice from NRMLA’s outside legal counsel, Weiner Brodsky Kider, PC.

Reverse Market Index Highest Level Since 2007

level since Q4 2007. The RMMI is updated quarterly and tracks back to the start of 2000.

The NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI), a quarterly measure that analyzes trends in home values, home equity and mortgage debt held by homeowners 62 and older, reached 178.91 during the second quarter of 2014, its highest

Homeowners eligible for a reverse mortgage now have more equity in their homes than at any time since early 2008. Home equity held by persons 62 and older has grown by more than 22 percent since Q2 2012 to a total of $3.73 trillion. The $125.2 billion increase in senior home equity in the second quarter was

14 | TRR

On September 30, California Governor Jerry Brown signed into law Assembly Bill 1700, which prohibits a reverse mortgage lender from accepting a loan application or assessing any fees until the lapse of seven days from the date the borrower receives counseling from a HUD-approved counselor. In addition to this new “cooling off” period requirement, the bill revises the current reverse mortgage checklist disclosure and changes the name of the checklist to a “worksheet guide.” The bill’s effective date is January 1, 2015. The reverse mortgage worksheet guide provides a list of issues that the borrower is advised to consider and discuss with the counselor. Lenders are prohibited from taking a reverse mortgage application unless the borrower has received a copy of the worksheet guide from the lender before the borrower’s counseling session. However, if the borrower seeks counseling prior to requesting a loan application from the lender, the counseling agency must provide the borrower a copy of the worksheet guide. Furthermore, the reverse mortgage worksheet guide must be signed by the borrower and the counselor, if the counseling is done in person, and returned to the lender along with the certification of counseling.

the largest quarterly increase since Q3 2005. Mortgage debt held by older homeowners stands at $1.08 trillion, a figure that has held steady over the past three quarters. Debt levels peaked at $1.143 trillion in the fourth quarter of 2009. The RMMI has now risen for nine consecutive quarters.

nrmla news

After three years of work devoted to setting a new direction for the nation’s housing policy, the Bipartisan Policy Center’s Housing Commission united over 1,100 housing professionals in Washington, D.C., September 15-16, to more fully engage federal, state and local officials on housing topics. The commission’s co-chairs, former Senators Kit Bond, Mel Martinez and George Mitchell, along with former Housing Secretary Henry Cisneros, highlighted for the attendees the nation’s aging population, which desires to age in place, and unanswered questions about how the housing system can meet these changing demands. In the commission’s own report on policy recommendations that might “provide a more dedicated focus on responding to the housing challenges of a growing senior population,” there is a call for better integrating aging-in-place priorities

into existing federal programs, such as reverse mortgages and other home equity access products. The commission’s report recognizes that limited preparedness and a shrinking social safety net will create increased consumer interest in reverse mortgages. As such, the commission suggests that it will be “imperative that older homeowners have access to low-cost and effective reverse mortgage counseling so they can learn about the risks and potential benefits of these mortgage products before they face a financial crisis.”

After panel discussions with five FHA commissioners and six secretaries of housing, the event was capped by a closing keynote by Secretary Julian Castro (who also happened to be celebrating his 40th birthday). While only being on the job for seven weeks, Secretary Castro unveiled his bold vision for HUD’s next 50 years. You can read Castro’s remarks at portal.hud.gov/ hudportal/HUD?src=/hudvision.

news from nrmla

1,100 Housing Professionals Converge On D.C.

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The Reverse Review November 2014

SETASIDES

LOSS DRAFT

LACK OF EXPERTISE

CHANGING DEMO FINANCIAL LIABILITY ELDERLY NEEDS

HUD RULES

OCCUPANCY

ERRORS!

REPAIRS

COMPLEXITY

REPUTATION DEFAULT

ISSUES WITH COMPLIANCE GNMA REPORTING

NEW TALENT

TRAINING SERVICING PLATFORM

FRAUD PREVENTION

REGULATORY CHANGES

Bypass the pitfalls. Rely on the most experienced team, completely dedicated to reverse mortgage servicing. Find out more at avoidthemaze.com Or contact us at (844) 228-2101. 16 | TRR

PRODUCT CHANGES

roundup Here is a look at the

THIS MONTH

NEWS AND STATS

affecting the market.

{

GET UP-TO-DATE retirement facts, home price stats, senior trends and HECM market developments in The Reverse Review’s monthly Roundup.

The Senior Agenda

stats Number Crunch

Senior income takes a hit.

> $16,000 The median income of U.S. retirees

Tampa ranks No. 1 city for retirement.

Among the nation’s 150 largest cities, Tampa is ranked the No. 1. overall best place to retire, according to a study by WalletHub. The city scored highest on five key factors used to measure ideal retirement locations: affordability, jobs, activities, quality of life and health care. Cities with warm climates

$31,000

The median income of an American worker

IN THE NEWS

Grand prairie, tx

St. Petersburg, fl tampa, fa orlando, fl

No. 1 Tampa, Florida No. 2 Grand Prairie, Texas No. 3 Orlando, Florida No. 4 St. Petersburg, Florida No. 5 Scottsdale, Arizona

Money Matters

Most American retirees have insufficient savings.

Retirees in 49 out of 50 states have inadequate funds to support themselves in their later years. Generally, retirees need 70 percent of their pre-retirement income to support themselves. Nevada is the only state that has seniors who report sufficient funds, according to a recent survey from interest.com.

In 2012, life expectancy in the United States hit a record high.

78.8

av erage life e x pectancy

-Centers for Disease Control and Prevention

Market Update

ranked in the top five.

Scottsdale, AZ

Americans are living longer.

“Given that older Americans’ homes are worth, on average, more than their other combined savings, there is a begrudging inevitability about reverse mortgages. As more people enter retirement in the coming decades with modest savings and no private pension, they’re going to need some of that home equity back during their increasingly long lives.” -The New York Times September 2014

Nationwide housing markets poised for growth.

As the housing market continues its recovery, the majority of the nation’s metro areas are forecasting notable home price appreciation in the coming year. According to Veros Real Estate Solutions, the number of metro areas showing improvement has increased 3 percent in the past year.

83% of metro

areas have a favorable outlook reversereview . com

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The Reverse Review November 2014

THE

REVERSE review

n ov e m b e r 2 0 1 4

Joe From his favorite book to the craziest thing he’s ever done, we get the scoop

PARTNER NEW VIEW ADVISORS 18 | TRR

from Joe Kelly, partner at New View Advisors, in this month’s edition of The Hot Seat.

personal >

You can’t always be Mike McCully.

Ten years from now I can qualify for a reverse mortgage.

Something nobody knows about me is that a long time ago, back

like Beethoven, Dvorák and the Ramones. >

I always tilt at windmills.

My favorite book is Don Quixote.

If I could trade places with

when Jerry Brown was governor of

someone for a day, I would

California, I met Ronald Reagan, who

choose Joe Jr., sailing off to his next

really did shake my hand, bob his

adventure.

head and say, “Well, …” > >

My celebrity crush is Michael K. Alternative Hot Seat Universe.

For success I have sacrificed for the sake of Joe Jr. and Veronica.

McCully, Wimbledon champion of the

My iPod go-to is classical music

If I could time travel, I would go

fun

s t c a f If I were a professional athlete, I would be a pitcher for the Dodgers or defensive back for the Redskins so I could strike out Al Benedetti or sack John Mitchell in the Alternative Hot Seat Universe.

back and see H.G. Wells and say

If I were a professional athlete, I

to him, “Sorry I’m late. I met Ronald

would be a pitcher for the Dodgers

Reagan and Ben Franklin!”

or defensive back for the Redskins so I could strike out Al Benedetti or sack John Mitchell in the Alternative Hot Seat Universe. >

The craziest thing I’ve ever done

professionAl >

is dependent on the outcome of

was hike 100 miles through the New

the never-ending struggle between

Mexico wilderness with Joe Jr. >

If I could meet anyone, past or present, it would be Ben Franklin.

necessity and emotion. >

Keeping Up With the Kellys, a reality

success of the Ginnie Mae HMBS program. >

I can’t go without... Oh yes I can.

