Reverse Review magazine by The Reverse Review

er ev

r se

evie

re e

this issue

INSIDE

e rs

- A look back -

2011 Challenges & Successes.pg32

he reverse rev ie w

w the re revie v

Where the secondary market is headed in 2012 By Darren Stumberger What does it take to solve the T&I Dilemma? By James Wright + Jeff Lewis sits down in the Hot Seat!

THE

REVERSE review

january 2012

reverse course 2 0 11

changing public policy landscape of

and the year ahead. Emily Vannucci

The Reverse Review January 2012

ReverseVision The software that ... ... won’t leave you in the rain

ReverseVision is supported by more reverse mortgage lenders than any other software.

ReverseVision Suite

In these uncertain times, Freedom of Action can determine a company’s survival. Strategically thinking companies choose ReverseVision because ReverseVision combines the highest independence with maximum compatibility. ReverseVision protects its customers by giving them the maximum freedom of action.

www.reversevision.com  (919) 834 0070  info@reversevision.com ReverseVision Inc.  3310 Pollock Place  Raleigh, NC 27607-7006

(Missing Something?) (Missing Something?)

We We Help Help Non-FHA Non-FHA Approved Approved Brokers. Brokers. We Help Non-FHA Approved Brokers.

The reverse mortgage industry is growing at an incredible pace. If you’re not doin The reverse mortgage industry is growing at an incredible pace. If you’re not doin business in this niche market or you’re turning away reverse mortgage loans, YOU The reverse growing an incredible pace. If you’re not doing business in mortgage this nicheindustry marketisor you’reatturning away reverse mortgage loans, YOU ARE LOSING MONEY. business in this niche market or you’re turning away reverse mortgage loans, YOU ARE LOSING MONEY. ARE LOSING MONEY.

www.new2reverse.com www.new2reverse.com www.new2reverse.com Reverse it! is Reverse a subsidiary Urban Financial Group, Inc.–A CapitalCapital Group, Inc. Company it! is aofsubsidiary of Urban Financial Group,Knight Inc.–A Knight Group, Inc. Company Reverse it! is a subsidiary of Urban Financial Group, Inc.–A Knight Capital Group, Inc. Company

Even if you’re not an FHA-approved broker, we can help. We’re Reverse it! Arguab Even if you’re not an FHA-approved broker, we can help. We’re Reverse it! Arguab the largest and the mostbroker, respected wholesale forit!reverse mortEven if you’re notcertainly an FHA-approved we can help. We’relender Reverse Arguably the largestand andcertainly certainly the most respected wholesale lender for reverse mortthe largest thehave mostall respected wholesale lender for reverse mortgages in the country. We the tools you need to grow your business in this gages in the country. We have all the tools you need to grow your business gages ingrowing the country. We have theoffer toolsfree you need to grow your business in this in this rapidly product line.allWe software and polished, professional, rapidly growing product line. We offer free software and polished, professional, rapidly growing product line. Weto offer free software and polished, professional, turn-key marketing materials help you close reverse mortgage loans faster and turn-key marketingmaterials materials to help you close reverse mortgage loans faster and turn-key marketing to help more efficiently than anyone else.you close reverse mortgage loans faster and more effi efficiently else. more cientlythan thananyone anyone else.

Visit us at new2reverse.com, and learn how hundreds of licensed real estate broVisit us us at andand learn howhow hundreds of licensed real estate Visit at new2reverse.com, new2reverse.com, learn hundreds of licensed realbroestate brokers from coasttotocoast coast are growing their business with Reverse it! kers from coast are growing their business with Reverse it! kers from coast to coast are growing their business with Reverse it!

The Reverse Review January 2012

From the Publisher This passion has been the fuel for the evolution and development of the HECM. The timing could not be more important to continue on this path as we enter into another year of a challenging economic climate, with few options for retirees to help counter depleting assets and cashflow stresses.

A note from Reza jahangiri

When presented

with the opportunity to take over The Reverse Review, the discussion took only five minutes. It was one of those nobrainer decisions. It was a privilege for me to get involved with the magazine, knowing that we could help further awareness in connection with a longmisunderstood but very important product. The passion I have witnessed in this industry has been unlike anything I have encountered. There is good reason for this. When people are exposed to the reverse mortgage and get to witness, firsthand, the impact it has on our nation’s seniors, they exhibit a zeal and pride that fall more in the category of a movement than a business. That’s a rarity in any industry.

I am very proud to be a part of this movement with all of you … very few can say they are working in an industry that is helping solve a public policy issue within the private sector.

Senior Publisher { Reza Jahangiri } Want to talk to Reza? Reach him at reza@reversereview.com

Meet the Team Senior Publisher Reza Jahangiri

Publisher

Erik Richard

Editor-in-Chief

Emily Vannucci

Creative Director Traci Knight

Copy Editor

Kersten Wehde

Publisher

Reverse review publishing Printer The Ovid Bell Press Advertising Information phone : 949.269.1600 email : advertising@reversereview.com Subscriptions email : information@reversereview.com Editorial Content email : emily@reversereview.com © 2012 Reverse Review Publishing, LLC All rights reserved. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, Reverse Review Publishing, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 3800 West Chapman Ave., Orange, CA 92868

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

get up-to-date news and industry interviews

FIND US ON:

| TRR

t ay ec st onn c

Feedback

As we begin 2012, I believe we need to continue to embrace and accept the high rate of change that comes with the reverse mortgage territory. After all, change is the one constant that never lets us down in our business! Although we have witnessed consolidation and declining volume in recent years, we have continued to stay innovative and committed to our movement. This has resulted in an impressively mature securitization market, the development of the lower-cost HECM Saver and new efforts to further refine the HECM and address the T&I issues. We must continue to stay introspective, creative and passionate.

FACEBOOK, TWITTER, LINKEDIN

Table of Contents

TRR 01.12 FEATURE

Underwriting 15 | 2012 - the year of confusion?

Want the online version? Check out reversereview.com/magazine

Servicing 25 | solving the t&i dilemma

The Underwriter asks the questions that many are also wondering.

A closer look at the topic that is on everyone’s mind.

ra lp h ro s y n e k

j am es wrigh t

Originating

Appraising

17 | to train or not to train?

28 | meeting the fha/ hud minimum property requirements

A simple competency analysis determines what type of training is needed.

The most common MPR items in need of repair.

k en k a n ady

ch ar les gress

Secondary Market

29 | Ask the appraiser Determining the value of the subject property.

