The Reverse Review Nov/Dec 2011 by The Reverse Review

THE

REVERSE NOVEMBER/DECEMBER 2011

review

INSIDE this issue

A safety feature HUD strongly recommends By Bill Waltenbaugh, SRA

What the industry is in need of

competitor?

By Brett G. Varner

+ Torrey larsen sits down in The Hot Seat!

Alain Valles CRMP

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OPPORTUNITY IS KNOCKING. WILL YOU OPEN THE DOOR? Now that two of the main national bank providers of Reverse Mortgages have just left the market, it is your opportunity to fill the vacuum.You could and should be the one that seniors in your area can now turn to provide this valuable service. But how will they know you are there for them now that they need you most?

e are a financial services compa“W ny that has been conducting financial seminars in Maryland, North Carolina, New Jersey, New York, & Washington, D.C. since 1999, as a vehicle to educate seniors about the value of the reverse mortgage. It is our pleasure to work with Ed Waldman of Reverse Mortgage Crowds. He patiently guides you, step by step, in the process of evaluating your market, developing the mailing list, placing your order, and then following up with you after the seminar to see how things went. We are very pleased by the number of seniors that attended the seminar, were seriously interested in knowing more about the reverse mortgage, requested appointments, and have given us referrals to speak to other groups and individuals. The cost of the mailing and the RSVP service is money well-spent!” — Karen & Steve Yarn, Warm Breeze Financial

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Editor’s Note e

It seems strange to be sitting here writing the final editor’s note for 2011. Just the other day I was standing in front of hundreds and hundreds of our archived copies dating back to 2008. I truly know just how much work goes into each and every issue and I am so proud to see just how far we have come. The Reverse Review was started by Aman Makkar as a small trade publication in April 2008. The magazine slowly grew and grew, and Erica English was brought on to fill the position of editor-in-chief. Erica and Aman collaborated to grow the industry publication in every possible way and watched as it thrived. When I started at The Reverse Review just over a year ago, I knew I had some big shoes to fill. It was a pleasure working with Aman and helping him continue to carry out the vision he once had for the magazine many years ago. Aman has been passionate about The Reverse Review and I thank him for his contribution and dedication as publisher over the years.

As I sit here writing this note to our readers today, I’m happy to officially announce the change in ownership of The Reverse Review. I’m thrilled to be partnering with two very passionate people in the reverse space who have great plans for the magazine in the year ahead. Now that our last issue of 2011 has gone to print, we are heading back to the drawing board to brainstorm and execute some very exciting initiatives for 2012. Look for us in January to be your new resource for the new year! As always, please enjoy all of the hard work that went into our November issue of The Reverse Review. It was a great year for the magazine but be sure to keep an eye on us because there is much more to come! Until next time,

Editor-in-Chief { emily

vannucci

} st co ay nn e

cte

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

get up-to-date news and industry interviews

FIND US ON:

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FACEBOOK, TWITTER, LINKEDIN

TRR 11/12.11

the Essentials

Meet the Team Editor-in-Chief

Emily Vannucci

National Sales Rep. & Marketing Coordinator Kate Sheehan

Creative Director Traci Knight

Copy Editor

Kersten Wehde

Who is Your Biggest Competitor? 20 And what are the secrets to beating them?

Alain Valles, CRMP

Financial Assessment is Coming as Lenders Take Lead 26 Mike Kent highlights the lender’s role in establishing an industry model.

Brett G. Varner

Reports of the Mortgage Broker’s Death Are Greatly Exaggerated 30 Once the industry scapegoat, the mortgage broker is alive and thriving today.

Printer The Ovid Bell Press Advertising Information phone : 978.987.4095 email : kate@reversereview.com

Jim Cory

the

Core

Subscriptions email : information@reversereview.com

The Report 7, 9

Editorial Content email : emily@reversereview.com

Ask the Underwriter 10 The Perspective 12

© 2011 Reverse Review Publishing, LLC All rights reserved. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, Reverse Review Publishing, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 3800 West Chapman Ave., Orange, CA 92868

Ask the Appraiser 14 The Hot Seat 16 The Industry Roundup 18 The Resources 33 The Last Word 34 reversereview.com

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the Contributors Jim Cory

Feature Article l

Alain Valles, crmp

Reports of the Mortgage Broker’s Death Are Greatly Exaggerated, pg 30

Jim Cory is Co-founder and CEO of Legacy Reverse Mortgage, a reverse mortgage originator in San Diego, CA. Cory began his reverse mortgage career 13 years ago and he serves on the board of directors for the National Reverse Mortgage Lenders Association. Cory has a Bachelor of Arts degree from Pennsylvania State University. jcory@legacyreversemortgage.com | 800.991.4613 | twitter: @LegacyJim

Who Is Your Biggest Competitor?, pg 20

Dennis Gassoway 2

Tax Tip, pg 15

As the National Sales Executive for ICG Inc., the nation’s most diverse and customizable real estate tax service, Gassoway is responsible for business development at all levels of the loan servicing field. Prior to joining ICG Inc. in 2007, Gassoway held business development positions at Transamerica, Lereta and LandAmerica. In addition to many achievement awards, Gassoway has a B.A. in marketing and finance.

Michael Kent

Alain Valles, CRMP, is President of Direct Finance Corp., Hanover, MA, one of the leading reverse mortgage brokers in the country. Valles received a master’s in real estate from M.I.T., an MBA from The Wharton School, and graduated summa cum laude from the Univ. of Massachusetts. Valles’ mission is to improve the quality of life through responsible financing. avalles@dfcmortgage.com 781.878.5626

Financial Assessment is Coming as Lenders Take Lead, pg 26

Michael Kent joined RMS (Reverse Mortgage Solutions), Inc. in February 2010 as Senior Vice President of lending and business development after more than 30 years of mortgage banking experience in senior and executive level management positions. He is responsible for the design, implementation and management of the company’s lending efforts, including production channel design and production source risk assessment.

John LaRose

The Last Word, pg 34

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

Torrey Larsen

The Hot Seat, pg 16

Torrey Larsen, who co-founded Security One Lending, is Chief Executive Officer. He is active in all aspects of the firm, with his central focus on overall business growth and strategic direction. Larsen has a broad background in the areas of corporate finance, capital markets, and secondary marketing.

6 6

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The Reverse Review November/December 2011

the Report

September 2011 Wells Fargo MetLife Bank, N.A. Bank, N.A. Endorsement Endorsement 1447 1134

Top Lenders Report

One Reverse Urban Mortgage, LLC Financial Endorsement Group 413 Endorsement 339

Generation Mortgage Co. Endorsement 299

12345 Lender

Endorsements

Lender

Endorsements

GENWORTH FINANCIAL HM EQUITY

225

POPULAR MORTGAGE INC

SECURITY ONE LENDING

185

OPEN MORTGAGE LLC

AMERICAN ADVISORS GROUP

134

NATIONWIDE EQUITIES

THE FIRST NATIONAL BANK

NETWORK FUNDING

REVERSE MORTGAGE USA INC

SIDUS FINANCIAL LLC

PLAZA HOME MORTGAGE INC

ENVOY MORTGAGE LTD

NEW DAY FINANCIAL LLC

FULTON BANK NATIONAL

CHERRY CREEK MORTGAGE CO INC

ALLIED HOME MORTGAGE

SENIOR MORTGAGE BANKERS INC

AXIA FINANCIAL LLC

SUN WEST MORTGAGE CO INC

COMMUNITY FIRST BANK

SUNTRUST MORTGAGE INC

LIVE WELL FINANCIAL INC

M AND T BANK

UNITED NORTHERN MORTGAGE

EQUIPOINT FINANCIAL NETWORK

UNIVERSAL LENDING CORPORATION

ASPIRE FINANCIAL INC

THE MONEY SOURCE INC

MONEY HOUSE INC

HARVARD HOME MORTGAGE INC

ASSOCIATED MORTGAGE BANKERS

GULF COAST BANK AND TRUST

GREAT OAK LENDING

HOMESTREET BANK

HIGH TECH LENDING INC

LIBERTY BANK

ROYAL UNITED MORTGAGE LLC

AMERICAN PACIFIC MORTGAGE

PRIMELENDING A PLAINSCAPITAL

VIG MORTGAGE CORP

SUN AMERICAN MORTGAGE CO

REVERSE MORTGAGE SOLUTIONS INC

GMFS LLC

OCEANFIRST BANK

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the Contributors John K. Lunde

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

Ralph Rosynek

Brett G. Varner

The Report, pg 7, 9 8

The Perspective, pg 12 Financial Assessment is Coming as Lenders Take Lead, pg 26

Brett G. Varner is the News Editor for reversereview.com. Varner has served the mortgage industry for 10 years in leadership capacities in sales, marketing and operations. His unique and knowledgeable perspective is focused on developing useful content and strategies in a forum of open and lively debate.