I’ll never forget 9/11; I was there.

My first job was a paper route.

My parents taught me that if you have seven kids, the first two should get paper routes.

My favorite time of the day is the

I entered this industry because of a series of fortunate events in 1999,

show starring Veronica Kelly. >

My favorite movie is Lawrence of Arabia.

is the unique value and remarkable

My favorite movie is Lawrence of I never miss an episode of

The most fascinating thing about the reverse mortgage industry

Arabia. >

The future of reverse mortgages

including my first industry conference, which was very revealing. >

The ideal characteristics of leaders in the industry are the idealism of Don Quixote and the patience of Sancho Panza.

I would encourage a family member to consider a reverse mortgage because if you bought a

moment after I have delivered my last

house in Manhattan Beach in 1969,

newspaper, so to speak.

chances are you have lots of home equity.

The most fascinating thing about the reverse mortgage industry is the unique value and remarkable success of the Ginnie Mae HMBS program. reversereview . com

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The Reverse Review November 2014

originating

DISCUSS

Allaying Fears About the Use of Home Equity By Harlan Accola

Fear No. 2 * I’m afraid the bank will kick me out of my home in my later years, and if they don’t, I’ll be upside down on the mortgage. (There is an intense fear of losing equity that seems to outweigh gaining cash.) Fear No. 3 * Conventional Wisdom: This isn’t how it was done in the past, and I fear new products. Home equity is my “sacred cow.” Fear No. 4 * I fear this is a loan of last resort, and if I do it, it’s a sign that I’ve failed in my retirement planning. Besides, no one else is doing it. In fact, my cousin, attorney, newspaper, etc. said I should stay away from them. Here are some answers we can give our senior clients when these fears are raised.

n my 10 years of reverse mortgage experience, the biggest mystery to me has been why so many clients are so emotional— and downright fearful—about using their home equity to have a better retirement, but they think nothing of taking money out of IRAs or other retirement vehicles. Let’s start with the facts. The average senior has half their net worth tied up in their home. If that money is off limits, then they have to make do with half a retirement. However, experienced advisors know that if this equity is put into an increasing line of credit with a HECM at age 62, it can double or triple when the client gets to their 80s and 90s, just when they may need the money most. More importantly, if the reverse line of credit withdrawals is used at the same time as IRAs and annuities, then all of that

going to the source 20 | TRR

money will last many years longer and ensure that the client will not run out of money before they run out of life. It is a clear and safe choice for most seniors. So why have only 2 to 3 percent of eligible seniors taken out a reverse mortgage? I believe it is because of fear and emotion, because it is obviously not math and logic. In this article, I will attempt to define the “why” behind this mental block and suggest ways that originators can help clients break past that fear and rely on logic instead of emotion when deciding how best to use all of their retirement assets. Fear No. 1 * I’m afraid I won’t be able to pass my home “free and clear” to the next generation. I feel I am shortchanging my heirs.

Responding to Fear No. 1: The Next Generation An article by Ron Lieber appeared in The New York Times on September 19, 2014, titled “Parents, the Children Will Be Fine. Spend Their Inheritance Now.” It evoked some emotional comments that tell you how strongly the public feels about this topic. To combat this, we must encourage our clients to get their children involved early. The majority of adult children tell their parents, “Mom, Dad, take care of yourselves. It is your money and you should spend it. If there is some left, we will appreciate it, but we don’t expect it.” Parents who hear that from their children feel more comfortable about going on the cruise or spending a little more on dinners out.

“Experienced advisors know that if this equity is put into an increasing line of credit with a HECM at age 62, it can double or triple when the client gets to their 80s and 90s, just when they may need the money most.”

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spotlight

It is critical that we separate the home

title tip

Responding to Fear No. 3: Conventional Wisdom

marketing

We must remind our senior clients a dozen times that they cannot lose their home because of the mortgage balance. Period. Be transparent. Show them what happens if they use all their credit line, if home values soar with inflation or crash with deflation. Explain what “non-recourse” means. Furthermore, explain the nonborrowing spouse issue and how it is no longer a factor since the FHA rule change in August of this year. Give examples of some of your clients who have passed away owing more than the value of their home and how the family benefited from the HECM that was in place. Remind them that the reverse mortgage is the only mortgage in the world that is owed by the house—not a person or the heirs. And if the house doesn’t have enough money at the end, the FHA insurance fund pays the difference. Many seniors think of a HECM as risky when in reality there is is no safer financial product out there.

underwriting

Responding to Fear No. 2: I’ll Lose my Home

has been done in the area from the home equity. of wealth management You can safely spend and all of us are (or your home equity and “The reverse should be) familiar yet stay in your home mortgage is with Sacks, Salter, for the rest of your life, nothing more Evensky and Texas Tech so long as you continue than a tool to University. The research to pay your taxes just access the has been documented like you would if you money (home in the Journal of Financial didn’t have a mortgage. equity) you Planning over the Here, it is helpful to have saved for last couple of years. ask your client a few retirement. The The best time to get a questions: Do you really government reverse mortgage is at want to retire with half has created 62 and, while we can the amount of money a guaranteed means to access help someone who is 92 that you have in your those funds. and in foreclosure, we net worth? Do you The home is could have helped our want to leave stacks still sacred and client avoid a disaster of cash in your living kept safe, and if they had come to use room, untouched? the equity is well before the reverse The IRA is no more spendable. We was needed. Buy the sacred than your home need to help umbrella before it starts equity. In fact, in some our clients see to rain. While all of us instances it is a little the difference. feel good about saving more dangerous to use Home is where a senior’s home from because when you take the heart is, but home equity is foreclosure, it makes a out too much, you may where the money lot more sense to avoid lose a portion to taxes, is!” the accident before it while your reverse happens. Be prepared line of credit has no with this information. taxable effects. You Make sure you fully understand it have spent your working life putting so you can explain it your client. money into your IRA and retirement Better yet, be prepared to educate the accounts so you could have it at the attorney, financial planner, insurance end of your life. You have done the agent, accountant, etc. If a client tells same as you pumped cash into your me that someone else told them a home by making payments, taking reverse mortgage is not something care of maintenance, paying taxes, for them, I always ask who it is etc. Now the reverse mortgage is and then try to schedule a meeting nothing more than a tool to access with that person so that I can stop the money (home equity) you have misinformation at the source. If all saved for retirement. The government of us do this, armed with the correct has created a guaranteed means to information, we will educate hundreds access those funds. The home is still of trusted advisors every year. sacred and kept safe, and the equity is spendable. We need to help our clients Even with 10 years of experience, I still see the difference. Home is where the struggle to get beyond these emotional heart is, but home equity is where the and psychological barriers with my money is! senior clients every week. I don’t claim to fully understand it, nor do I have all Responses to Fear No. 4: The Loan of the answers, but I know the thoughts Last Resort above will make sense to most seniors. After we have addressed all the I invite you to email The Reverse emotions that come to light when Review and share your ideas about discussing the first three concerns, the how we can step over common mental fourth concern needs to be addressed roadblocks that stop our clients from using logic and facts. Lots of research having a better retirement. n

originating

But there is a larger issue here. If parents truly want to leave their children an inheritance, real estate is not the most efficient way to do it. They can leave them cash, life insurance or other investment accounts that are immediately useful. Real estate requires cash for taxes, maintenance and utilities and may take years to sell. Besides, everyone knows someone who lost a “free and clear” house to long-term care expenses at the end of their life. And, our clients need to be reminded that only 1 to 2 percent of children actually keep their parents’ home—most sell it as fast as they can. Why not just give them the cash in the first place and spend the home equity? In fact, instead of making your mortgage payment, send the check to your children. If the goal is to give home equity to responsible children, don’t wait; do it now!