21 | Will 2012 Bring a Volatile Market? A recap of what is ahead for the secondary market.

bill wa lten ba u gh , SRA

“Everything -- fluctuations in federal lending limits, threats to housing counseling programs, retirements of key industry leaders on Capitol Hill, the sluggish economy -- has given industry leaders plenty to work on in 2011 and even more to plan for in 2012.”

darr e n s t u mbe r g e r

Legislative 22 | Reverse Mortgage Regulation in the New World After Dodd-Frank

32 | Reverse Course

The Consumer Financial Protection Bureau’s role in 2012.

The changing public policy landscape of 2011 and the year ahead.

Spotlight Article 30 | The Role of the Government in the Future of the Reverse Mortgage Market

Where the reverse mortgage market is headed in 2012. j im milan o

Emily Van n u cci

W THE RE REVIE VE

RS E

E V IE

E RS

VE RE

THE

Rob Awa lt

R SE

Don’t lose sight of what really matters.

this issue

ER EV

38 | the last word

INSIDE

S e n ior M a n a g i n g D ire ctor at G u g g e n h e im Partn e r s a n d C h airma n o f G e n e ratio n M ort g a g e C ompan y

Featuring Jeff Lewis

EV ER

2011 pg32

Bro ught to you by Reverse Mortgage D ai ly

The industry’s headlining stories of the past month.

37 | directory

E R E VI E W THE VERS RE R

YEAR IN REVIEW

b y R ev e rse Mar k e t In sight

industry’s latest stats and rankings. Bro u gh t to you

12 | the hot seat

WHERE THE SECONDARY MARKET IS HEADED IN 2012 By Darren StumBerger WHAT DOES IT TAKE TO SOLVED THE T& DILEMMA? By JameS Wright

+ JEFF LEWIS SITS DOWN IN THE HOT SEAT!

HE REVERSE REV IE W

10 | industry update

E TH

WT VIE RE

07, 09 | Stats The

W IE

Essentials

The changing public policy landscape of 2011 and the year ahead.

RE V

Chri s top h e r J . W i l l is Merc e d e s K e l l e y T unsta l l

THE

REVERSE review

JANUARY 2012

REVERSE COURSE 2 0 11

CHANGING PUBLIC POLICY LANDSCAPE OF

AND THE YEAR AHEAD. Emily Vannucci

january 2012

cover

reversereview.com

8 TRR

The Reverse Review January 2012

Contributors Want to write for this magazine? 2 Email emily@reversereview.com for more information

John K. Lunde

Jeff Lewis

J ohn K . L und e

je f f le w i s

Ralp h Rosynek

07, 09 | The Industry Stats and Rankings g John K. Lunde is President and Founder of Reverse Market Insight, Inc., a performance data analysis and consulting firm specializing in the reverse mortgage industry. RMI clients include eight of the top 10 reverse mortgage lenders plus investors, servicers and vendors to the industry. rminsight.net | 949.429.0452

12 | hot seat g The Senior Managing Director at Guggenheim Partners in New York and the Chairman/ CEO of the Board of the Generation Mortgage Company, Jeffrey “Jeff” Lewis, founded and managed the Fixed Income Derivatives Group for Donaldson, Lufkin & Jenrette (DLJ), where he also managed the Mortgage Arbitrage Group and co-headed Residential Mortgage trading prior to joining Guggenheim Partners. Lewis also worked at Bankers Trust & Drexel Burnham as a Mortgage Securities trader.

15 | 2012 - The year of confusion g Ralph Rosynek has been The Reverse Review “Ask the Underwriter” 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. rrosynek@rmsnav.com 708.774.1092

K en ka na dy

Dar r e n Stu mb e r ge r

De n n i s Ga sso way

Ralph Rosynek

Ken Kanady

Darren Stumberger

Dennis Gassoway

Christopher J. Willis

Mercedes Kelley Tunstall

James Wright

| TRR

17 | To Train or Not To Train? g Ken Kanady is the Director of Learning for Wendover Consulting, Inc. Previously, Kanady created, delivered and managed Wells Fargo’s Reverse Sales Training & Certification Program. Kanady is the author of Reverse Credibility (2009), Confessions of a Loyal Customer - When Being Satisfied is Just No Longer Satisfying (2002), and The Essence of Professionalism (1986). Kanady is also a member of NRMLA’s Independent Certification Committee. kkanady@wendoverconsultants. com | 508.801.8054

21 | Will 2012 Bring a Volatile Market? g Darren Stumberger, Managing Director at Knight Capital Group heads Agency MBS trading and is responsible for HMBS/ HREMIC trading, distribution and risk management. Prior to Knight, Stumberger held mortgage trading and finance positions at Goldman Sachs, Morgan Stanley, Merrill Lynch, Standard & Poor’s and KBC Group NV. knight.com

Chr i s t opher J. W i lli s

Me r ce d e s ke lle y Tu n s tall

22 | Reverse Mortgage Regulation in the New World After Dodd-Frank g Christopher J. Willis is a partner at Ballard Spahr LLP and a member of the firm’s DoddFrank Task Force. His practice focuses on consumer financial services and financial institutions law, including counseling clients and defending them in individual and class action lawsuits. Willis writes and speaks regularly on unfair and deceptive trade practices, the Truth-in-Lending Act and mortgage lending litigation.

22 | Reverse Mortgage Regulation in the New World After Dodd-Frank g Mercedes Kelley Tunstall is of counsel in the Consumer Financial Services group at Ballard Spahr LLP. She counsels clients on compliance with consumer financial services laws, including proceedings of the Consumer Financial Protection Bureau and the Federal Trade Commission, and she specializes in helping financial institutions develop, market and service financial products and services using new technologies and methods.

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

Ja me s Wr ight 25 | solving the t&i dilemma g James Wright is Senior Vice President and Director of Client, Investor and Agency Relations at Reverse Mortgage Solutions Inc. (RMS) in Spring, Texas, which provides private-label sub-servicing as well as a stateof-the-art reverse mortgage loan origination system. jwright@rmsnav.com 281.404.7980

Report November 2011

Top Lenders Report

12345 MetLife Bank, N.A.

One Reverse Mortgage Endorsement

1273

Lender

Endorsement

398

Genworth Financial

Endorsement

362

Endorsements

Urban Financial Group

Generation Mortgage Co.