Ask the Underwriter, pg 10

Ralph Rosynek has been The Reverse Review â&#x20AC;&#x153;Ask the Underwriterâ&#x20AC;? columnist for more than two years. Rosynek is the Vice President for National Correspondent Production at Reverse Mortgage Solutions, Inc. RMS, a Ginnie Mae seller/servicer, is a premier provider of reverse mortgage servicing and offers complete mortgage banking support and services to the reverse mortgage industry. He is currently a member of the NRMLA board, co-chair of the Professional Development Committee and holds HUD HECM Direct Endorsement credentials. rrosynek@rmsnav.com | 708.774.1092

Bill Waltenbaugh, SRA 9

Ask the Appraiser, pg 14

Bill Waltenbaugh is the Chief Appraiser at Kirchmeyer & Associates, Inc., a national appraisal and valuation company. As a certified appraiser with more than 20 years of appraisal experience, Waltenbaugh has experienced firsthand the many changes that have significantly reshaped the appraisal landscape, from the advent of licensing to the implementation of HVCC. Waltenbaugh also holds the SRA designation with the Appraisal Institute and is active in both regional and national professional organizations.

Fast Facts from the Underwriter. Facts that keep you current!

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When faced with a borrowerâ&#x20AC;&#x2122;s inability to provide initial primary Social Security verification documentation, consider the following: Four companies are considered primary

source Social Security number verification resources by FHA/ HUD: Rapid Reporting, Incocheck, Sysdome, and National Verification Services, in addition to direct verification from the Social Security Administration.

The Reverse Review November/December 2011

the Report

August Endorsements

INDUSTRY SUMMARY Retail Endorsement Growth

10.53%

Retail and Wholesale Volumes

Wholesale Endorsement Growth

-2.78%

- Reverse Market Insight

Total Endorsement Growth

5.321%

Last month’s HECM Lenders Report showed us that industry volume was up

5.3% in August, despite an expectation of lower totals for the rest of the year. Now

* Figures Above Reflect Change from Prior Month

RETAIL UNITS CHG%

WHOLESALE

TOTAL

UNITS CHG%

3,405 -14.21%

2,558 -4.27%

5,963 -10.21%

2,976

-12.6%

2,307 -9.81%

5,283

-11.4%

4,004 34.54%

10.4%

6,551

24.0%

4,343

8.47%

2,207 -13.35%

6,550

-0.02%

4,049

-6.77%

9.33%

6,462

-1.34%

4,075

0.64%

2,805 16.25%

6,880

6.47%

4,515

10.8%

2,785 -0.71%

7,300

6.1%

3,704 -17.96%

2,415 -13.29%

6,119 -16.18%

3,106 -16.14%

2,079 -13.91%

5,185 -15.26%

3,535 13.81%

2,322 11.69%

5,857 12.96%

3,352

3,705 10.53%

TOT

-5.18%

44,769

2,547 2,413

-7.02%

5,511

-5.91%

2,099 -2.78%

5,804

5.32%

2,159

28,696

73,465

Trailing Twelve Month Endorsements

that we can see more detailed August data in our HECM Originators Report we discover that broker/wholesale volumes had already started to swoon.

We commented last month on the relatively narrow performance gap between

retail/direct and broker/wholesale volumes as the changes from broker approval

to TPO and lender compensation regulations worked its way through. This month the gap has opened back up, with retail/direct up 10.5% while broker/wholesale shrank -2.8%. We haven’t seen that large of a gap since February.

We’re not sure what’s causing the change, or even if it will continue, but we’ll be watching closely in the next few months.

Several lenders are seeing impressive growth in their businesses, with most of that coming on the retail side:

• American Advisors Group and MetLife have each grown retail more than 90% so far this year, while One Reverse, Generation and Genworth have all grown 20% or more.

• Security One wholesale has grown 38.8% so far, while Urban is up 6.5% on a much larger base.

• First National Bank of Layton has been steadily climbing the rankings this year, and reached the top 10 for the month of August with a ninth place ranking. g

10,000 8,000 6,000 4,000 2,000 0 9 10 11 12 1 2 3 4 5 6 7 8 Retail

Wholesale *Numbers Represent Months

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The Reverse Review November/December 2011

ask the Underwriter

The HECM Gold Rush Ralph Rosynek

As lenders settled into September’s month-end activities, few had time to notice Mortgagee Letter 201134, issued September 23, 2011.

October recovery has set off strategy meetings for many companies, their focus being origination expansion opportunities not previously available under FHA/HUD 10 | TRR guidelines.

Somewhat comparable to the historical lending area of each home office and rush for gold, many lenders are in the registered branch office to include all process of enhancing their HUD field office jurisdictions. origination expansion Lenders are reminded they strategy at an accelerated also must meet each state’s rate. For many, searching origination requirements. This the NMLS and other origination lending area is Regardless of also known as a lender’s Area licensing websites to begin methodology, Approved for Business (AAFB) the process of origination licensing by seeking the most caution is strongly and will be maintained at the immediately accessible states HUD field office jurisdiction advised when with minimal requirements level in FHA’s system for applying for a as a first “sort” was an implementation with any new state license initial task. Regardless of credit watch terminations. In absent advice methodology, caution is addition, Exhibit 4155.2 12.E.2.a strongly advised when in Handbook 4155.2 titled of counsel and, applying for a new state “Single Family Originating in some cases, license absent advice of Lending Areas” is rescinded. without the benefit counsel and, in some cases, of a licensing without the benefit of a It is interesting to note that no consultant. licensing consultant. change was made to the HUD/ FHA requirements for branch Specific changes in two key areas of licensing reporting and fees. While the licensed and approved HUD/FHA Mortgagee Letter opens more national origination requirements are: possibilities for many lenders, the ability to originate FHA loans in a particular Office Facilities. An approved mortgagee state remains tied to specific state may conduct loan origination and/or licensing requirements. A conservative servicing activities from a home office, approach to researching state licensing branch office, and/or direct lending requirements is imperative. branch office. All office facilities, regardless of type, must fully comply When determining which states to begin with all state licensing requirements in developing, a lender should consider effect in the jurisdiction in which the a checklist of items and a detailed office facility is located. In addition, a review for requirements that may not mortgagee’s home office must comply be elements for current licenses held, with the requirements set forth in including: g Specific brick-and-mortar paragraph 2-11.A of Handbook 4060.1, requirements but HUD is no longer regulating the g Specific state resident key personnel branch office facilities. Applicants are (i.e., branch manager) no longer required to submit evidence g Specific license financial and of acceptable home office facilities; the experience levels based upon lending department will verify compliance with activities these requirements through any on-site g Specific state licensing application visits to the home office. Paragraphs departments for planned activities 2-11.B, C and D and 3.2.A.9 of Handbook (i.e., mortgage banking department, 4060.1 are rescinded. consumer finance department or, in the case of servicing, the debt Single Family Loan Origination Lending collection licensing department) Area. Paragraphs 2-19.A, 2-19.B and 5-8.C of Handbook 4060.1 are amended to expand the single-family origination