The Reverse Review November 2014

originating

Will We See a Lifetime Mortgage? By Scott Gordon

he reverse mortgage has been around for about 25 years. The program has evolved since the beginning, most recently changing to protect borrowers and the insurance pool. Society seems to be moving toward accepting the reverse mortgage more broadly and seeing it as a strong financial tool. The myths, while still alive, are starting to fade away. People are realizing the bank won’t take their house. Financial planners are beginning to see ways to use the reverse mortgage to extend retirement finances. Even Realtors are learning that the HECM for Purchase can help seniors purchase more home or a better, safer home. The question used to be, “Are reverse mortgages safe?” Now the question is becoming, “Who did you get your reverse mortgage from?” When you see this level of acceptance, you have to start wondering: Are we moving toward a “lifetime mortgage?” Not the British definition, which we would call a reverse mortgage in the states, but a mortgage that you have for most of your life—a loan that starts out as a traditional loan and becomes a reverse mortgage at some time in the future. People used to plan to pay off their mortgage and they looked forward to the day when they would own their home outright. But that has been changing. The cycle of keeping up with the Joneses has led many families to move their equity to ever-larger and more expensive homes. This keeps loan balances high, instead of getting them paid off. Many Americans assume they will have a mortgage payment forever. Many baby boomers find themselves with equity in their home, but with quite a bit of mortgage debt left to

22 | TRR

pay off. When seniors want to slow down a little, it becomes harder to keep chipping away at that loan balance. The idea of stopping your mortgage payments and using your home’s equity to stay in place becomes appealing. So as more people use a reverse mortgage to keep their family home for their senior years, are we moving toward a lifetime mortgage? That is, a loan that starts out as a traditional mortgage with a decreasing principal balance, but has a conversion feature that allows the borrowers to stop paying down the principal balance at some point, defined by program guidelines? Wouldn’t it be simpler for the homeowner to have this feature built in from the beginning? There is no crystal ball. It’s just a question. A lifetime mortgage would have to be insured for all of the reasons a reverse mortgage is insured. So maybe the logical first choice for this experiment would be for the FHA to create an FHA-insured loan that can convert into a reverse at a future date. If that catches on, the feature could be added to other programs. The advantages to the borrower are pretty clear. You only need to qualify and take out the loan one time. Once you have it in place, you have it, so you avoid most of the costs later, even if there were a conversion fee. It gives the borrower greater flexibility with their equity and could provide them with a line of credit once the loan is converted. There are certainly some possible disadvantages. A loan that has so much future commitment from a lender might well come at a higher interest rate. The higher rate would effectively slow down equity growth, at least slightly. Also, the flexibility to

convert might slow down a borrower’s drive to pay off or pay down their original balance, which could leave them with less equity. But maybe if they saw it as a retirement savings, they would make extra principal payments to effectively increase their savings. There are roadblocks in place that would make it difficult to create such a product, not the least of which is the way loans are sold into the secondary market. It’s very hard to say how the market would take this kind of note. How do you value the possibility of conversion? What does the longer loan life mean to purchasers of the asset? Investors like to know the lifespan of an asset. The variability might be difficult to assume. There is a strong market for reverse mortgages, but this would be a different animal. There are very few one-time close products on the market right now. This would be the one-time close of the century! The mortgage industry would have to decide what it thinks about this kind of product. On the traditional mortgage side, it might add a new product that gives a boost to some lenders. On the reverse side, just the topic may bring excitement and energy to the HECM market. But in the long run, if we had enough convertible products, we wouldn’t need originators to originate reverses. The reverse folks won’t want to be put out of a job, so they might not like this idea. Will we ever see a lifetime mortgage? Not any time soon. But over time, markets find ways to give consumers what they want. And over time, markets and products become more efficient. If that happens, someday we may actually see an American lifetime mortgage. n

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Educate the Industry By Megen Lawler

Education is always tantamount to the success of any change within the

1. On June 2014, HUD made changes that directly impacted the fixed-rate product.

be knowledgeable to then convey the proper message to borrowers. Education doesn’t stop there: Given all the changes to the program over the past year, HUD must also educate its team to know what to look for when reviewing files to endorse.”

2. Starting with case numbers assigned on or after June 25, 2014, the fixed-rate HECM program eliminated the second security instrument and the second note.

3. HUD removed the requirement to have someone at HUD sign the loan agreement.

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spotlight

For the first time in 20 years, Bay Docs and other document providers have to maintain multiple versions of documentation to reflect the proper compliant language dependent upon the case number assignment date. We’ve had to become very educated about all the program changes and how the “Education is always tantamount to the success of any changes impact the change within the industry. Lenders and originators must document packages. educate every layer of their staff. Loan officers have to

title tip

DID YOU KNOW

HUD has provided guidance and educational tools via their mortgagee letters and revised model forms. Yet we all must do our part to continue to educate all the players in our industry. This will help eliminate timeconsuming processes and unnecessary follow-up. Remaining compliant in the midst of all these changes is imperative to everyone’s success. n

marketing

A change to product specs may seem basic on the surface, but there is a huge amount of behind-the-scenes work to be done to account for all the changes, often with a small window of time for implementation. Companies providing loan origination and servicing systems

must update principal limit factors and related calculations, add system features and fields to accommodate new requirements, and perhaps the most intricate: accommodate all the differences based upon the date the case number was assigned.

underwriting

fter more than 20 years in the reverse mortgage industry, I’ve seen plenty of changes to the Home Equity Conversion Mortgage program, but nothing like what’s been going on these past few months. Starting in September 2013, product specs got a facelift, including changes to the principal limit factors and a limit to the first-year draw. In June 2014, HUD made changes that directly impacted the fixed-rate product. This was followed up by the non-borrowing spouse guidelines, effective August 4, 2014. We all anticipate additional changes surrounding Financial Assessment.

Did you know that starting with case numbers assigned on or after June 25, 2014, the fixed-rate HECM program eliminated the second security instrument and the second note? HUD also removed the requirement to have someone at HUD sign the loan agreement. Our office was flooded with phone calls looking for these documents. HOCs have even rejected submitted files for endorsement because these items were not included.

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industry. Lenders and originators must educate every layer of their staff. Loan officers have to be knowledgeable to then convey the proper message to borrowers. Education doesn’t stop there: Given all the changes to the program over the past year, HUD must also educate its team to know what to look for when reviewing files to endorse.

The Reverse Review November 2014

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Airplanes, Retirement Planning and Reverse Mortgages By Mike Gruley

If we think of retirement planning as a flight to a destination, then we quickly realize that most of the risks our clients face in route to their retirement destination must be met now—today.

If it took teams of experts and professionals many years to make air travel a safe, acceptable part of daily life, then perhaps that same approach to retirement planning will make reverse mortgages an acceptable, customary part of our retirement.

For decades, our industry has been increasingly working with experts from other financial disciplines, collaborating in a way that has accelerated the safety and viability of reverse mortgages. Similar to air travel, reverse mortgages will eventually become essential and necessary in the daily lives of millions, and those taking reverse mortgages will do so comfortably and confidently. The products, the industry and the participants are improving and moving in that direction each and every day.

As reverse mortgages continue to evolve and improvements are made, and awareness campaigns such as the Extreme Summit grow and take hold, teams of financial professionals representing various specialties, including reverse mortgage practitioners, will continue to come together and work in partnership to find proactive solutions that serve the needs of the colossal demographics headed our way. Running a gas can up to a stalling plane is just not an option, and for seniors waiting until they are in financial trouble before considering a reverse mortgage, the situation is often just as futile.