Endorsement

284

Lender

253

Endorsements

AMERICAN ADVISORS GROUP

244

PRIMELENDING A PLAINSCAPITAL

SECURITY ONE LENDING

121

WELLS FARGO BANK NA

REVERSE MORTGAGE USA INC

107

NET EQUITY FINANCIAL INC

NEW DAY FINANCIAL LLC

GMFS LLC

THE FIRST NATIONAL BANK

HARVARD HOME MORTGAGE INC

ROYAL UNITED MORTGAGE

JAMES B NUTTER AND COMPANY

CHERRY CREEK MORTGAGE CO INC

WHOLESALE CAPITAL CORP

MONEY HOUSE INC

WEST TOWN SAVINGS BANK

M AND T BANK

ALLIED HOME MORTGAGE

SUNTRUST MORTGAGE INC

COMMUNITY FIRST BANK

SENIOR MORTGAGE BANKERS INC

NETWORK FUNDING LP

GREAT OAK LENDING

OPEN MORTGAGE LLC

EQUIPOINT FINANCIAL NETWORK

REVERSE MORTGAGE SOLUTIONS INC

ASPIRE FINANCIAL INC

NEW AMERICAN MORTGAGE LLC

NATIONWIDE EQUITIES

AXIA FINANCIAL LLC

MAS ASSOCIATES

FULTON BANK NATIONAL

PLAZA HOME MORTGAGE INC

UNITED NORTHERN MORTGAGE BANK

ASSOCIATED MORTGAGE BANKERS

TOP FLITE FINANCIAL INC

Trailing Twelve Month Endorsements

INDUSTRY SUMMARY Retail Endorsement Growth

-16.06%

10,000

Wholesale Endorsement Growth

8,000

-18.26%

6,000 4,000

Total Endorsement Growth

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

Wholesale *Numbers Represent Months

-16.83% * Figures Above Reflect Change from Prior Month

RETAIL UNITS CHG%

4,004 34.54%

4,343

8.47%

4,049

-6.77%

4,075

0.64%

4,515

10.8%

WHOLESALE UNITS CHG%

TOTAL UNITS CHG%

10.4%

6,551

24.0%

2,207 -13.35%

6,550

-0.02%

9.33%

6,462

-1.34%

2,805 16.25%

6,880

6.47%

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

-5.18%

2,159

-7.02%

5,511

3,705 10.53%

2,099

-2.78%

5,804

5.32%

3,612

-2.51%

1,972

-6.05%

5,584

-3.79%

3,032 -16.06%

TOT

45,032

2,547 2,413

1,612 -18.26%

27,415

-5.91%

4,644 -16.83%

72,447

reversereview.com

8 TRR

The Reverse Review January 2012

Contributors c ha r l e s g r es s

Charles Gress

Bill Waltenbaugh, SRA

28 | meeting the fha/ hud minimum property requirements g Charles Gress has been in the appraisal industry for 16 years and has recently joined Toledobased Martin + Wood Appraisal Group LTD as Senior Review Appraiser. Gress is involved in the attraction, education and retention of appraisers within the industry, having trained more than 30 in his time. Gress was Keynote Moderator for the Collateral Risk Network in 2011.

Jim Milano

Emily Vannucci

Rob Awalt

Bi ll Walte n b au gh , SR A 29 | Ask the appraiser g 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.

E mi ly va nnucci

r ob awalt

32 | Reverse Course g Emily Vannucci is the Editor-inChief of The Reverse Review magazine. Before solely focusing her efforts on The Reverse Review, Vannucci was also the Editor-in-Chief of LiveValuation Magazine, a trade publication for the valuation sector of the mortgage industry. Prior to venturing onto the editorial side of publishing, Vannucci focused her efforts on sales and marketing for a San Diegobased lifestyle publication called Riviera magazine, which is owned by Modern Luxury Media.

38 | The Last Word g Rob Awalt is the President of Premier Reverse Closings. PRC is a dedicated national reverse mortgage title and settlement company headquartered in Rocklin, CA. Before moving full time into the reverse mortgage industry, Awalt was a regional director for North American Title. His career in real estate, which followed his retirement from the National Football League, started when he founded Granite Exchange Services, a 1031 exchange intermediary.

Ji m Mi lan o 30 | The Role of the Government in the Future of the Reverse Mortgage Market g Jim Milano is a partner with the law firm of Weiner Brodsky Sidman Kider. Milanoâ&#x20AC;&#x2122;s practice focuses on financial services industry regulatory compliance matters, particularly with respect to reverse mortgage issues. Milano is nationally recognized as one of the leading lawyers in the area of reverse mortgage law, and is a frequent speaker on topics of interest to industry members at various trade association conferences and webinars.

Want to write for this magazine? 2 Email emily@reversereview.com for more information

Number

36% 8

| TRR

Americans who say that they donâ&#x20AC;&#x2122;t contribute anything at all to retirement savings. cnbc.com/id/32862851

Saver market share

hecm endorsement trends

% % % % %

Looking for more statistics? Go to rminsight.net for all of the industryâ&#x20AC;&#x2122;s latest stats and rankings.

10/1/11

9/1/11

8/1/11

20%

16%

14%

12% $600.0

$400.0

$200.0

$0.0 6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/10

5/1/10

4/1/10

3/1/10

2/1/10

1/1/10

12/1/09

10/1/11

$800.0

10/1/11

$1,000.0 9/1/11

$1,200.0

9/1/11

$1,400.0 8/1/11

$1,600.0

8/1/11

$1,800.0 7/1/11

Fixed

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/10

5/1/10

4/1/10

3/1/10

2/1/10

1/1/10

12/1/09 ARM

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

11/1/09

{ FIGURE }

1/1/11

11/1/09

Fixed Rate Percentage

hecm endorsement trends

12/1/10

{ FIGURE }

03 $ in the millions

initial principal limits

hecm endorsement

Report { FIGURE }

80%

75%

70%

65%

60%

55%

50%

Reverse Market Insight - Logo

October 9, 2009

PANTONE COLORS

reversereview.com 3005C Process Blk C

Brought to you by:

18%

REVERSE MARKET

INSIGHT

10%

8 TRR

The Reverse Review January 2012

Industry Update Brought to you by:

an update of this past month’s breaking news

News direct to you: The industry’s

January Edition

headlining stories at your fingertips.

Want even more up-to-the-minute news?