Other considerations in developing an expansion strategy may include: g State physical demographics with regard to flood plains, declared disaster areas, unusual zoning codes or requirements and rural area profiles g Key state disclosure requirements including specific date or notification periods relating to HECM loans g Prohibited activities relating to borrower access, mailing, telephone and face-to-face activities and information g The availability of licensed originators to meet borrower requirements of faceto-face interview needs g Lead generation resources g The availability of counseling agencies g Changes to application and closing package documents to reflect current state requirements

iReverse_Half Pg Ad 7-8125x4-6875_embeds_081011.indd 1

g g

g g g g

The increase in company monitoring

activities to maintain state compliance The increase in audit requirements, fees and other state filing documentation requirements Additional borrower comforts and safeguards established by state audit, regulatory and legislative law and guidance HMDA reporting activities Additional investor approvals for loan submission Annual license renewal requirements Specific company and individual financial benchmarks including calculations of tangible net worth Additional education and training requirements as well as prior individual experience, education credits and profile

Telephone, data and record storage

requirements g Media, marketing and advertising state specific requirements g Company license updates to printed materials, websites and other public channels The completion of the application itself and the payment of the indicated fee may be the easiest part of an expansion strategy, as panning for gold is a long, tedious process that requires endurance and a continuous effort to produce results. No doubt these changes will bring the HECM product closer to the consumer in lesser-served states, and yes, increase a healthy competition to serve those older Americans. g

8/11/2011 9:29:56 AM

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The Reverse Review November/December 2011

the Perspective observation and training. As the

old adage goes, sales is a numbers game. A key element of success is to get yourself in front of as many prospects as you can on a consistent basis.

Putting First Things First Brett G. Varner

In my experience working with reverse mortgage originators, the efficient use of time has been a constant theme in my 12

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try to verify information and run their numbers. In some cases, they will attempt to set up the sale before really knowing anything about the prospect. A significant amount of time is invested in this endeavor and can have a disastrous impact on efficiency and the ability to connect with as many prospects as possible.

After receiving a new lead, many originators get caught in a little conundrum of where to start working on that lead. I know some will argue that time spent The amount of information provided “pre-qualifying” leads allows originators initially with a new lead depends on its to only focus on those they determine to source and whether it was received directly have the highest potential. or through a third-party However, I would warn that provider. That information using that approach leads to leads to a “chicken or the unfocused time spent on trying egg” type of consideration to pre-qualify leads without for the originator. Is it better I always having sufficient information to start using the information to assess that level of potential. to conduct initial research encourage The information received with to determine what the lead originators a lead is not always accurate or may qualify for, or is it better to connect complete, and certainly doesn’t to connect with the prospect relate the interest level of the with a and evaluate where they are prospect. Generally, a new lead in the buying process? prospect is merely a person who has before expressed interest in learning I always encourage about a reverse mortgage. It doing any originators to connect with does not, however, explain a prospect before doing any research, why that person has an interest research, because that initial because or what their need is. conversation will define the

that initial

landscape of the lead, verify conversation This is an often overlooked information and determine will define the aspect in reverse mortgage what is important to that sales. Originators will focus landscape of prospect. What is learned on the qualifying information: about the prospect in that the lead, verify home value, age, mortgage initial contact will determine information and balance, product choice, and what the originator needs to determine what is ultimately, net cash available. do next in their research and important to that Although it is certainly the level of information that prospect. important to understand needs to be provided for that these components, they don’t prospect to be comfortable provide the total picture of how the reverse moving to the next step in the sales process. mortgage product can fit into a prospect’s life: the “why.” Some originators feel it is important to know as much about that lead as possible before making the initial phone call or contact. They will research home values,

This is why the initial conversation is such an important

touch in the sales process and should be completed before any sales research is conducted. This touch starts by simply connecting with the prospect and taking a read of their sales temperature. The goal is to determine what is important to them, the source of their interest and what they need to know to make an informed buying decision. Is their goal to resolve an issue quickly or do they need time to consider information and evaluate how the reverse mortgage product can be a benefit to them? The second aspect of the initial touch is to verify information received and determine what additional information can be provided to help give that prospect the most accurate picture of how the reverse mortgage may (or may not) fit into their needs. When a prospect makes an initial inquiry, they don’t necessarily know the information they should include, or may not be willing to provide it at that time. Simple data points, such as a younger spouse on title, a second mortgage, or longoverdue maintenance can have significant impact on the qualifying information. An originator couldn’t know this information initially without connecting with a prospect and asking the right questions. It is the prospect who can not only verify key qualifying information, but also provide insight about their home, their neighborhood and their needs that can guide an originator’s research and define the type of presentation necessary to further the lead through the sales cycle. That initial conversation can also identify components that would cause a lead to not be able to qualify for a reverse mortgage, or their goal cannot be realized through a reverse mortgage. It is only the prospect that can provide the necessary information

to fill in these gaps and help the originator determine what is possible.

value and running numbers with the goal of being prepared to present the prospect with details on their qualification. After compiling the information, the originator calls the prospect, only to find out that he has a spouse who is only 58 years old.

Using a simple example, say an originator receives a lead and uses their resources to determine that the prospect would be short to close In any type by $10,000 That is why the initial conversation of research, with a reverse is such an important touch in the first point mortgage. At the sales process and should be of order is this point, does completed before any sales research gathering the originator is conducted. This touch starts by simply information. have sufficient connecting with the prospect and taking a It is about information read of their sales temperature. The goal is to defining to disqualify what is determine what is important to them, the source that lead? It is known before easy to assume of their interest and what they need to know. attempting to that this learn what is unknown. This is why I do prospect would not be worthy of investing not find this scenario to be a “which should time. However, what if this prospect had come first” debate. It is more of a “putting significant savings that were slowly being drained due to a lack of income and a $1,200 the cart before the horse” type of situation. It cannot be efficient to skip over the mortgage payment? For this prospect, it information assessment step to try to define may be worth considering using other the landscape of a lead with partial facts. assets to cover the shortage in order to retire the monthly mortgage payment. In this The first step in prospecting should scenario, it would be in the ninth month always be connecting with the of a reverse mortgage that the prospect prospect, and not only verifying the key would have recovered the $10,000 invested data points for qualifying, but also defining in the reverse mortgage from not having the key “why” that they are trying to solve a mortgage payment and would have an through the reverse mortgage. Beginning increased net cash flow of that $1,200 from with this starting point is a more efficient that point forward. This type of solution use of time than attempting to conduct could have a major impact on the longevity research with limited facts. It also helps of the prospect’s retirement assets and can only be determined through interaction with the originator shape their presentation around the needs of the client. In addition the prospect and understanding their entire to creating more productive use of an scenario. originator’s time, the result generates more personalized attention and a higher level of The opposite can also be true. Say, for example, an originator receives a lead and service to the prospect. g immediately focuses on researching home

It is the prospect who can not only verify key qualifying information, but also provide insight about their home, their neighborhood and their needs that can guide an originator’s research...

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The Reverse Review November/December 2011

ask the Appraiser will address your question in an upcoming issue.

QUESTION What does FHA require

with regard to smoke alarms in owner-occupied homes? Should there be one in each bedroom or should there be one in the hallway just outside of each of the bedrooms? Is one required to also be in the kitchen? Does it matter where the home is? If so, please assume the question applies to a home located in California.

Better Safe Than Sorry Bill Waltenbaugh, SRA

We recently received a question for our knowledgeable appraiser, which is addressed in this month’s column.

If you have any appraisal-related questions, please email the appraiser at information@reversereview.com and we

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Despite HUD’s requirements, it’s a good idea to have an understanding of your local and state codes regarding smoke alarms. Requirements regarding type, location and amount can vary from state to state and even town to town. To research local rules or ordinances in your area, try contacting the local department of building and safety. Most ordinances require or recommend that smoke alarms be located on each level and adjacent to each bedroom. Surprisingly, many regulations discourage the use of smoke alarms near kitchens or bathrooms unless the alarm is the photoelectric type. That’s because smoke from cooking or steam from the bathrooms can cause false alarms. Photoelectric alarms work better in these areas because they work much like the safety light beam used on most modern garage door openers. They are less likely to cause false alarms because the smoke or steam has to be thick enough to block a beam of light.