I guess the next time I am cruising at 35,000 feet in my Sherman tank, I think of the Wright brothers, and how endless the possibilities can be when educated, passionate experts set their minds to changing the way the world sees things—even things like reverse mortgages. n

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spotlight

So, what does this have to do with retirement planning or reverse mortgages?

As reverse mortgage professionals, we must continue to align ourselves with other financial professionals and advisors, not just because it is the right way to get business, but because it is the right way to do business.

title tip

Orville and Wilbur Wright may have begun the process, but over the years, through the combined efforts of physicists, scientists, engineers and aerospace experts, along with welltrained pilots, attendants, mechanics and maintenance crews, air travel has become a routine, run-of-the-mill event for all of us. I’ll bet even the Wright brothers would be astonished!

Once they are “in the air,” it is difficult (if not impossible) to refuel or make repairs. The options they had on the ground (or yesterday) may no longer be available to them, and catastrophe may already be in the cards.

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Maybe it’s because almost all of the risks of flying are not met in the air; they are met before the plane even leaves the ground, before the engines have started and the first seatbelt has been fastened. If you really think about it, most of the risks have been mitigated prior to the airplane coming off the assembly line.

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Nearly 2 million people in the U.S. safely travel domestically by air each day. How can travelling at a speed of 500 mph, 35,000 feet in the sky, in a vehicle carrying 15,000 gallons of explosive liquid and weighing more than twice that of a Sherman tank, be part of our everyday life? How did we come to take for granted how beneficial and safe air travel really is?

If we think of retirement planning as a flight to a destination, then we quickly realize that most of the risks our clients face in route to their retirement destination must be met now—today. Once they are “in the air,” it is difficult (if not impossible) to refuel or make repairs. The options they had on the ground (or yesterday) may no longer be available to them, and catastrophe may already be in the cards.

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s I write this, many reverse mortgage professionals across the U.S. are preparing to attend NRMLA’s annual conference in November. For most attendees, getting to Miami, Florida, will involve air travel. It got me thinking about how air travel has become such an acceptable and normal part of our daily lives.

The Reverse Review November 2014

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CONSIDER

Proprietary Pointers By Ralph Rosynek

Non-borrowing spouses and occupants The treatment of nonborrowing spouses and occupants may differ by lender. Additional qualification, counseling requirements, use of deed instruments and title vesting/seasoning are some of the more notable aspects that may affect the transaction.

Credit/income/employment/ cash verification HECM guidelines do not necessarily provide for hard and fast qualification in all of these categories. Proprietary products may be specific in terms of true and actual documentation needed to approve a borrower’s loan request. Knowing full and specific details for these category requirements at the time of borrower pre-qualification

Documentation In addition to state and federal disclosure requirements, the application and closing package may contain other disclosures and informational documents, which will need to be explained and/or executed by the borrower. As this is not an FHA-insured loan, many of the documents associated with a HECM are not appropriate for use and have subsequently been removed or replaced. Though each lender program varies in guideline and requirements, proprietary products represent the opportunity to originate more loans for today’s reverse originator. Participating in lender-provided webinars with careful review of provided program guidelines and matrices prior to adding these products to your borrower discussions is recommended. n reversereview . com

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spotlight

Counseling For many programs, specific counseling is required and traditional HECM counseling is not acceptable due to the differences in the HECM versus proprietary programs. Consult with your lender for specifics and to get an understanding of the counseling protocol that will be utilized.

Condominiums One of the marketable aspects of most proprietary products is the consideration of condominiums. “Non-warrantable” condos are generally defined as those dwellings that by way of size, demographics, completion, control, association covenants, unique profile and other criteria do not grid to standard agency or HUD-approved guidelines. In all cases, additional information on the condo association declarations, association financial and reserve strengths and project composition, profile and status are required.

Forward loan originators may have an easier time incorporating specific proprietary qualification requirements into their pre-qualification assessment while reverse-only originators are cautioned to make sure they focus on the increased knowledge and skills related to the debt ratio analysis component, credit report contents and credit score impacts, asset verification, tax return analysis and property details, in addition to other specific program requirements.

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The principal limit calculation for proprietary programs will typically include age information and vary by lender based upon other calculation components and variables to determine available proceeds.

Of particular importance is the depth of loan originator experience in assessing issues in these categories and the ability to provide and collect accurate information or alternative documentation for consideration as compensating factors.

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Borrower’s age While most of the proprietary products follow many of the HECM guidelines in their design, be aware of the specific age requirements of all borrowers at the time of application—not all proprietary products require age 62 as the benchmark for eligibility.

Be aware that the appraisal underwrite is critical to the proprietary lender and both HUD and agency (FannieMae/ FreddieMac) appraisal requirements may apply. Discuss appraisal requirements in detail with your lender before ordering or submitting an appraisal for review. Notably, proprietary products vary in their acceptance of co-op, manufactured home, small mixed-use and unique dwelling property types.

may save valuable time in meeting the borrower’s loan objectives and avoiding a path to loan denial.

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Points to Consider:

Property types Generally, most common residential property types are acceptable, however, there may be additional appraisal requirements; income and expense qualification for multi-units; land restrictions; repair limitations; and occupancy/seasoning documentation submission in the product guidelines.

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he emergence of a new group of proprietary products to serve more borrowers is requiring many originators to take another look at borrower qualification skills and knowledge in a more detailed capacity. To successfully meet borrower objectives and lender program parameters for approval, consider the following general points in assessing your ability to originate a proprietary loan:

The Reverse Review November 2014

marketing

ENGAGE

HECM Seminars Revitalize a Mission to Market the Product By Steven Sless and Ian Sandler

mailer and hoping for a phone call, we chose to deliver our message face to face. This way, we can look a potential client in the eye and explain how a reverse mortgage can help them achieve peace of mind throughout their retirement years.

e all yearn to lay our heads down at night with a sense of calm and contentment. This can be particularly challenging for many seniors who are either facing retirement or who have already retired and are living on a fixed income. For many baby boomers, the question of what lies ahead and the uncertainty of whether or not they will have enough money to last the rest of their lives is a troubling concern that can keep them up at night. As reverse mortgage specialists, we know that this type of loan can be a vehicle to help fund longevity, but how do we spread the word? How do we find qualified homeowners to educate and share this knowledge with? In the reverse mortgage industry, marketing has been mostly the same for years. We all know the celebrity spokesmen and the companies they represent. Most of us have sent mailers or worked with a telemarketing company. Some of us have

created our own internal telemarketing campaign in an attempt to reach potential borrowers and share our information, hoping to ultimately convert interest into closed loans. We believe it is time to change the way we educate potential clients. The reverse mortgage program is still taboo to many, primarily due to a widespread lack of education and information. Perhaps a change in our marketing approach can help turn this sentiment around. About six months ago, we took a step back from the traditional marketing methods we had been using. We wanted to focus instead on what peace of mind means to our clients, and then educate them on how a reverse mortgage can be the vehicle to achieve this peace of mind. We decided that there is no better way to convey our message than to deliver it in person. Instead of sending a DVD that may never be viewed, or calling a potential lead regularly only to blend in with all of the other marketing calls a senior homeowner receives, or sending a