Visit reversemortgagedaily.com

Have a news story for this section? Email your story to emily@reversereview.com

3. FHA Lowers All 1.

MetLife Makes History, Implements Financial Assessment for Reverse Mortgages // November 4, 2011

MetLife announced that it will now require a financial assessment of all of its reverse mortgage borrowers beginning Nov. 14. This is a first in terms of requiring this kind of credit history or a detailed assessment of cash flow to qualify borrowers and it will rule out some borrowers who were previously able to get a HECM loan. While the FHA has not made an official rule on the issue, Acting Commissioner Carol Galante issued a statement in October to the effect that there is nothing stopping lenders from conducting such an assessment.

NRMLA Elects New 2012 Board Leadership // November 7, 2011 During its annual national convention in Boston, NRMLA announced the new industry leaders that have been selected to chair and serve on the National Reverse Mortgage Lenders Association board. Sarah Hulbert, Retail Business Development Manager for 1st Reverse Mortgage USA, and Joe DeMarkey, Assistant Vice President of MetLife Bank, will co-chair the board from 20112012. Genworth Financial Home Equity Access President Peter Engelken and George Lopez (from James B. Nutter and Company) will serve as vice chairs for the coming year. Also serving on the board are Secretary John LaRose of Celink and Treasurer James Cory of Legacy Home Financing. 10

| TRR

Reverse Mortgage Volume Expectations for 2012

// November 17, 2011 The Federal Housing Administration is taking a more conservative stance on HECM volume in 2012 and adjusting its projections down. Previously, FHA projected HECM endorsements for 2012 would reach 88,000 units – an increase from 2011 but in its annual actuarial review of the Mutual Mortgage Insurance Fund, FHA now estimates that 2012 will see 71,420 FHA-backed reverse mortgage loans, with an uptick not seen until 2013.

AARP Calls for Reverse Mortgage Special Protections // November 21, 2011 A hearing for the Banking, Housing, and Urban Affairs Subcommittee on Financial Institutions and Consumer Protection sparked conversation between the Office of Older Americans and senior advocacy group AARP, with attention paid to reverse mortgages. The hearing included AARP’s senior attorney Julie Nepveu’s testimony, as well as that of Hubert “Skip” Humphrey, Director of the Consumer Financial Protection Bureau’s Office of Older Americans. During her testimony Nepveu said it’s a “very important area that needs to be available for seniors to use,” but, she adds, it needs to have “special protections because of the serious harm that can affect seniors.”

5. Urban Financial Appoints New CEO and President

// November 23, 2011 Steven McClellan, former CFO at

Generation Mortgage, has joined Urban Financial Group as President and CEO. In addition to his experience at Generation, where he was responsible for the financial, risk, trading and legal/compliance activities, McClellan previously worked at HomeBanc Mortgage Corp., First Union/ Wachovia and Bank of America in credit policy and risk management.

Barney Frank to Retire, Reverse Mortgage Industry Loses Supporter // November 28, 2011 On Monday, Nov. 28, Congressman Barney Frank (D-Mass.) announced he will not be running for re-election in 2012. Frank held his seat as representative of the Fourth Congressional District of Massachusetts for more than 30 years and has long been a knowledgeable member of Congress on the topic of reverse mortgages. During a press conference, Frank said it has become increasingly difficult to make meaningful change in Washington.

7. NY Times: Boomers Lead the Charge for Aging in Place

// November 29, 2011 The New York Times highlighted a recently released book that touches on baby boomers’ desire to age in place. The book, Unassisted Living: Ageless Homes for Later Life, written by Wid Chapman and Jeffrey P. Rosenfeld, posits that the notion of retirement has changed and there is a growing population that does not want to live in a nursing home.

Industry Update Rosenfeld says, “One of the defining characteristics of boomers is that they want to push the boundaries and rethink the rules.”

Unexpected Surge for Reverse Mortgage Lenders // November 29, 2011 American Banker reported an unexpected surge in small lenders’ business, a strong upside for those who are more specialized in reverse mortgage products. With the exit of Wells Fargo and Bank of America creating apprehension in the industry, NRMLA President and CEO Peter Bell told American Banker the exit of Wells Fargo and Bank of America “has created a growth opportunity for the next tier of players.”

California Seniors Group Says Reverse Mortgages are a Top Priority // November 29, 2011 The California Seniors Legislature rates

reverse mortgages transparency legislation among the state’s top 10 priorities and recently passed a bill to prohibit reverse mortgage and insurance cross-selling. The Reverse Mortgage Transparency Act (released by the 31st annual Legislative Session) was given priority for enactment in 2012. A summary of the proposal reads: “The Reverse Mortgage Transparency Act would require reverse mortgages to allow the borrower to determine the consequences of the mortgage based on their personal situation, financial circumstances, health and long-term needs.”

10. Reverse Mortgage

Counseling Gets $4 Million of HUD Funding // December 1, 2011 The Department of Housing and Urban Development announced that $4 million of housing counseling funds will be devoted toward reverse mortgage

counseling. Grants will be awarded competitively to the hundreds of HUDapproved counseling agencies and state Housing Finance Agencies across the nation that offer a variety of services, including pre-application reverse mortgage counseling and foreclosure avoidance counseling.

11. Reverse Mortgage Loan

Limits Extended Through 2012

// December 2, 2011 According to the Department of Housing and Urban Development, the current maximum claim amount of $625,500 for HECMs has been extended through 2012. With fear the limits would return to their former ceiling of $417,000, an FHA update on Nov. 23 notified lenders the amount will remain the same for 2012.

Repairs done … Ready to close! 3

We specialize in repairs needed prior to closing

3 3 3

No repairs too large or too small

THE L E RESO NDER’S U GETTIN RCE FOR G MORT REVERSE GAGE S TO CLOS E

We finance our work and are paid at closing IHG works on a national level

In Partnership with BayState Properties

877.906.3946 | www.independencehousing.com reversereview.com

8 TRR

| 11

The Reverse Review January 2012

THE HOT SEAT

things you need to know or may have been wondering january 2012

the hot seat From his favorite time of day to what he believes to be the most important thing seniors should understand about reverse mortgages, we get the personal and professional facts from Senior Managing Director at Guggenheim Partners and Chairman/CEO of Generation Mortgage Company, in our monthly edition of The Hot Seat. 12

| TRR

jeff PERSONAL

Generation Mortgage

I never miss an episode of Boardwalk Empire.

My favorite time of the day is when we put the kids to bed and read with them.

Chairman/CEO

Guggenheim Partners

Senior Managing Director

Right now I’m listening to satellite radio and Pandora – both truly amazing innovations.