Let me start by saying, despite rules and regulations, smoke alarms are one of the best safety devices you can buy and install to protect yourself, your family and your home. Think about it; smoke alarms are the most affordable insurance policy you can buy. In the event of With few exceptions, although FHA a fire, they provide an strongly recommends them, smoke early warning signal that can save your life detectors are not a HUD requirement. and the lives of your As for California state law, the California loved ones. Health and Safety Code Section 13113.7 requires smoke detectors be installed With few exceptions, although FHA in accordance with the manufacturer’s strongly recommends them, smoke instructions in each dwelling intended detectors are not a HUD requirement. One for human occupancy. The specific exception is residential structures being requirements vary depending on the type rehabbed under HUD’s 203(k) program. of property, the number of units and the To be eligible for this program, at least one number of stories of the property. Again, smoke detector must be installed adjacent each municipality has the opportunity to to each sleeping area. Although local codes create more stringent requirements so be may require the installation of smoke sure to contact the local department of alarms, enforcement of such housing building and safety to better understand standards rests with the local authority. the requirements for your own area. HUD does not have the authority or the In addition, when selling a residential responsibility to enforce local housing property in California, most sellers are codes.

Losing a lien position to HOAs?

required to provide the buyer with a written statement indicating the property is in conformance with the state law governing smoke detectors.

Think it couldn’t happen to your servicing operation? Think again. Many reverse mortgage seniors who belong to homeowners associations do not understand just how much power these groups have over them – until they miss a payment or otherwise run afoul of the board. Fall a single day behind in paying your monthly dues, for instance, and the association may slap you with a fine. Fall 90 days behind and it may place a lien on your home and threaten to foreclose unless you pay up immediately. And because you often hand over the right of property trustee

An ancient proverb says, “The best time to plant a tree was 20 years ago. The second-best time is today.” If you haven’t installed smoke detectors in your house yet, consider yourself lucky that you haven’t had the need for one and start installing some today. g

to the association when you agree to the bylaws, in some cases you don’t even get to go to court. This ability to foreclose by HOAs should be taken very seriously by reverse mortgage servicers to protect their first lien rights. Your best defense, if you can afford it: Pay what the association says you owe, then argue. Most associations work on a “balance forward” accounting system, in which your payments go toward the outstanding balance. By delaying, you’ll just accumulate more late fees and risk potential foreclosure.

Have a question for the Appraiser? Email questions to information@reversereview.com and look for your answer in an upcoming issue.

Welcome... NATIONWIDE SERVICE.

INC.

REVERSE MORTGAGE SPECIALIST www.performancetitleinc.net

888-641-3334 we

GUARANTEE our service

Brien Brandenburg to the Performance Title team. Brien, formerly Regional Reverse Mortgage Program Manager at Wells Fargo, will serve as National Sales Manager.

Do you LOVE your title company? Do they guarantee their service?

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hot

Seat U

20 questions - things you need to know or may have been wondering -NOV/DEC 2011

the

hot seat 16

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From the best job he has ever had to what he believes industry growth is dependent upon, we get the personal and professional facts from Torrey Larsen, President/CEO of Security One Lending, in our monthly edition of The Hot Seat.

torrey PERSONAL

Security One Lending President / ceo

When I was younger I wanted to be a professional basketball player for the Chicago Bulls. I stopped growing and Michael Jordan lived out my dream.

Every morning I begin the day with a cup of coffee with my wife of 25 years.

I can’t go without coffee in the morning.

I’ll never forget my first business partner, David Entrekin. He passed away in 2006 but had a

tremendous impact on my life and taught me how to be a better steward of financial assets by helping those with much less.

The best job I’ve ever had is the one I currently hold. I love the industry and love the team we’ve assembled at S1L.

My parents taught me the more you give, the more you get.

My favorite time of the day is sunrise.

The most memorable moment in my life is a four-way tie: My wedding and the birth of my three kids.

A good friend is someone who tells you the truth, even when it hurts.

My favorite book is Proverbs from the Bible.

PROFESSIONAL >

The future of reverse mortgages is bright. The consumer need for the product continues to grow while the demographic shift cannot be denied.

People should seek a career in the reverse mortgage industry because they enjoy having a positive impact on the lives of seniors.

The most fascinating thing about the reverse mortgage industry is the way in which competitors will assist each other and openly share data; this is not typical in most industries.

I am optimistic about the reverse mortgage industry because we have made so much progress to drive down

the consumer cost of the product, yet there is so much growth ahead. Education will lead the way and play a large role in how the market will take shape.

I entered this industry because it’s an industry that has heart and soul.

Reverse mortgage professionals can best support the public image of reverse mortgages by doing the right thing when meeting with seniors. A reverse mortgage is not for every client and education of this product allows seniors to arrive at the proper decision for themselves.

The most important thing financial advisors can learn about reverse mortgages is that it is a viable financial tool that can be a part of the clients overall financial plan.

Industry growth is dependent upon education, both at the consumer and regulatory level.

The ideal characteristics of leaders in the industry are humility and a servant’s heart. Ego and pride get in the way of progress.

The biggest impact reverse mortgages offer to seniors are independence and a sense of stability in their lives. reversereview.com

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November/December edition

The Reverse Review November/December 2011

the Industry

a roundup of this past monthâ&#x20AC;&#x2122;s breaking news:

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

Roundup

m ov er s k sh a k e rs

U p- k- C o m e r s

W h at H a p p e n e d ?

Wendover Consulting: The reverse mortgage consulting firm announced the hiring of Wells Fargo trainer Kenneth L. Kanady as Managing Director of Learning and Development.

Top 10 States: While industry endorsement volume trends down for 2011, seven of the 10 top-producing states are experiencing year-over-year growth, led by North Carolina and Pennsylvania.

California: Citing negotiations not leading to sufficient relief for troubled California homeowners, state Attorney General Kamala Harris announced plans to withdraw from national foreclosure settlement talks.

One Reverse: Through a partnership with the 3in4 Need More organization, One Reverse participated in a nationwide media campaign designed to raise awareness of the lack of sufficient funding to cover long-term care expenses.

Nationwide Appraisal Network/Trio Title Group: The Florida firms joined forces to create Nationwide Appraisal & Settlement Network, combining their services into a single resource for appraisal and settlement services.

Lenders Compliance Group: The industry compliance consulting firm announced the launch of the Dodd-Frank Forum website to help industry participants and experts exchange information and ideas related to new regulations stemming from the Dodd-Frank Act.

New American Funding: Less than a month after joining the firm, former Omni Home executive Keith Murphy announced his resignation.

industryroundup

Counseling Funding: Funding for reverse mortgage counseling remains in a tenuous situation as the budget debate continues. The Senate budget appropriations included a lower level of funding, but the House excluded it completely.

â&#x20AC;&#x153;I want a tax service company that understands the Reverse Mortgage Market.â&#x20AC;?

At ICG, we know the key to an effective Reverse Mortgage product is all in the details. Conventional tax service models merely report delinquent accounts to their customers. ICG goes beyond the conventional model and embraces proactive, loss mitigation and industry best practices into our tax service products to provide clients an end-to-end solution specifically designed for the Reverse Mortgage market. We understand your industry, investor guidelines, regulatory requirements and more importantly your client base. We welcome the opportunity to design a solution exclusively for you. Industry Consulting Group, Inc. is committed to helping Reverse Mortgage companies overcome the challenges related to tax defaults.

Call us at 972-991-0391 or visit www.icgtax.com today. Tax Monitoring / Exemption Information

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Tax Payment / Borrower Notification

Full or Partial outsourcing models

the

Essentials

The Essentials | iâ&#x20AC;&#x2122;sen sh l | - your monthly source of in-depth information, industry updates, highly opinionated views and at-your-fingertips news. J i m C o ry A l a i n V a l l e s , CRMP B r e t t G. V a r n e r

It takes a lot to create an attention-grabbing, informative article and The Reverse Review is very fortunate to have worked hand in hand with industry leaders over the past couple of years. We are always searching for new writers and industry-related articles. If you are interested in contributing your views and have what it takes to intrigue our readers, we would love to hear from you! Email emily@reversereview.com to start the conversation.

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competitor? And

wha t are th bea ting e secr them ets to ?