Stay Connected 28 | TRR

f reversemortgageseminars

To get started, we contacted Ed Waldman with Reverse Mortgage Crowds. Ed provided us with all the tools we needed to begin holding live reverse mortgage seminars. The response has been overwhelming. We have been blown away by the excitement and enthusiasm of our attendees as we teach them how to incorporate a reverse mortgage into their retirement planning to ensure a happy and robust retirement. Many of our attendees have said that for years they have wondered about a reverse mortgage but were turned off for one reason or another. Some of our attendees said they simply didnâ&#x20AC;&#x2122;t know where to turn for reliable information and didnâ&#x20AC;&#x2122;t feel comfortable working with someone over the phone. During our seminars (or classes, as we prefer to call them), we address common misconceptions about the program. We are able to engage our attendees, laugh with them, share stories, and look them in the eye and shake their hand. Through these seminars, we are simply able to connect with our new friends and potential clients on a completely different level. The experience thus far has been rewarding and refreshing. We are invigorated by the ability to convey our message in a relaxed and stressfree environment, instead of sitting behind our desks, making the typical phone calls most loan officers make on

marketing

Through our seminars, we have learned that there is a large portion of the senior community that remains uneducated and uncertain about a program that has the ability to change their lives. In order to grow your business—and for the reverse mortgage industry as a whole to grow—education and information must be at the forefront. With aggregate senior home equity at a seven-year high, now is the time to spread the word that a reverse mortgage equals peace of mind! n

underwriting marketing

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800.877.7557 ext 1222 www.mtginfo.com reversereview . com

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spotlight

AT BOOTH #3 AT NRMLA IN MIAMI, NOV. 10-12

title tip

In today’s complex regulatory maze, knowledgeable and trustworthy vendors are crucial to your success. Not sure which direction to take or where to go?

to better grasp their goals for both the short and long term. This allows us to work with them to create a customized plan designed to meet their goals and help them obtain peace of mind.

originating

“Through these seminars, we are simply able to connect with our new friends and potential clients on a completely different level. The experience thus far has been rewarding and refreshing. We are invigorated by the ability to convey our message in a relaxed and stress-free environment, instead of sitting behind our desks, making the typical phone calls most loan officers make on any given day. We have the opportunity to travel and meet hundreds of wonderful people along the way that we otherwise would have never been able to meet. The experience allows us to connect, to earn these seniors’ trust and build lasting relationships.”

any given day. We have the opportunity to travel and meet hundreds of wonderful people along the way that we otherwise would have never been able to meet. The experience allows us to connect, to earn these seniors’ trust and build lasting relationships. It has also been a lot of fun! We have all heard the old adage that if you love what you do, you will never work a day in your life. Well, that’s true. Holding these seminars has not only increased our business beyond our anticipation, it has also inspired us and helped us become better loan originators. By meeting all of our clients in person, sharing a meal with them, and, most importantly, listening to them, we are able

The Reverse Review November 2014

title tip

Learn

Methods of Holding Title By Megan Hafenstein

Title can be held in a variety of different manners, depending on the relationship of the owners and state in which it is located. The chart below has been created to help you navigate various situations. rty

uni

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y ert ship rop vivor P ty ur uni of S y mm ight o anc C hR Ten t t i n w Joi

ncy

a Ten

o in C

rtn

ng rra

ent

ip rsh

s Tru

Parties

Husband and wife or domestic partners

Any number of persons, but cannot be an artificial entity such as a corporation, LLC or trustee of trust

Any number of persons or entities may hold title as tenants in common.

Only partners/ shareholders/ members of the artificial entity

Trustee and beneficiaries of trust may be individuals, trusts or any legally created entity.

Division

Ownership and management are equal, except control of business is solely with managing partner.

Ownership interests must be equal (can have equal interests in undivided interest).

Ownership can be divided into any number of interests, equal or unequal.

Single legal entity, partners/ shareholders/ members own interest in entity, not property held.

Interests in trust are personal property and are in accordance with terms of trust.

Title

Title is in the “community.” Each interest is separate but management is unified.

Each joint tenant has separate legal title to undivided interest, subject to right of survivorship.

Each owner has a separate legal title to undivided interest.

Title is in the artificial entity.

Held in name by the trustee(s)

Possession

Each spouse or partner has equal rights of management and control.

Equal right of possession

Entity has sole right of possession. Entity’s organizational documents determine individual partner’s/ shareholder’s/ member’s rights, if any.

In accordance with terms of trust

Conveyance

Both spouses or partners must convey or encumber in writing, or conveyance is void.

Each owner’s interest may be conveyed or encumbered individually, but conveyance or encumbrance without joinder of other joint tenants severs joint tenancy.

Each owner’s interest may be conveyed separately.

Conveyance authority determined by organizational documents and applicable statutes. In accordance with terms of trust.

Trustee has authority to convey in accordance with terms and limitations of trust agreement.

30 | TRR

Title tip y ert

uni

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y ert ship rop vivor P r ty u uni of S y mm ight o anc C hR Ten t t i n w Joi

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Upon death of spouse/partner, interest passes to surviving spouse/ partner without administration.

Upon co-owner’s death, interest passes to surviving joint tenants Interest may not be disposed of by will.

Interest passes by will or intestate, if no will. Interest must be probated.

Entity not capable of dying. Impact, if any, of death of partner shareholder member on affairs of entity determined by organizational documents and applicable statutes.

Upon death of trustee, successor trustee, if any, holds title on behalf of trust. Effect of interests in trust upon death of a beneficiary determined by terms of trust agreement.

Successor

If passing by will, tenancy in common with surviving spouse; if passes to spouse, then owned in entirety by surviving spouse.

Last survivor owns property.

Devisee or heir becomes tenant in common with other owners.

Interest, but not management authority, of partner/ shareholder/ member in the entity passes by will or, if no will, by intestate succession. Upon death of trustee, successor trustee, if any, holds title on behalf of trust.

Defined by terms of trust agreement

Creditor’s Rights

Property is liable for the debts of either spouse made before or after marriage, subject to homestead rights, if principal residence.

Involuntary lien of creditor or deed of trust terminates on death of joint tenant. If creditor executes on lien prior to death and acquires title, he becomes tenant in common with remaining joint tenants.

Owner’s interest may be sold on execution sale to satisfy creditor. Creditor becomes tenant in common with remaining owners.

Creditor of partner/ shareholder member may obtain order attaching interest in entity, but not property held by entity.

Creditor with lien/judgment against beneficiary may execute on beneficiary’s interest in trust, not property held by trust. Lien against individual trustee may not attach to trust. However, if trustee is settler or revocable trust, lien may attach.

Presumptions

Strong presumption that property taken as “husband and wife” or as “domestic partners” is community property.

Creation of joint tenancy must be in writing.

Joint ownership presumed to be as tenants in common, unless title acquired by “husband and wife.”

Property must be expressly vested in partnership.

Property must be expressly vested in trustee of trust. Trust is created by executed trust agreement.

Status

marketing

info@reversereview.com your monthly publication for reverse mortgage news reversereview . com

8 TRR | 31

spotlight

Get involved.

title tip

Reverse Review readers help thousands of seniors find financial security. Let’s talk about how we can help thousands more.

underwriting

On spouse’s or partner’s death, half belongs to surviving spouse/ partner; half passes by will or, if no will, then passes to surviving spouse or partner.

originating

Death

The Reverse Review November 2014

visit us at www.usa-repairs.com

National Repair Solutions has a network of licensed professionals who will help complete jobs of any size that are needed prior to close. Our stellar team will handle your senior clients with the care and compassion they deserve.

32 | TRR

spotlight

A South Florida Realtor Shares His Perspective on the H4P’s Potential m o nt

h’

ition

One real estate agent calls for a partnership between lenders and Realtors.