The most memorable moment in my life is a tie between when each of my kids was born.

A good friend is on your team no matter what, but isn’t afraid to tell you when you’ve messed up.

PROFESSIONAL >

A good friend is on your team no matter what, but isn’t afraid to tell you when you’ve messed up.

People should seek a career in the reverse mortgage industry because the industry will eventually grow and they can make a living with a product that transforms consumers’ lives in such a positive manner.

I am optimistic about the reverse mortgage industry because the product is good and the need is large and growing.

If I could change one thing about the reverse mortgage industry it would be the tone of the industry’s

Before I entered the reverse mortgage industry I was thinner!

Reverse mortgage professionals can best support the public image of reverse mortgages by educating

television campaigns. I believe they help perpetuate a schlocky image for the industry.

themselves about the product’s inherent economic value.

The most important thing financial advisors can learn about reverse mortgages is that they are neither expensive nor a product of last resort.

Industry growth is dependent upon changing the negative image of the product among consumers and financial professionals who advise consumers.

In shaping appropriate regulation of the reverse mortgage industry, government officials need to understand that the only way to address the complex retirement funding problems faced by the boomers is to permit comprehensive planning to take place.

The development of a proprietary market for reverse mortgages will require much lower government loan limits and much higher home price appreciation.

If I could change one thing about the reverse mortgage industry it would be the tone of the industry’s television campaigns. I believe they help perpetuate a schlocky image for the industry.

The most important thing seniors should understand about reverse mortgages is that they are not a last resort.

I would encourage a family member to consider

a reverse mortgage because it is the best value in consumer financial products I have ever seen.

reversereview.com

8 TRR

| 13

The Reverse Review January 2012

“Our focus is to give you the tools and support

that you need to be successful”

• Credit Union Partner Program • Pat Boone, National Spokesperson • Top $ Compensation Plan • Personal Website • Quick Compensation One week after the loan funds • Excellent Fulfillment Team

• Reverse Fortunes - Free Membership • Marketing Expense Reimbursement • Jumbo Reverse Program • Quality Branded Marketing Materials • America CE Institute Continuing Education Program

To receive a Security One Media Kit visit www.S1Lemployment.com 14

| TRR

resolve

Underwriting

No Credit Report No Employment Qualification No Medical Qualification No Income Requirements No Asset Verification No Recourse No Tax or Insurance Escrows No Restrictions on Use of Funds Lastly, what is the capacity and willingness of the older American, the counseling network and our own industry origination force to enact some of the proposed financial assessment tools based upon no prior experience with a forward process of evaluation of ability, willingness, overlays of credit, capacity and character?

appraising

In the next few months I will be seeking resolution to these and related financial assessment-related questions. Your help, comments and support as a reader will be greatly appreciated and will also be a critical part of the resolution process. The Reverse Review and I welcome your input and ask that you direct your comments to us at: information@reversereview.com. Happy New Year! x

spotlight

Going to the source

Another question: Can someone tell me which Mortgagee Letter I can reference wherein the privilege and opportunity to transact a HECM was

No Monthly Payments

servicing

I underwrote conventional and government loans for very many years

Take the credit report. Is the FICO score combined with a repossessed auto and several unpaid medical bills from a deceased spouse something to which I should now react? What about the fact that in the forward market, every borrower was born with a 30-day late payment on their Sears revolving charge card?

legislative

I have a confession to make: I am confused. My confusion has resulted in several questions that I cannot clearly resolve. For example, over the past years, at what point in time did I not exercise a prudent underwriting approach and philosophy to safeguard the borrower(s); protect the “fund”; mitigate risk for my employer, who is the lender; and observe the guidance, regulation and direction provided by FHA when evaluating the request for approval of a HECM transaction assigned to me for decision?

Her support made me what I was and remain today: a prudent underwriter. So, where does an underwriter seek “confusion resolution” when the investor, lender and loan program policies and procedures remain unchanged and the only guidance available is “You have always had the ability to…”?

As an industry we have been discussing financial assessment for months now. When I review HECM lender websites, why are the features and benefits virtually unchanged from what we have been educating potential borrowers about for years?

secondary market

nderwriters ask a lot of questions. They seek filerelated issue resolution from originators, vendors and processors who assist in providing additional support to variances in policy and procedure or lack of information noted in their review. Many times, these resources assist in clearing confusion.

mandated as a right for every older American homeowner?

originating

Ralp h R o s y n e k

in the forward market. Last decade (!) I was taken under the wing of my mentor, Deanne Opstad, while a correspondent for Financial Freedom. She tough-lovingly converted my seasoned forward skills and knowledge to HECM underwriting authority as well. Deanne imparted a discipline that required observance of guidelines, guidance, manuals, mortgagee letters and regulation as the basis for addressing loan approval requests for reverse mortgages. She painstakingly relieved me of my ratio fears, MCAW activities, derogatory credit (except for federal debt) concerns and modified my forward concept of capacity, willingness and ability to pay within the confines of HECM-specific program requirements and guidelines. She allowed me to look and not react to a 475 FICO score!

underwriting

2012 – The Year of Confusion?

Like what you see? Find all of our archived articles about underwriting at reversereview.com

Underwriters ask a lot of questions. They seek file-related issue resolution from originators, vendors and processors who assist in providing additional support to variances in policy and procedure or lack of information noted in their review. Many times, these resources assist in clearing confusion. I have a confession to make: I am confused.

reversereview.com

8 TRR

| 15

The Reverse Review January 2012

| TRR

Perform

originating

Want to see more stories like this? Visit reversereview.com

The very first thing reverse leaders should do is abandon the word “training” and start focusing on the word “performance” – the

Once a performance problem is validated as being “human” in nature (a competency-based need versus a problem

spotlight

The very first thing reverse leaders should do is abandon the word “training” and start focusing on the word “performance” – the accomplishment of a given task in a way that adds value to the organization.

appraising

Going to the source

servicing

Just by being performanceoriented and using a simple information-gathering process before making training investments, reverse leaders can reach higher-quality decisions, reduce time out of the field by loan officers, and

lessen (and even avoid) incremental training costs.