Alain Valles CRMP

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For many loan officers and mortgage brokers, the biggest obstacle they face is not from others in the industry. The most challenging roadblock to success lies in the limitations they place on themselves. This is a timely thought as we close out a tumultuous 2011 and prepare for a better and stronger 2012. Assuming your company has adequate mortgage products and competent support staff, the biggest adjustment you will need to make for the new year is in your own attitude and actions. Take a few minutes to assess your situation and, perhaps, learn from my experience.

More t ha n 2 5 yea rs in t he mort gage bu siness ha s taught me t hat success ca n be b ro ken d own into t hree component s:

Mindset

Activities

Knowledge Base

When all three are aligned I am profitable and enjoying life. When they are out of balance I feel stress, frustration and financial pressure. Sound familiar?

Mindset

Name your biggest competitor? Is it a giant bank? An aggressive mortgage broker? The guy sitting at the desk next to yours?

none I say that

of those should worry you. 22

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Everything starts with my mindset. I truly believe it is in my control to at least start the day with a positive attitude. But what is a positive attitude and how does one get one? For me there are three mental checkpoints. The first is to make sure that at all times I have a “giver’s” mindset. It’s imperative that we are always doing what’s best for our reverse mortgage clients. If you focus on chasing commissions you will veer from the path and suffer in the end. As legendary business coach Brian Buffini says, “If you give it out in slices, it will come back to you in loaves.” The second key to a proper mindset is to have specific, tangible goals. It could be something personal, like the trip you’ve always wanted to take. Or the goal can be business-related, such as a loan production target. Either way, your goals need to be written down and shared with someone who will hold you accountable.

2012 goals? what are your

Now is the time to set them and plan backward on how to achieve them. Personal goal-setting is the best defense against distractions or interruptions because it allows you to measure every decision and whether or not it’s advancing you toward success. This will also soften the personal rejection we feel when we don’t get a deal, receive a disappointingly low appraisal, or are faced with yet another set of conditions. By focusing on your goals you’ll gain more resiliency.

The last mindset “check” is giving grace to others. Sure I’m annoyed with prospects when they cancel appointments at the last minute. I don’t believe their intention is to ruin my day. But when I feel my blood pressure rising, I purposely stop and give them grace. I’ll write them a note to say, “Sorry we couldn’t meet and I hope all is OK…” Almost without fail I’ll get a call saying, “Thank you for the note. I was sick that day.” Remember: The majority of reverse clients are not only in financial pain but are facing other challenges.

each referral source gives and the quality of the lead. It’s not just a numbers game of making more calls, but rather tracking the quality of the referral source and their leads. It’s one reason to always be investing time to educate current referral sources and generate new referral sources about reverse mortgages. The last trick to maximizing your productive activities is to set aside time for administrative duties. I detest paperwork but know it must be completed. I time-block a few hours daily to get it done. I’m fortunate to have an exceptional operations manager who handles my loan applications. My wish for you is that by having the right mindset and better focus on lead generation activities, you’ll be able to afford an assistant who enjoys paperwork!

Ac t i v i t i e s Now that you have a positive mindset, what should you do with it? As a loan officer I divide my time into three functions: lead generation, lead conversion and administrative tasks. My most important activity is lead generation. I separate lead generation into activities that will generate a reverse mortgage today and those that create new or deepen existing referral sources. You must set aside time every day for lead and referral source generation.

K n ow l e d g e B a s e The last success component is your knowledge base, which I divide into product understanding, sales training and personal growth.

I bre a k m y le a d g e n e r ati o n ac ti v i ti e s into: Product understanding must extend beyond the basics. We all know a reverse mortgage borrower must be at least 62 years old. But how would you answer a condo association board’s question on whether becoming FHAapproved will cause the association to have a higher condo fee delinquency rate? Did you really invest the time to understand new underwriting guidelines? Have you committed to becoming a Certified Reverse Mortgage Professional (CRMP)?

Current transaction pipeline (money coming to me) Current leads (money that should be coming to me) Current referral sources (money that may be coming to me)

A second activity is to know and track your lead and referral source conversion rate. I originate both forwards and reverses and was surprised to see my 70 percent lead-to-close conversion rate plummet to around 45 percent this year. It wasn’t that I was losing clients to the competition. The fact that appraisals are lower and times are tough led me to tell more prospective borrowers that they don’t qualify due to credit or income ratios. The emotional challenge is that I’ve been saying “no” to more people, which can impact my mindset. A key component of your conversion rate is knowing how many “touches” with your referral sources you need to generate a loan. For me it’s around 15 calls, notes or in-person visits to generate a closed loan. I track the number of leads

The fact of the matter is only “A” students will prosper in today’s market. Now is the time to lean on your company’s and trade association’s resources to become the best loan officer possible.

It’s notgame of

a numbers

r just s, but rathe ll a c re o m f the making quality o e h t g in k s. trac d their lead n a e rc u o s s be referral on to alway s a re e n o It’s investing s and rral source fe re t n re es r cu ferral sourc re w e n te genera ges. rse mortga e v re t u o b a

time to educa

The second part of your knowledge base is sales training. Professional sales is not the ability of talking an Eskimo into buying snow, but the ability to inform a person about a product so that they can make a fully educated decision. There are many sales training courses available, but avoid any course that stresses persuasion or fear tactics to convince a person to move >> reversereview.com

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forward. Learning to be a great listener to a senior’s concerns and goals is the best route to becoming their trusted loan officer when they decide to move forward. I view my role as asking goal-oriented questions, encouraging a senior to share their fears and concerns about a reverse mortgage, and, most importantly, discussing other available options as well as inviting all of their family members or trusted advisors to participate in the decision process. I often say a reverse mortgage is 5 percent math, 85 percent Dr. Phil and 10 percent Jerry Springer. Are you really listening to your clients’ needs, wants, and concerns? Or are you subconsciously hoping the appraisal will come in? This leads me to my last sales training comment. The average senior has had more than six decades to be a consumer. They have mastered their own purchasing system. If you try to “sell” them, they’ll see you coming from a mile away and never do business with you. Even worse, they will report back to the referring source that you were a pushy salesperson and you’ll lose any hope of future referrals. The key is to listen to their goals, educate them about their options, and present solutions, even if the solution is not a reverse mortgage. The last part of the knowledge base is often overlooked: personal growth. My definition of personal growth is the passion to be improving in all areas of life, whether it’s your spiritual area, family, career, financial situation or personal wellbeing. “It is better to work to live, than live to work” sums up my attitude toward personal growth. The goal is when you’re working at your fullest potential, to exceed your clients’ needs and be financially rewarded so that you can invest yourself in more important areas of your life. 24

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For some there is a spiritual aspect to personal growth. A significant percentage of seniors say they have become more spiritual as they’ve grown older. Many of the seniors I meet with openly discuss their spiritual or religious viewpoints. At a recent appointment, the senior couple asked all of us to hold hands and pray before beginning. Another appointment went incredibly well, with the husband eager to move forward to get funds to fix the roof, but his wife wanted to think it over. I explained that a “think it over” response usually means I didn’t answer or explain everything. She said she was fine with moving forward, but was now waiting for God to give her the answer. I don’t recall any sales training that covers how to respond to that. My favorite spiritual story was when I received the call from Martha, who said she had been looking and looking for my business card with no luck. So she prayed and when she opened her Bible, my business card appeared. I was quite impressed until later she told me she kept everyone’s business cards in her Bible. Be aware that spirituality and religion can be very important to your borrowers.

So nowdo you see who

your No. 1

competitor truly is?

I view my role as asking goaloriented questions,

encouraging a senior to

share their fears and concerns about a reverse mortgage, and, most importantly, discussing other available options as well as inviting all of their family members or trusted advisors to participate in the decision process. I often say a reverse mortgage is 5 percent math, 85 percent Dr. Phil and 10 percent Jerry Springer.