10 / 2014

Unfortunately, the H4P lending opportunity has been vastly underutilized since its governmentfunded inception in 2009. As a Realtor, I believe that underutilization is 99.9 percent product misunderstanding by the Realtor community. I am an agent working in Southeast Florida, and given this area’s particular appeal to retirees, the H4P should be doing considerably better here than anywhere else in the country. The challenge we agents face is that buyer interest in the H4P needs

My partner and I see the baby boom generation as a vastly untapped pool of property investors that could benefit from the opportunity created by the H4P. Agents and lenders should work together to better reach my fellow boomers with a smarter message. My partner and I are working with investors to acquire $33 million worth of SFR forward mortgaged properties that we will improve to FHA standards and make available for lease or purchase. Lender leverage will allow our venture to quadruple acquisitions in the coming year. H4P leverage for boomers would be an option of significant value as we release properties into the market. We believe that there will be hundreds of H4P mortgage opportunities as well as scores of revenue-producing investment properties coming through

our channel in the next decade. Such a volume of property acquisition needs buyers, lenders and agents capable of servicing them properly. Today’s real estate agents don’t quite grasp the H4P opportunity that only they can effectively present if they understand the product and explain it as an asset opportunity. H4P lenders have the best potential to refer H4P-savvy senior investors, while organizations like ours educate agents to handle the task. As an agent, I was taught to financially qualify a buyer in order to justify my time, energy and effort. Financially qualifying the buyer at my end is as simple as asking, “Are you taking a mortgage or paying cash?” If the buyer said they were taking a mortgage, I’d refer them to the forward mortgage lender for further financial qualification. If they said they were paying in cash, I’d ask for written proof of funds and delve no further. I was not taught to introduce the H4P alternative’s investment equation. Mea culpa, because by 8

reversereview . com

8 TRR | 33

spotlight

relationship between agent and lender can be nurtured and developed by our mutual interest in assisting seniors. But it may require a change in marketing strategy that looks at those seniors as investors as well as buyers.

to be sparked. The challenge lenders face is that agents seldom mention the product or understand the significant value it presents to both buyers and agents.

title tip

he relationship between HECM for Purchase (H4P) lenders and real estate agents is rife with unfulfilled opportunity. Realtors can bring the senior buyer to the FHA-insured H4P vault and you can open it for them. How great is that? The

marketing

See them at reversereview.com.

underwriting

want to see more articles like this?

originating

is th

by Michael B elgeri

The Reverse Review November 2014

“

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spotlight not mentioning a valuable third option to senior clients, the H4P, I failed to do my duty to the over-62 buyer and may have even missed out on additional sales and commission.

There are so many challenges facing Realtors right now. Fannie Mae hosts a property website (homepath.com) for consumers, investors and agents that offers both forward mortgages and rehab funding to buyers. Zillow, Trulia, Yahoo, Google and others give consumers access to property listings through MLS, which is the heart of our business model. Realtor.com is a top ranking website. Recently, the broker reciprocity agreement that holds MLS together was modified, allowing brokers to sell their own MLS data to financial institutions and Internet publishers. The Florida Legislature recently funded the hiring of more judges to speed up the foreclosure action against tens of thousands of delinquent property owners, turning the county courthouse website into a virtual auction for Realtors. Finally, brokerage discounters are offering reduced commissions to buyers and sellers. All of this adds up to a need for a marketing advantage. I believe the H4P is that advantage. 8

By 2030, 32.5% of Florida’s population will be 60 or older. reversereview . com

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spotlight

It is my opinion that South Florida is a perfect region for introducing a fresh approach to the H4P. South Florida has a growing base of senior buyer prospects and a large group of competitive Realtors looking for an edge. The irony is that Florida, while ranking fourth in the nation in reverse mortgage originations, seems to be out of touch with its H4P opportunity. I believe agents have an obligation to change our approach to the senior

Agents want to close deals as quickly as possible. A cash closing is a simple process that does not include a mortgage lender, questions, underwriters and, most of all, an extended time to closing. What many agents don’t know is that an H4P deal can close in as short a time as most cash deals, as long as the federal criteria have been met.

title tip

Here’s the good news for H4P lenders: Florida also has one of the highest densities of real estate agents who are often the first contact point for retiring boomers. Roughly 10 percent of all licensed U.S. real estate agents live in Florida (130,000 agents) and one-third of these licensed agents reside in South Florida counties (Broward, Miami-Dade, Monroe and Collier).

market and with assistance from H4P lenders, that change can happen quickly. We must make senior buyers aware of the liquidity available through the H4P and present it as more valuable to the senior than the cash deal.

marketing

As a real estate agent for the past eight years, I can tell you that there has been very little institutionalized information or effective marketing training offered to Realtors concerning the H4P from either local or state organizations, or from the National Association of Realtors. Even the NAR Senior Certification program makes no mention of the H4P in its 11 hours of formal coursework. That is a troublesome issue for me as a real estate agent for one simple reason: Over the next 16 years, 32 of every 100 of Florida’s 38 million residents will be over the age of 62.

In February 2014, Florida surpassed New York in population, making it the third most populous state behind California and Texas. Florida is now ranked seventh in population growth. Furthermore, Florida has a rapidly growing percentage of retired boomers. The U.S. Census Bureau estimates that 32.5 percent of Florida’s population (8.4 million people) will be 60 or older by the year 2030, a substantial increase from 2012.

underwriting

The situation with an H4P prospect is completely different. The H4P concept was created in 2009—a horrendously timed birth. Its introduction occurred just as the mortgage bubble burst. In South Florida, housing values fell 56 percent following the crash. Money dried up and Starbucks, Costco and Walmart got a reserve of employees with real estate licenses. A new mortgage product courtesy of the FHA was not on our radar. Survival was.

Michael Belgeri

originating

The forward lender and I work together because I don’t want to waste my time on a property search for someone who can’t qualify for a mortgage. The client needs to establish their credit qualification to buy what is within their loan-to-value leveraged worth. Together with the forward agent, the Realtor can do amazing things for buyers who qualify at any age.

“Unfortunately, the H4P lending opportunity has been vastly underutilized since its government-funded inception in 2009. As a Realtor, I believe that underutilization is 99.9 percent product misunderstanding by the Realtor community.”

The Reverse Review November 2014

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spotlight Agents are distracted from all sides by competitors. Yet there has never been a more overlooked or better friend to agents than the H4P mortgage lender, nor has there been a more opportune moment for agents to understand and co-market the H4P.

The National Association of Realtors is an enormous association. All it takes to impact those 1.3 million real estate agents is a few success stories from other agents who are trained to handle the H4P buyer. If reverse lenders market the liquidity, the benefits and the opportunity for the H4P in South Florida to local agents, I believe they can stimulate significant growth. n

E d u c at e The National Association of Realtors has 1.3 million member agents nationwide. Let’s find a way to educate them about the H4P. reversereview . com

8 TRR | 37

spotlight

My partner, who is a former HECM broker, told me that there had been numerous attempts by his firm in 2009 to reach out to real estate agents across the country when the H4P was introduced. When I told my partner of my experience in the “lunch and learn,”

The mortgage collapse of 2009 is still impacting property in this region. Eighteen percent of single-family homes in the area are either bank-owned or in the process of foreclosure. My partner and I have been making leveraged purchases, rehabilitating and renting properties as income properties for our investors, and the venture has yielded ROIs ranging from 20 to 50 percent over the past six months. We believe these properties present an amazing revenue opportunity for seniors who have cashed out in the north and are intent on living the good life in South

If real estate agents in South Florida were to see that presenting the H4P would mean the sale of not just one, but several properties, they may back off their “cash addiction.” If they see that H4P lenders consider agents to be excellent referral partners, they will respond. If Realtors in the retirement regions of the southeastern U.S. understand that the H4P rules are simple to follow and easy to execute, their interest will be piqued. If a trained H4P real estate agent anywhere in the U.S. receives referrals from mortgage lenders that have H4P-savvy senior clients downsizing for asset growth and using H4P liquidity for property buying, this could take root on a national scale.

title tip

Each question from the audience of Realtors was off-topic. The agents’ questions were based on their personal experiences with HECMs. Enlightenment as to the marketing value of the H4P would have to wait for another instructor and another day.