This is usually done by reviewing the organization’s formal sales competency model for reverse loan officers. This standard identifies the most vital skills, knowledge and values needed by reverse loan officers based on the organization’s unique goals, strategies, metrics, and sales culture. Such a model is usually created through input from top sales performers, industry benchmarks, best practice comparisons, managerial interviews, and/or direct customer feedback. In short, ask, “What do ideal sales performance competencies look and feel like?” Write it down. (Note: If such a model is nonexistent, reverse sales leaders should have it developed and maintained over the long term – it will change!)

legislative

ost leaders of reverse organizations must answer this question routinely. To train or not to train is an important question, but not as important as the answer or process used to reach it. While “training” is often a quick, comfortable path to improve sales competencies, it is often the wrong path. (Note: For the purpose of this article, “training” refers to classroom-based, instructor-led interventions only.)

secondary market

Ken Ka n a d y

The next thing to do is to develop a customized (unique to the reverse organization) and personalized (based on well-identified individuals/teams) process that serves as the front-end steps to be used before making performance improvement or training investment decisions. There are many sophisticated, tested, refined methods to discover causes and solutions to performance problems, but the most simple process sometimes can help the most. A fivestep approach outlined in this article is one such simple, yet powerful, process. It can help reverse leaders develop a disciplined, systematic way of addressing loan officer performance problems and/or training needs.

step Identify the ideal sales competencies needed to excel as a reverse loan officer:

originating

To Train or Not to Train?

requiring a business, technical, organizational or operational intervention), the following five steps can help make a difference achieving positive outcomes in a more efficient, timely manner:

underwriting

accomplishment of a given task in a way that adds value to the organization. Training is an important yet optional activity useful in the facilitation of learning and improving performance. It is a means to an end. On the other hand, performance is a desired result or outcome worthy of continual pursuit. Reverse leaders are naturally results/outcomeoriented, so making such a mental transition should be quick and comfortable.

step Identify state-of-the-art competencies actually possessed and applied by reverse loan officers: This is an objective assessment of current 8 reversereview.com

8 TRR

| 17

The Reverse Review January 2012

originating sales skills, knowledge and values as actually practiced/applied by reverse loan officers. Such an inventory is usually developed via loan officer interviews, customer satisfaction surveys, third-party feedback, performance reviews and live observation in the field. In short, ask, “Is our current state or condition of revere sales competencies good or bad?”

step 3 6

Identify the gap in reverse sales competencies: The primary outcome of this step is the creation of a very specific deficiency list (competencies needing development, change or improvement to any degree). In short, ask, “What are we missing, where are the deficiencies and who needs development?”

step Identify the root cause(s) of each deficiency or missing competency: Explore all the factors that could be influencing each deficiency, such as obsolete technology, outdated information, lack of personal motivation, misunderstanding of facts, wrong application of skills, tainted values, negative attitudes, wrong sales strategy, antiquated training tools or methods, lack of field support, poor managerial coaching, strengths of competition, absence of timely feedback, or ineffective managerial or corporate communication. In short, say, “Let’s identify the real issues before investing in anything … including training!”

step 5 6

Select the best interventions to eliminate human deficiencies and improve performance: Based on output from prior steps, select the most appropriate, costeffective business, organizational, technical or human solution. Sample interventions include new sales incentives or metrics, improving communication, simplifying 18

| TRR

technology, modifying Acco r d i n g to K en sales strategies, There are many sophisticated, tested, refined methods to strengthening discover causes and solutions to performance problems, partnerships, but the most simple process sometimes can help the most. developing job aids, initiating practice/ As a result, their management coaching sessions, team, in conjunction with a human creating individual development resources staff member, developed and plans, and/or conducting training. conducted a basic front-end analysis Regardless of alternatives chosen, an (specifically targeting 17 reverse loan ongoing tracking/assessment process officers and two sales managers) should also be established to monitor across the Northeast region. This progress and change. If not, corrected process yielded the identification of deficiencies may reappear. In short, 133 reverse-specific sales competencies ask “How can we preserve what vital in direct engagements with works, discard what doesn’t, and fix seniors and/or their advisors (e.g., what needs improvement?” financial planners, attorneys, Realtors, bankers … potential third-party Real-world Reverse referral sources). Case Study: A reverse mortgage company, headquartered in the Northeast, conducted a formal “sales competency analysis” utilizing a basic process similar to the steps above. It was critical because the needs of their reverse loan officers were changing quickly. They realized their loan officers had to become more proactive in staying ahead of all areas of change taking place throughout the reverse industry, including federal regulations and state scrutiny, reverse loan administration procedures, social media, internal systems/technologies, intense competition and the changing demographics of seniors. Additionally, their organization did not have a formal reverse-specific sales competency model in place at all. They could not even begin basic benchmarking of sales strengths and weaknesses. Most important, they had begun experiencing a decline in customer satisfaction scores and a drop-off of quality third-party party referral sources. Hence, the development of their own front-end process was primarily driven by these two key business imperatives: improving customer satisfaction and strengthening reverse-specific referral relationships.

This list was then divided into two groupings: ONE “strengths”: well-developed sales

competencies that were professionally, consistently applied; and TWO “deficiencies”: underdeveloped, nonexistent sales competencies needing performance triage. Of these 133, 26 competencies and capabilities were classified as deficient. They ranged in scope from basic mental/cognitive inabilities (lack of understanding or knowledge) to highly complex skill/behavior shortcomings (lack of know-how). The letter “T” was placed next to deficiencies requiring a “Training” intervention (classroombased, instructor-led). The letter “O” indicated other types of interventions that may be more appropriate to improve the deficient competency.

By reviewing the following list of reverse-specific sales deficiencies, reverse leaders can quickly develop an appreciation for the potential benefits of taking more disciplined approaches in assessing sales competencies, training needs, and/or types of performance improvement strategies (including whether to train or not to train).

originating T: Deficiencies requiring a “Training” intervention (classroom-based, instructor-led). O: Other types of interventions that may be more appropriate to improve the deficient competency.

“Our reverse loan officers and sales managers are good, very good. But, in order to move ahead proactively in serving seniors better while also beating the competition, they’ll NEED TO ...”