It’s always you. If you are diligently working on your mindset, activities, and knowledge base, you won’t have time to worry about things outside of your control, such as another company’s ad campaign or whether the market is up or down. Furthermore, you’ll be a better loan officer for your borrowers, which in turn will make you a more trusted advisor to all of your referral sources, which will increase business and help you achieve your goals. I never expect to master all that I’ve shared in this article. I am a work in progress. What gives me joy and excitement is setting vibrant goals, working on becoming an even more productive loan officer and always striving to be completely transparent with my reverse mortgage clients. The fact is my reverse mortgage appointments cover everything you’ve just read. I share with my clients what I’m working on and in return they open up and share their life stories and hopes and desires. It’s as if they are having their first “checkup from the neck up” in a long time. Now go out and have a great new year! g

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The Reverse Review November/December 2011

the Essentials

Financial Assessment is Coming as Lenders Take Lead Mike Kent highlights the lender’s role in establishing an industry model. Brett G. Varner

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inancial assessment of reverse mortgage borrowers is a reality. The industry knows that a consideration of a borrower’s ability to maintain their responsibilities, pay their annual homeowner’s insurance and property taxes, and general maintenance on their home, is coming. ¶ Technical default of reverse mortgages due to unpaid taxes and insurance and the threat of foreclosure has become a rallying cry for opponents of the reverse mortgage program. Looking for ways to demonstrate that this product is rife with potential abuse puts seniors at undue risk of losing their home, expounding the issue of these defaults fits the bill for the right type of sensationalism.

As HUD has been compiling data to determine the full scope of the defaults, industry experts have estimated that approximately 5 to 8 percent of HECM loans have some form of tax or insurance deficiency, whether it is a one-time limited event or an ongoing failure to maintain responsibilities. That wave of threatened foreclosures has yet to come, but the media attention focused on the problem has heightened the need for the industry to implement some type of resolution that appropriately mitigates the problem, without either scaring off seniors who need or want to explore the benefits of this product, or devastatingly restricting production. Although it has taken longer than expected for HUD to respond with some form of guidance, they have made it clear that they have been working on new requirements for some time. As of the time of printing, they continue to state that issuing guidance is eminent. They have also advised lenders that there is no reason to wait for that guidance. There are no restrictions against lenders implementing their own form of financial assessment for reverse mortgage borrowers in order to mitigate their own perceived risk of default. Obviously, a key selling point to potential reverse mortgage borrowers is the ability to remain in their home for as long as they choose without a mortgage payment or threat to their ownership. Of course, they are required to maintain their taxes and insurance. Some lenders and servicers point to origination as a primary source of the problem. They raise concerns that originators have not done enough at the front end to make sure that borrowers fully understand their responsibilities in the transaction. Lenders and servicers also acknowledge that not enough has been done to mitigate the problem as it developed.

As the issue gained more attention in late 2010, the need for some type of industry response grew. HUD released Mortgagee Letter 2011-01 in January 2011 that established guidelines for how lenders and servicers addressed the problem of tax and insurance defaults. The guidance made it very clear that utilizing foreclosure, which requires HUD approval, should be a last resort, and servicers should try to utilize loss mitigation efforts, including offering counseling and repayment plans, to help borrowers get back on track with their responsibilities. NRMLA responded by forming a partnership with the National Council on Aging in April 2011 to launch a program designed to help borrowers in default find ways to resolve their deficiencies. In July, NRMLA issued a letter to HUD with its recommendations for the implementation of a financial assessment tool for HECM borrowers. NRMLA agreed with the need to evaluate the ability of HECM borrowers to maintain their responsibilities with an assessment to be performed at approval and verified at closing. The organization suggested that a simple debt-to-income ratio test be applied to all borrowers. After completing the reverse mortgage, those borrowers who would have a ratio of 50 percent or less would receive a pass and require no further evaluation. Borrowers whose ratio exceeded 50 percent would then require additional assessment to determine if a program option can be implemented to still allow them to proceed with the reverse mortgage, while still mitigating the risk of future default. NRMLA suggested that the additional assessment of those borrowers should include an examination of their history of delinquencies related to property charges. If borrowers did not show a history of delinquencies, then a lender should merely require that the borrower accept a

industry experts have estimated that approximately 5 to 8 percent of HECM loans have some form of tax or insurance deficiency.

term or modified term monthly payment sufficient enough to bring their debtto-income ratio within the 50 percent standard. Those who did have a history of property charge delinquencies should be required ... that to have a set-aside wave of sufficient to pay threatened the charges for foreclosures the estimated life has yet to expectancy of the come, but youngest borrower the media as detailed in the attention TALC.

focused on

Subsequently, the problem NRMLA has held has heightened additional meetings the need for regarding its the industry recommendations to implement to discuss potential some type of revisions to the resolution that information appropriately submitted to HUD. mitigates the Unable to reach problem, without a consensus of its either scaring board, NRMLA off seniors who convened a special committee in need or want September to to explore the further evaluate benefits of this the financial product, or assessment model devastatingly and the role the restricting organization production. should play in HUDâ&#x20AC;&#x2122;s development process. The outcome of those meetings was kept confidential, but in the lack of a public update, the suggestion is that NRMLA has chosen to wait for HUD to release its guidance and then respond accordingly. In a HECM program update issued by Acting FHA Commissioner Carol Galante on October 5, FHA stated that given the current economic climate and minimal changes to the HECM program since its inception, the agency has been >> reversereview.com

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challenges currently faced by the industry. How will that work, what will that feel like, what will that require of us in altering or adapting our current processes to fit a financial assessment model? At RMS we are focusing on what the push for that model has been, and the goal to help prevent the tax and insurance defaults down the road. In developing our model, we examined our 51,000 loans servicing portfolio and looked at that small percentage of loans that have gone into tax and insurance default to determine Reverse When you are a senior ways we can identify Mortgage there are certain life those loans upfront Solutions (RMS), in the process and which has a changes that can occur create a system HECM servicing – we call them one-off where they can be portfolio of events – that can cause you done while still 51,000 loans, has to be unable to pay their taxes mitigating the risk of been working on or insurance in a given year. We that future tax and a viable financial need to be able to identify that insurance default. assessment as well and not penalize them for We think it is a good, model for those events. That’s really the solid, sensible way some time. The goal of the financial assessment to do it, rather than company has tool we are developing. trying to apply a tried to apply a broad brush to every commonsense borrower. Our goal has been to find some approach in analyzing the wealth of data of the common characteristics of those available in their portfolio to evaluate the loans that we can identify early on in the causes of the tax and insurance default process and create a financial assessment problem. Their goal has been to design an tool that identifies those at risk, and assessment tool that filters those with the then find a different structure for those highest risk of default without impacting loans. That’s going to be a big challenge the large majority of borrower who do because that whole process, that whole maintain their responsibilities. concept of financial assessment, is still a little bit fluid. We all know it’s coming, According to Mike Kent, Senior Vice but we don’t quite know what it is going President with RMS, the default issue can to look like. The sooner some of the large be addressed by taking a commonsense servicers like ourselves can get that tool approach and taking the time to analyze into the marketplace, the sooner we all the data available from the history of know what we have to work with. HECM loans. He spoke with The Reverse Review about how RMS is striving to design a reasonable tool that doesn’t BRETT 4 It has to be a challenge unnecessarily overreach the problem and from your perspective, with HUD can be a model for the industry. suggesting that lenders and servicers need to develop that process, but their guidance is coming at some point down I think the development of the road and we don’t know what that is a financial assessment tool is going to look like. probably one of the most significant “revisiting its regulations to propose and ultimately adopt changes that are necessary to make the HECM program even more successful.” Financial assessment being a cornerstone of that evaluation, the notice officially stated that HUD does not prohibit lenders from including additional capacity and credit assessment in the origination and approval of HECM loans, essentially challenging lenders to establish their own protocols in the absence of HUD guidance.

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I think the simple fact that HUD has acknowledged that as lender/ servicers, (especially direct Ginnie Mae issuers such as RMS) we have the latitude to design that system, which gives us a lot of room to come up with a tool that will not necessarily disqualify any seniors who really do want and need this product, but will give the ability to design a sensible way to identify those common characteristics early on in the process and mitigate those risks. BRETT 4 Do you believe that mitigation will help limit the attention that has been given to that relatively small yet concerning problem?