South Florida has always been a mecca for retirees, particularly from the northeastern states where taxes are high and winters are cold. The growing influx of senior homebuyers in South Florida will bring thousands of prospective cash-rich retirees to this region over the next decade and a half.

Florida. How can they take advantage of the property investment opportunity? The H4P, of course.

marketing

The good news was that the H4P instructor giving the class knew her material. The bad news was that she didn’t know her audience. The hourlong class became a two-hour defense of the reverse mortgage.

he only shook his head, smiled and said, “Déjà vu.” It seemed that reaching out to agents and motivating them needed a new approach. Our research for investors led us to discover an anomaly about property values in South Florida. We’ve decided to take a new and more direct approach to marketing the H4P option based on that anomaly.

underwriting

Our local association hosts free “lunch and learn” events for agents sponsored by various organizations, including title companies, attorneys and mortgage companies. Last fall, one such event was hosted by one of my H4P contacts. The class was titled “HECM for Purchase: A New Option for Realtors.” It was packed with agents in search of that elusive new marketing option, who were intrigued by the association email and didn’t mind getting a free lunch.

originating

Our (yours and mine) ideal H4P borrower is the one who doesn’t need an H4P loan. Instead, they want the liquidity made possible by leveraging their home equity; for them, it makes good financial sense in their portfolio. That’s the story that needs to be understood by agents.

“It is my opinion that South Florida is a perfect region for introducing a fresh approach to the H4P. South Florida has a growing base of senior buyer prospects and a large group of competitive Realtors looking for an edge. The irony is that Florida, while ranking fourth in the nation in reverse mortgage originations, seems to be out of touch with its H4P opportunity. I believe agents have an obligation to change our approach to the senior market and with assistance from H4P lenders, that change can happen quickly. We must make senior buyers aware of the liquidity available through the H4P and present it as more valuable to the senior than the cash deal.”

The Reverse Review November 2014

growth

top

38 | TRR

& stability

reasons for moving:

m fa

ily

o tw

fin

ti ca

Lately, it seems all eyes are fixed firmly on the rearview mirror as we analyze what went wrong during the growth of the housing price bubble and the resulting housing market crash. All kinds of new rules have been developed to deal with the past and the implementation of those rules will consume considerable bandwidth for years to come. While this is all relevant and interesting, the proportion of eyes focused forward, through the windshield ahead, needs to increase dramatically.

The long-anticipated surge of aging Americans has arrived. A huge player in the American housing story over the coming decade will be the homeownership needs of older households. Eighty-six percent of all household growth will be attributed to those headed by persons age 65 and older, which amounts to more than 10.5 million new households. These are stunning statistics! By 2040, the U.S. Census Bureau estimates the number of persons 65-plus will be approximately 80 million, nearly double the population in the year 2012; 1 in 5 people in the U.S. will be 65 or older. All of this has profound implications for America’s housing markets, local communities and the housing finance system. Older households

Population Age 65+

have the highest Owner-Occupied Units by Age Group Approximately one-half of owner-occupied housing is owned homeownership rate by households age 55 or over. of all age groups. Last year, the l <35 homeownership rate l 35-44 for older households l 45-54 was 81 percent. l 55-64 This compares l 65+ with a 60 percent homeownership rate for households under the age of 65. Further, the homeownership rate of this group is forecast to remain steady for the next 20 years, while Most stay at home within their the rates of homeownership for all present communities. other age groups are projected to decline. Currently, more than 1 out of 4 There is ample data finding homeowners (28 percent) is older than that the overwhelming majority 65. The proportion is rising and it is (approximately 78 percent) of older certain to soar in coming years. homeowners wish to age in place. As the number of these households In other words, the determinants of increase, their housing stock will housing demand and housing policy require routine maintenance and have shifted. And, this reconfiguration renovations, as well as retrofitting to will continue for years to come. accommodate aging in place. The costs Housing policy makers need an of homeownership will continue to increasingly open and consumermarch upward. driven approach to meet the actual needs of these future housing markets. The baby boomers that determined the past housing market wave have moved on to create the next wave.

The long-anticipated surge of aging Americans has arrived. 2000 2020 2040 2060

At the same time, the majority of people now expect to reach retirement with mortgage debt. A recent survey by Securian Financial Group found that 59 percent of retirees entered retirement with mortgage debt and two-thirds of pre-retirees now expect to enter retirement with a mortgage. The University of Michigan Retirement Research Center reports that the amount of mortgage debt among pre-retirees tripled between 1992 and 2008. The diversion of retirement cash flows to debt service threatens a homeowner’s ability to meet the other housing obligations that facilitate aging in place. A reverse mortgage represents an opportunity to “reset” household finances and improve monthly cash flows so that it can be allocated to living expenses. 8

Source: U.S. Census Bureau, Population Estimates and Projections

the U.S. Census Bureau ESTIMATES THAT BY 2040, THE number of persons 65plus will be approximately 80 million, nearly double the population in the year 2012; 1 in 5 people in the U.S. will be 65 or older. reversereview . com

8 TRR | 39

The Reverse Review November 2014

growth

& stability

Mortgage Debt Expectations The majority of pre-retirees expect to enter retirement with mortgage debt.

Forward thinking is required to ensure that the appropriate financial products and resources are available to facilitate and fund these considerable requirements. The enormity of the challenge requires both public and private involvement. This capability is not only essential to the occupants of the home, but important to the health of communities at large. With every third house becoming occupied by older homeowners, deferred maintenance, substandard living situations or mass selling will materially and adversely impact entire communities. The tenuous financial outlook of aging baby boomers is a crucial factor when considering the implications of this massive demographic change. A HECM that is aligned with the realities and needs of the consumers in this segment is an essential element of addressing this new wave through the housing sector.

Others move, but most still stay close to home. While a large majority of homeowners indicate a desire to age in place, almost 25 percent say they expect to move. Boston College estimates the two-year move rate among older households to be approximately 10 percent. Further, as boomers move along the aging continuum into their late 70s and early 80s, the number choosing to move to

more accommodative housing is likely to increase. In 2014, 1.5 million older households will move and that figure is expected to rise rapidly. A strong and viable reverse mortgage program tailored to meet the needs of older homebuyers is essential to a healthy housing finance system. Otherwise, the group is likely to become a significant component of the next housing finance bust. Conventional housing finance terms, in particular a mandatory monthly payment, present asymmetric risks to people of retirement age, especially the middle class and those below who have few financial reserves. While traditional mortgages require monthly payments in constant and consistent amounts, the monthly income of older Americans over the long term is neither constant nor consistent. The 2013 Department of Health and Human Services’ “Profile of Older Americans” reported 86 percent of older Americans represented Social Security as a “major” source of income. For couples, Social Security is not a constant or consistent source of income. Death of a spouse, an inevitability in the age group, reduces the amount of household Social Security income. The same goes for many among the shrinking group who report private pensions. For the increasing portion of society relying upon income from assets, much depends on markets and timing. Compounding income stability risks, a second inherent characteristic of the constituency, is the expense risk associated with health care costs. One certainty of this unknown variable is that it will change, and it is very unlikely to go down. The upward risk is large.

the product contains rules that often deviate from accepted real estate market practices in local markets and it is only a rough fit with newly constructed homes. Product modifications are required to improve the suitability of the product for the rapidly growing housing market need. How does a strong purchase money reverse mortgage help sustain housing markets and local communities? After all, the stereotype of older movers is that they pick up stakes and flock to newly built retirement communities in the “sand states” (Arizona, California, Florida, Nevada, etc.). Although a compelling image, it is not true. The Boston College Center for Retirement Research reviewed the moving patterns of the aging and found the vast majority of older households choose to move within 20 miles of their present home. Four-fifths stay within 200 miles. The connections at home matter.