O 1. Understand the

O 5. Understand “cross

T 6. Know how to

O 8. Understand the No. 1 myth behind making telephone “cold calls” to financial planners O 9. Know how to recognize potential senior “impairment or abuse” during reverse engagements O 10. Understand how

and when to explain

T 13. Know how to explain the difference between the initial and expected interest rates

T 23. Know how to ethically avoid disparagement when discussing reverse competitors with seniors

T 14. Know how to concisely explain the difference between a T.A.L.C. and A.P.R. O 15. Know how to effectively convey annuities in the context of reverse mortgages O 16. Know how to resolve outstanding conditions during reverse application and closing processes

T 17. Know how to convey

personal and industry credibility (not only reverse “product” credibility)

O 18. Understand when to show both sides (vs. one side) of controversial reverse issues O 19. Understand when to lead with the weakest (vs. strongest) points during reverse presentations O 20. Understand when to draw conclusions for

T 24. Know how to assess a senior’s attitude (vs. understanding) during reverse engagements O 25. Know how to overcome call reluctance before making cold calls to insurance agents O 26. Understand when not to sell a reverse mortgage and how to effectively convey it to seniors Note: At first glance,

each of the 26 deficient competencies could easily have been addressed via formal classroom training. But in this case, this reverse management team determined only 42 percent (or 10 of 26) warranted formal training interventions.

Most of these “T” competencies share two key commonalities:

As a result of this basic, up-front competency analysis, time out of the field by reverse loan officers was minimized, and direct training costs were significantly reduced or avoided altogether. Most important, sales performance improvement in customer satisfaction and third-party referral sources were directly impacted, measured, and tracked over the long term. In conclusion, training is a very effective learning intervention that can directly improve human performance if aligned with appropriate performance deficiencies. But training is not a silver bullet. Determining whether to train or not to train can be a much easier, more productive task that yields higherquality performance and positive business results simply by investing a little time earlier in the training decision process. x reversereview.com

8 TRR

spotlight

O 7. Understand when not to take a reverse application from a senior

O 22. Understand when to use humor with seniors

appraising

effectively convey “nonborrowing spouse” implications to seniors

a “team presentation” with Realtors

servicing

selling” prohibition regarding reverse mortgages

T 12. Know how to conduct

Each of the “O” deficient competencies (16) did not warrant training but were addressed by other types of learning interventions, including information job aids, conference call discussions, field coaching, webinars, and online selftutorials.

legislative

T 4. Know how to articulate customized reverse “value propositions” to advisors of seniors

T 21. Understand the four cultural factors that need to be addressed when presenting to highly diverse audiences

secondary market

O 3. Understand all the new rules of the road regarding reverse compliance, especially advertising

O 11. Know how to effectively engage adult children of seniors during reverse engagements

TWO A higher degree of dialogue and interaction needed in mastering complex concepts.

originating

T 2. Know how to more effectively convey “reverse counseling” benefits to seniors

seniors about reverse mortgages

based deficiency, and

underwriting

importance of the “secondary market” for reverse and how it works

alternatives of reverse mortgages to seniors

ONE A skill/behavior-

| 19

The Reverse Review January 2012

National Appraisal Management for Reverse Mortgages.

STOTED AM

Appraisal Management Done Right!

Find Value Everywhere No Discount Appraisers Nationwide Coverage 100% Manual QC

p Geographic Competence Our GeoSelectTM certificate

verifies your appraiser understands the borrowers market.

CALL TODAY

or visit us online and discover the difference!

p Managed Assignments Your assignment coordinator will review files personally and assign the best appraiser.

p Borrower Contact Landmark contacts your borrower directly to ensure they are properly informed about the appraisal process.

p Reduced Revisions Requests & Compliance Every file is

manually reviewed to avoid revision requests and ensure FHA compliance.

| TRR

888.272.1214

LandmarkReverse.com

HMBS

secondary market

In the year that a reverse mortgage is paid off, can the original closing cost and all of the accumulated interest be claimed as a deduction on your income tax? -Anthony Gatto

spotlight

There is no shortage of things to look forward to in 2012. Better and more standardized data reported by servicers and maintained by Ginnie Mae,

appraising

Prepayment speeds for the HMBS universe have remained slow and stable. The 2009 fixed-rate vintage has been running roughly 50 percent of the PPC curve, with 2010 fixed rates running roughly 40 percent and the 2011 vintage 65 percent. The story of this asset class exhibiting low negative convexity with superior call protection has held true after several years of performance. Floaters have paid faster in 2011, but the 2009 and 2010 vintages are coming in roughly 53 percent and 86 percent of PPC, respectively.

servicing

I expect market volatility to persist, fueled by multiple factors. Domestic growth will remain challenged as Europe will likely enter recession, and expect the Fed to remain on hold until late 2013 or early 2014. Additionally, I expect an announcement on QE3 in the second or third quarter and continued policy uncertainty and gridlock in Washington leading up to the election. That being said, I expect agency MBS to perform well in 2012 due to technical/structural

factors, with GNMA paper outperforming conventionals. The Full Faith and Credit guarantee for overseas investors and the zero percent risk weighting for domestic banks will fuel demand.

legislative

floaters have continued to meander wider to the high 50s/low 60s DM and have underperformed fixed rates. The IO bid has remained strong and multiples have been generally correlated to macro market events and movements in competing asset classes across agency and non-agency MBS. Domestic banks, REITs, money managers and hedge funds have dominated flows, and this is expected to continue in 2012.

secondary market

s the Ginnie Mae HMBS market enters its fifth year and crosses over $30 billion of pool issuance, fixed-rate HMBS performance into early December has been impressive. With rates range-bound but drifting wider into the month, fixed-rate spreads have tightened in an exaggerated fashion on the magnitude of 25 basis points. This feels eerily similar to late 2009 when we saw a dramatic tightening in spreads, before the onset of the Greece crisis in late spring 2010. Heading into 2012, spreads and sponsorship for pools and strips will largely depend on domestic and foreign macro events along with rate levels, and generally dictate where weâ&#x20AC;&#x2122;re headed. Aside from HMBS being cheap on a relative value basis versus other government-guaranteed MBS and CMBS, weâ&#x20AC;&#x2122;ve also seen the fixed-rate HREMIC stripped passthrough bid come back after a lengthy hiatus. Par

originating

Da r re n S t u m b er g er

Intex and Bloomberg is critical. Yieldbook should release its first version of an OAS model, which will help liquidity and bring in new accounts. On the heels of a major shift in the competitive landscape in 2011, midsize platforms will take the reins and be rolling out financial assessment guidelines to mitigate taxes and insurance default risk. There also are discussions that HUD may announce additional guidance at some point in 2012. How this will affect volume remains to be seen. Consistent dealer support of the sector with research coverage and analytics support to assist with end account confidence will also be helpful. x

underwriting

Will 2012 Bring a Volatile Market?