That’s correct. We forget that the vast majority, somewhere between 92 and 95 percent of our seniors, conduct themselves in a manner that is consistent with the terms of their loan documents and it really is a very small segment of seniors who have ended up in a tax and insurance default, and many times that isn’t of their own doing. When you are a senior there are certain life changes that can occur – we call them one-off events – that can cause them to be unable to pay their taxes or insurance in a given year. We need to be able to identify that as well and not penalize them for those events. That’s really the goal of the financial assessment tool we are developing. We are focusing in on that very small segment of the market that needs to have some kind of different structure in their transaction to really help mitigate the possibility of tax and insurance default down the road. Nobody wants their loans to go into default and nobody wants to have to apply any type of challenging mitigation tools to alleviate the problem. So we think if we identify it upfront and structure the transaction in a way that works for the senior and for the lender/servicer, then hopefully we’ll see a dramatic reduction. We think through some very modest changes we can probably reduce the problem by 75 percent.

At press time, the release of financial assessment tool guidelines and requirements, either by HUD or lenders such as RMS, has yet to be seen. The issue was once again brought to the media forefront by a story about a 101-year-old woman in Detroit who was removed from her home due to a foreclosure. Even though the woman’s son openly acknowledged that he was aware of the responsibilities and admitted he failed to help make sure his mother’s taxes and insurance were maintained, HUD responded by forgiving the past due amounts and returned the woman to her home. Although this is a touching story of redemption for the 101-year-old woman, it sets a dangerous precedent for HUD and HECM lenders and servicers. The perception created in the public view is that somehow HUD or the lender erred in their management of the loan, when it was actually the borrower’s failure to meet their responsibilities or respond to mitigation attempts that led to the end result.

The latest issue places more pressure on the industry to not only visibly and publicly reduce the current number of loans in technical default by some form of mitigation, but also establish a protocol for identifying potential risk at the origination and approval stages of the process. At some point, the industry also has to realize that it must develop a stomach for moving to foreclosure on those borrowers who refuse to meet their obligations and/or participate in mitigation efforts. The primary concern of many industry participants is that the regulators and lenders will seek to create positive public perception by overreaching the problem and applying a catchall financial assessment tool to mitigate the small number of loans that reach the state of

default. Should the financial assessment model move toward a broad credit and income underwrite of all HECM applicants, it could lead to an immediate contraction in the number of seniors who are willing to move forward with the program. There is no doubt that the industry needs a tool to help mitigate the risk of tax and insurance default, along with a more coordinated program to identify and resolve delinquent payments as they occur. Even in this tenuous political and economic environment, the hope is that cooler heads prevail and the result is a common sense approach that applies alternatives for the small percentage at greatest risk of default, while maintain the current process for the vast majority who understand their responsibilities and fully intend to comply. g

Should the financial assessment model move toward a broad credit and income underwrite of all HECM applicants, it could lead to an immediate contraction in the number of seniors who are willing to move forward with the program.

America’s Reverse Title Company was founded to specialize in the reverse mortgage market. With over 10 years of reverse experience, we get the job done right and with a special care for the senior borrower. Our clients enjoy the following benefits and services:

P Nationwide service. P Low fees and swift turnaround times.

P No survey required.

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basket sent to your borrowers after funding, with your business cards or letter attached.

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For more information, contact Bob Beverly, National Sales Director at:

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The Reverse Review November/December 2011

the Essentials

Reports of the Mortgage Broker’s Death Are Greatly Exaggerated Once the industry scapegoat, the mortgage broker is alive and thriving today.

T 30

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he reports of my death are greatly exaggerated,” Mark Twain famously declared after reading an obituary of his death that ran prematurely. Today’s reverse mortgage brokers could say the same thing. ¶ Since the subprime crisis began in 2007, followed by the “prime” crisis that continues today, the mortgage broker has taken the lion’s share of the blame. And why not? Mortgage brokers surely played a role in the crisis. Add to that their lack of true national cohesion (by definition!) and absence of an effective, well-funded lobby, and you have the perfect scapegoat. ¶ Beginning in 2008 the voices against the mortgage broker began their quest to discredit, then to regulate, then finally to destroy. By 2010 it was a full-blown assault. Amazingly, the broker not only survived but seems to be thriving. And this is seen most clearly with the reverse mortgage broker.

Jim Cory

Since the credit crisis, the forces aligned against the reverse mortgage broker have been legion, and have included two presidential administrations, more than a few federal and state senators and congressmen, the Mortgage Bankers Association, the Board of Governors of the Federal Reserve (most notably under former FHA Commissioner David Stevens) and even HUD and the FHA. And through all this, the reverse mortgage broker somehow continues to thrive.

The Opening Salvo One of the earliest anti-broker moments was the MBA’s issuance of a white paper to Congress called “Mortgage Bankers and Mortgage Brokers: Distinct Businesses Warranting Distinct Regulation,” written to educate regulators and lawmakers that mortgage bankers and mortgage brokers should be regulated differently. It made the argument that mortgage brokers, as opposed to others lenders, need to be heavily regulated. It described in detail how yield spread premium (YSP) works, and how the broker’s greedy desire to earn more YSP caused the mortgage meltdown. But the MBA conveniently left out a few items, namely the way retail loan officers, net branches and the ownership of operating subsidiaries are compensated. Call it service release premium or whatever else, but that payment looks, feels, and purchases outlandish McMansions and BMWs just as well as YSP. Additionally, retail lenders and banks would increase the commissions and other forms of payment depending on the product and its different options, just as with a mortgage broker. Further, the paper forgot to mention that several of the largest retail lenders (and their subsidiaries, often paid in the same manner as a broker) produced much of the worst products and shoddy underwriting.

It also omitted the most common argument for the mortgage broker’s innocence, or relative innocence: The investment banks and other financial institutions themselves created and underwrote these products and processes of paying more for seemingly worse. But I’m not blaming anyone. We mortgage brokers wished that wasn’t the MBA’s purpose either. Upon reading this paper, I shook my head, filed it away, and made a note to quit the MBA.

More Shots Fired Many mortgage brokers did not recognize the opening salvo, as it wasn’t new legislation and didn’t get too much run with the press. But the next salvo was clearly seen and heard. The SAFE Act was passed in 2008 and designed to regulate the mortgage business more stringently. The Act’s main focus was to regulate and require stricter licensing for mortgage brokers and mortgage originators. It also established the NMLS, or Nationwide Mortgage Licensing System, which contains information about every licensed mortgage broker and mortgage originator. This came with tremendous costs of time and money for every non-bank mortgage entity. Each mortgage

lender or broker now needed mandatory education and would have to pay steep licensing fees for each loan officer they employed, often costing these institutions well into the thousands of dollars per loan officer. Bank employees, however, to this day, only require a background check and to be registered in the NMLS, a total cost of only $75 per loan officer. Some would argue that the SAFE Act was not aimed at mortgage brokers more than other parties. But Senator Christopher Dodd, Chairman of the U.S. Senate Banking, Housing and Urban Affairs Committee, clearly stated what he and other lawmakers meant by the “loan originators” covered by the bill, calling the Act a “new mortgage broker and lender licensing requirement … that will begin to address many of the abuses of the mortgage process that have been perpetrated by mortgage brokers.” >>

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Regardless of the intent of the legislation, most agree that the SAFE Act has largely been a successful piece of legislation and regulation. While some parties have had an increase in licensing costs and time spent, the act clearly defined who can originate mortgages, forcing many of the bad players and part-time loan jockeys out of the business. For many brokers, this weeding out of other players meant less competition overall, and an increased sense of purpose. The politicians had now joined the fight against mortgage brokers. However, it still couldn’t be a regulator pile-on without FHA entering the ring.