The actual reasons for moving are fairly intuitive. The top three reasons are: ONE // Family TWO // Finances THREE // Location

Staying Close to Home

The majority of movers stay close to home and over half stay within 20 miles of home.

Source: Center for Retirement Research at Boston College, “Older Americans on the Go: How Often, Where.”

l 1-20 miles l 20-200 miles l 200+ miles

The existing HECM for Purchase product addresses a portion of this growing market segment. However,

A strong and viable reverse mortgage program tailored to meet the needs of older homebuyers is essential to a healthy housing finance system. Otherwise, the group is likely to become a significant component of the next housing finance bust. 40 | TRR

time when demographics suggest it should be increasing. It is unrealistic to assume product design and structure play no role in this counterintuitive result.

28% family 22% financial 21% better location / house 16% retirement 4%

health

other

The No. 1 reason, family, includes the death of a spouse and the related implications of finance and housing choice.

Now is the time to be proactive: Anticipate and steer around the next housing crisis.

Reasons for Moving

The top three reasons for moving are family, finances and location.

Source: Center for Retirement Research at Boston College, “Older Americans on the Go: How Often, Where”

other private sector equity release products are essential to providing stability to housing markets as they undergo unprecedented demographic shifts over the next several decades. In terms of household growth, this demographic far overshadows all other segments. As referenced earlier,

It is time for policymakers to carefully examine the product to identify areas where there is an opportunity to better align with the needs and circumstances of actual consumers. Since 2009, the industry has been consumed with the past, installing new constraints and limitations to address the perceived failures that occurred largely in the traditional mortgage delivery system. Far less attention, if any, has been focused forward on meeting the actual needs of current and future consumers. The HECM for Purchase program is an excellent place to start. It constitutes

Now is the time to ensure that our housing finance Now is the time to ensure that our housing finance products and delivery systems are in alignment products and with our aging population. Otherwise, future generations will be doing what preoccupies us now: delivery systems looking out the rearview mirror, analyzing and reacting to a problem that was largely foreseeable. are in alignment with our aging The housing financing needs of older Americans are unique and increasing rapidly.” population. Otherwise, future generations will be doing what 86 percent of all household growth approximately 3 percent of all HECM preoccupies us now: looking out over the coming decade will be volume, comprising 2,100 loans in the rearview mirror, analyzing and attributed to households that are age 2013. Considering that 1.5 million agereacting to a problem that was largely 65 and over. eligible households will change houses foreseeable. The housing financing this year, it is a ripe opportunity to needs of older Americans are unique Today, the HECM is the only viable start examining whether the existing and increasing rapidly. product in the marketplace. As program rules facilitate consumer such, it performs an essential role There are two groups—those who use and conform to market norms. as the pilot program in providing stay at home and those who move— If the program does not line up to stability to housing finance for and although they have different these requirements, the impact will older homeowners. It also performs immediate financing needs, they have be to force older homebuyers into a substantial role in seeding and similar long-term circumstances and alternative products that present reinvigorating the private sector for challenges. Most Americans are no substantial future default risks and equity release products. Its popularity longer entering retirement free of contribute to the next market crisis. n grew steadily for a decade following mortgage debt. Traditional pension its conversion to a permanent FHA systems are disappearing. Housing program in 1998, but has declined in wealth is the largest asset for most. the aftermath of the housing crisis, a The reverse mortgage program and

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The Reverse Review November 2014

last word

examine

The Good, the Bad and the Ugly… in Reverse By Bart Johnson

The Ugly If our core mission is to liberate imprisoned home equity for the senior mass market, allowing them to maintain some level of financial independence and lifestyle integrity as they redefine retirement throughout their ever-longer lives, we have at best massively underachieved. However we choose to measure it, our 25-plusyear effort has produced a miniscule penetration of eligible households, and the unmet needs of many remain unaddressed. Significantly, the market is growing much faster than the industry today. But in the spirit of positive thinking, this represents an opportunity, not a failure. The Bad The industry is struggling to escape its current predicament. We have lacked true nationally recognized brands since the exit of the mega banks. We effectively have a single current product, new and improved but more limited than before, that is heavily commoditized, and there is no real opportunity for lenders to differentiate themselves from one another other than price. We suffer a fundamental imbalance between supply and demand. The HECM is now tougher to qualify for, and has utilization limits as well, resulting in reduced unit and dollar volumes and creating shortages in supply. At the same time, artificially low prevailing interest rates have created great investor demand for the product. There are simply too many companies chasing too few loans. The value of the loans originated, resulting from the higher yields and shortage of supply, drives up the back-end value (loan sale premiums) paid by investors. These are not dollars charged to the consumer, nor can these dollars be redirected to benefit the consumer. Raising principal limit factors would simply make the loans worth less to investors, raise FHA insurance fund risk to unacceptable 42 | TRR

Industry representation continues to be outstanding, the only constant in an otherwise rapidly changing industry. After years of playing defense, we are on the offensive now, telling our positive story rather than reacting to political sound bites and issues that too often result from misperceptions.

levels, and reduce dollars available to cover the cost to produce. This is a slippery slope. Volume is the key, so salespeople are in great demand. But low volumes in the current marketplace dictate that salespeople in general cannot originate sufficient volumes at normal payouts to earn a living. They must therefore earn more dollars per loan with their established volume. The strong sale premiums thus camouflage a root issue with the relative cost of the current upfront origination process. Companies are overpaying originators (dipping heavily into the back-end value) to retain critical sales forces. That leaves no margin for broker shops, branches and lenders (that are not also issuers/servicers, and therefore have no back-end to access). This is a “Red Ocean strategy” at its worst, and the noise distracts from the need for transformation. Competition is unlikely to allow reduction in originator compensation, and that would be the wrong answer anyway. We must drive increases in volume, for the sake of customers with unmet needs, and to bring some balance back to industry economics. That would alleviate the need to cut margins in order to overpay on too few loans, offering better total compensation to originators while restoring industry margins. The Good Still, we have much to be excited about! The underserved and underpenetrated senior market is the business opportunity. Industry representation continues to be outstanding, the only constant in an otherwise rapidly changing industry. After years of playing defense, we are on the offensive now, telling our positive

story rather than reacting to political sound bites and issues that too often result from misperceptions. The Extreme Summit initiative has produced “the new reverse mortgage,” and is proactively rebranding the entire industry, the product and the customer. This is a whole new story, which should work well for HECMs while setting the stage for various proprietary products to come. Industry participants have morphed positively as well. After the original industry leaders exited the space, a new group has emerged to assume the mantle of leadership. New investors and sponsors have already entered the fray, introducing critical brands, capitalization, liquidity and credibility to the industry once again. Others continue to study and contemplate entering our business. This is producing new product introductions, featuring both new whole loan and security investors. Today’s industry participants are heavily invested in distribution, but have too little to sell. The key to reaching the mass market is a much broader product menu, built around customer segmentation. This must include innovative reverse mortgage products, but should not stop there. It should also include other liquidity tools (such as life estates, equity shares, and life settlements). We must continue to change the industry dialogue, reject business as usual, and embrace the “Blue Ocean” to thoughtfully and systematically transform the industry. n

A teAm is behind every winner we Offer wholesale Lending, Correspondent Lending and Aggregation Partnering. • We help you serve your customers and earn more revenue • Your flexible partner, from originations, servicing, securitization, to REO asset management • Fastest closing loans in the industry • Market-leading pricing • Advanced, yet flexible technology • Continued education, training and marketing support

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The Reverse Review November 2014

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