The Law of Unintended Consequences In 2009, the newly appointed FHA commissioner, David Stevens, announced that the agency would be cutting the Correspondent Mortgagee license, also known as the FHA Mini-Eagle. In somewhat layman’s terms, the MiniEagle license gave brokers the ability to broker FHA loans through a licensed FHA mortgagee, or Full-Eagle. With the MiniEagle, a broker could put his or her stamp on FHA mortgages and reassure customers they were approved by the federal government to do these loans. All of this came with annual fees, strict employment and state branch requirements, as well as annually audited financial statements with strict net worth requirements. As part of this rule, FHA then allowed brokers to put loans through a sponsoring FHA mortgagee, with guidance suggesting that the sponsoring lenders would have the burden of overseeing the brokers. FHA and Commissioner Stevens said they would no longer oversee brokers in order to increase oversight of the industry, which many found a little puzzling. For the reverse mortgage broker, this new rule seemed awfully detrimental to credibility. Many reverse mortgage customers, especially the more senior ones, buy on trust and security. No longer could 32

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the reverse mortgage broker say he had an FHA license. Upon reading this, the brokers’ first thought was that they would just become lenders. However, FHA also largely shut off the broker’s ability to make the leap to lender, requiring vastly increased amounts of net worth to become a lender. With most of this rule set to take effect on January 1, 2010, it seemed pretty bleak for the reverse mortgage broker. Enter The rule was implemented, FHA broker licenses were stripped away, and lenders began the staged process for higher net worth requirements. However, we soon saw that all was not lost. Quite to the contrary, these rules had the unintended (one may assume) consequence of freeing the reverse mortgage broker from the cumbersome annual fees, employment requirements, state branch requirements, net worth requirements and expensive annual audited financials, at least insofar as they pertain to FHA licensing. Today, brokers must still comply with many of these requirements to satisfy their sponsoring lenders, however the fees, rules and time spent are far less onerous. Since that time, customers have barely noticed that the reverse mortgage broker doesn’t have an official FHA license.

Dodd-Frank Act, the Fed managed the Truth in Lending Act, with Regulation Z as its set of rules and requirements. Following the credit crisis, the Fed began a program to implement rules, changing the way mortgage originators, especially mortgage brokers, were compensated. Harking back to the MBA’s white paper, everyone seemed to think the method of compensation for the mortgage broker was a significant cause of the mortgage meltdown.

Ben

Bernanke and the Federal Reserve Board. For many years before the Dodd-Frank Act, the Fed managed the Truth in Lending Act, with Regulation Z as

The Fed’s rule is quite simple: For closed-end mortgages (which excludes home equity lines of credit), a mortgage broker or originator can only be compensated from one source, and the size of the loan is the only loan term that can affect commission.

For years, message boards were littered with comments from nervous mortgage and requirements. brokers about this rule, Following the credit which went through crisis, the Fed began a several iterations before program to implement being settled. Currently, for non-reverse mortgage rules, changing brokers, this rule covers the way mortgage most every mortgage they originators, especially originate and dramatically mortgage brokers, changes the way they can were compensated. do business. For reverse Harking back to the mortgage originators, the change only affects fixedMBA’s white paper, rate reverse mortgages, everyone seemed to where the source of income think the method of is generally only from the compensation for the bank and not the customer. mortgage broker was a And most fixed-rate reverse significant cause of the mortgages have the same mortgage meltdown. exact rate and similar sizebased compensation. In other words, this rule, implemented with little fanfare in April 2011, did not crowd The Big One out reverse mortgage brokers or add all that much increased regulation. Enter Ben Bernanke and the Federal Reserve Board. For many years before the Another key piece to this rule was how

its set of rules

all mortgage originators were affected by it. Banks and mortgage lenders ended up with the same rule, as they were bound to compensate their loan originators in this manner. Never mind the anti-broker statements by the MBA or Senator Dodd, the regulatory playing field had been leveled for all participants in the mortgage origination business.

The Battle Isn’t Over Finally, we’re now watching the staged implementation of Dodd-Frank. The fledgling Consumer Finance Protection Bureau (CFPB) is now in charge of many of the mortgage regulatory concerns. Dodd-Frank has also called for studies on reverse mortgages, and there may be more changes to Regulation Z and the compensation rules. The SAFE Act and the NMLS are still growing in scope, with mortgage call reports now all the rage.

The Mortgage Broker is Dead! Long Live the Mortgage Broker! Through all this and despite its detractors, the mortgage broker community, that great American institution that has helped so many Americans find affordable mortgages, persists and remains relevant. Compare rates with brokers and the best lenders and banks, and you’ll often see more affordable mortgages from the broker. And the reverse mortgage broker is alive and well. Of course this is difficult to prove with real numbers, since FHA stopped reporting on the now-defunct Mini-Eagles, but it’s clear to those of us in the business. The anecdotal evidence shows reverse mortgage customers have a renewed interest in working with brokers. The big mortgage lending banks, Wells Fargo and Bank of America, have left the

industry, meaning more business for the smaller institutions. And while there was an initial fear of the new license testing and requirements, many loan officers who went with a bank to avoid licensing requirements have changed their minds and come back to lenders and brokers. Many of the new rules are actually tougher on the smaller lenders than they are on brokers, forcing them to merge with larger lenders or become brokers. Thus, the mortgage broker has not only survived, but some say their numbers have even grown. If you need more proof, just talk to the large wholesale lenders still in the business, the successful new entrants to the wholesale business, and the new crop of reverse mortgage brokers and they will all agree: We’re back and we’re here to stay! g

the Resources Information at your fingertips. A listing of advertisers and contributors featured in this issue. l

America’s Reverse Title Company amrevtitle.com 866.259.0168

Celink

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Direct Finance Group dfcmortgage.com 781.878.5626

Industry Consulting Group, Inc. icgtax.com 972.991.0391

iReverse Home Loans

Performance Title

Kirchmeyer & Associates

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ireverse.com/employment 800.486.8786 kirchmeyer.com 800.771.5246

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The Reverse Review November/December 2011

the Last

Word I was impressed with what reverse mortgages could do for our seniors; I was equally impressed by the many dedicated professionals involved in this product.

The people applying for reverse mortgages come from all walks of life, but a prevailing theme is that they desperately want to stay in their homes. They have been making payments and taking care of their property for decades, and in many cases, their home was paid off years ago. Now they need help staying in their homes, which is not just a building, but defines who they are. They raised children in that home, they had hundreds of holidays and gatherings in that home, and the home is decorated with pictures and mementos of all of the wonderful (and yes, some sad) memories of their lifetime.

When I first came to Celink in 1985, I cut my teeth servicing loans for a number of state housing agencies. I felt proud then, as I do today, that we were serving those less fortunate by giving them a hand up – not a handout. It really hit home when I talked to a single mom with four kids making $7/hour. This hard-working woman was so happy to have a 1 percent, 20-year home improvement loan to fix her leaky roof. I Now they need help remember her monthly staying in their payments being around homes, which is not $35 – and she never just a building, but missed one.

defines who they are. They raised children in that home, they had hundreds of holidays and gatherings in that home, and the home is decorated with

A Product That Honors a Lifetime John LaRose

I was introduced to the reverse mortgage industry in April 2004, and after being in the servicing business for almost 20 years, I felt as though I had found my true calling. 34

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Each of these lifetimes deserves to be honored with respect and dignity. Respect and dignity means providing those who want to live out the remaining years of their lives in their own home with the opportunity to do so. In my mind and experience, there is no better vehicle to provide that opportunity than a reverse mortgage.

Over time, many state housing agencies turned their attention to multifamily efforts. It became impossible pictures and mementos to stay in business by of all of the wonderful Since I came into this industry serving this declining six years ago, I have had the market niche, and after (and yes, some sad) pleasure of coming to know a little research in midmemories of their so many people who have 2004, I decided to get lifetime. also found this career path a into reverse mortgage calling. To those people, I say thank you for servicing. My entry into the reverse everything you do for so many people in mortgage world was a daunting challenge. need. At the same time, I feel sorry for those Fannie Mae was the only buyer of HECMs, who view the reverse mortgage as a purely and it was not allowing new lenders or, financial transaction. It is so much more. worse yet, new servicers to be approved. I was not easily swayed by the multiple obstacles on the path, and in July 2005, my company became a Fannie Mae-approved servicer of reverse mortgages. This gave me the opportunity to build a servicing operation from the ground up, and I had one all-encompassing goal: to develop a business model that would “honor a lifetime.”

I shared my feelings on this subject with a highly respected industry colleague a few years ago and he said to me, “I feel the same way. In fact, I have told more than one person that if there is not at least a nanoinch in your body that believes you are doing God’s will, then I suggest you find a different career.” Since this column gives me the last word, to that I say, “Amen.” g

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