Want to see more stories like this? Visit reversereview.com

Yes, the borrower should receive a 1098 reflecting all the interest the borrower paid into the loan as long as the interest is over $600. The closing costs cannot be claimed but the interest on those closing costs will be included in the 1098. Have a question for this column? Email information@reversereview.com

reversereview.com

8 TRR

| 21

The Reverse Review January 2012

policy

legislative

Want to see more stories like this? Visit reversereview.com

is likely that the CFPB would be focused on protecting borrowers through regulation of both disclosures and (perhaps ultimately) the substantive terms of reverse mortgage loans.

Reverse Mortgage Regulation in the New World After Dodd-Frank C h ris t o p h e r J . W i lli s Mer c e d e s Ke ll ey T uns tall

011 was a very busy year in terms of regulation in the consumer financial services industry, especially with regard to mortgage lending. But this is just the beginning – much greater changes in mortgage regulation, at both the federal and state levels, are to come. Here we recap some of the current developments and make a few observations about what the future may hold. The driving force behind all of the regulatory changes discussed here is the Dodd-Frank Act and its creation of the Consumer Financial Protection Bureau (CFPB). Passed in 2010, many of the act’s provisions went into effect in July 2011. Most significantly, on July 21 of this year, we had the “designated transfer date”: the date on which the CFPB officially came to life and assumed the consumer protection functions that had previously been carried out by the federal banking agencies. Absent some major change to DoddFrank as a result of the political process, the CFPB will have a very significant 22

| TRR

impact on consumer financial services regulation, and reverse mortgages in particular, in the years to come. Moreover, even without a confirmed director, the bureau has a great deal of power to make rules and take enforcement action under pre-existing federal consumer protection statutes like TILA, RESPA and ECOA. And on Dec. 1, the CFPB opened its online mortgage complaint process, which will allow reverse mortgage customers to make complaints directly to the bureau. There are a couple of areas of focus that have become apparent from the bureau’s public statements and mortgage-related supervision manuals. First, the bureau has a keen interest in financial services that affect senior citizens, and announced in October that Skip Humphrey, most recently from AARP, had been appointed to head up the CFPB’s Office of Older Americans. In their press event to announce Humphrey’s appointment, reverse mortgages were mentioned as one of the many products his office within the CFPB will focus upon. With

respect to reverse mortgages, it

Second, the bureau’s Mortgage Servicing Examination Procedures reveal a number of other focus areas that may be applied to reverse mortgages. In particular, the procedures call for careful assessment of fair lending issues above and beyond the usual types of assessment and including both disparate treatment and disparate impact analysis. As the director of the CFPB’s Office of Fair Lending, Patrice Ficklin remarked at a recent industry meeting that the CFPB’s application of the consumer regulations is based upon the consumer’s perspective, not concerns around the safety and soundness of the lending institution. The CFPB also has placed great emphasis on the content of consumer complaints and the manner in which mortgage servicers respond to those complaints. Although the CFPB does not have examination or enforcement authority over most reverse lenders at present (only banks with more than $10 billion in assets), it still has the ability to make rules and to gather complaint information and provide it to other enforcement authorities, such as state attorney generals, even with no director in place.

legislative

goi ng to the source

legislative

The importance of consumer complaints cannot be overstated. The CFPB’s future regulatory direction will be influenced by such complaints, valid or not, and such complaints will also inspire, in large part, the enforcement agenda of state attorneys general. The best way for

servicing appraising

reverse mortgage lenders to stay out of the enforcement crosshairs and for the industry as a whole to forestall regulatory changes is to effectively respond to and resolve all consumer complaints. In the new era

spotlight

But even beyond this, the whole ethos of Dodd-Frank is rooted in the idea that states should be free to regulate consumer financial services to a greater extent than they have in the past, and state attorneys general have taken this activism to heart. In the mortgage industry in particular, we have seen all 50 attorneys general jointly investigate foreclosure documentation, and lawsuits have recently

secondary market

But Dodd-Frank cleared the way for states to get back in the game of substantively regulating reverse mortgage lending since reverse mortgages are no longer covered by AMTPA, unless they have a variable interest rate. Now state legislatures can pass laws affecting reverse mortgages without fear of federal interference. Congress has invited the states to enact such laws, and one of the things to watch for in 2012 is how much state legislative activity we see in the reverse mortgage industry.

been filed by Delaware and Massachusetts against mortgage servicers and MERS. Given the degree of public attention around mortgage lending issues, it is only natural to expect that state attorneys general will continue to be highly motivated to address issues in the mortgage industry, including reverse mortgages. And bear in mind that, although the CFPB may not have the authority to examine and prosecute non-bank lenders without a director, it has already said that it can – and will – share complaints it gathers with state attorneys general.

originating

But our attention should not be focused entirely on the CFPB, or even on Washington, D.C. Already, the changes to federal law made by Dodd-Frank have ushered in a new era of much greater activism by state banking regulators and state attorneys general, and states may have the more immediate impact on reverse mortgage lending. By way of background, prior to Dodd-Frank, reverse mortgage lenders who were not federally chartered banks could invoke “parity” with those federal institutions under the Alternative Mortgage Transactions Parity Act

(AMTPA), and could preempt state laws inconsistent with federal standards for reverse mortgage lending. Even if most state-licensed reverse mortgage lenders have not ignored state law under AMTPA, the effect of AMTPA’s pre-emption was to check state legislative efforts to regulate reverse mortgages, because the prospect of pre-emption under ATMPA might have made such legislation a wasted effort.

underwriting

Absent some major change to Dodd-Frank as a result of the political process, the CFPB will have a very significant impact on consumer financial services regulation, and reverse mortgages in particular, in the years to come. Moreover, even without a confirmed director, the bureau has a great deal of power to make rules and take enforcement action under pre-existing federal consumer protection statutes like TILA, RESPA and ECOA.

If a director is confirmed, the CFPB will gain examination and enforcement authority with respect to non-bank lenders, and will also be vested with one of its most important powers: to declare specific conduct “unfair, deceptive or abusive.” This virtually blank regulatory check would allow the CFPB to make rules relating to disclosure, counseling, underwriting, servicing and the terms of reverse mortgages. This broad power – coupled with Dodd-Frank’s mandate for the CFPB to study reverse mortgages and make regulations if it sees fit to do so – clearly places the CFPB in a position to have a profound influence on the future of the reverse mortgage industry, especially if it gets a director.

of consumer protection regulation ushered in by Dodd-Frank, putting extra emphasis on the resolution of consumers’ problems before they ripen into complaints to the government should be a top priority for reverse mortgage lenders. x reversereview.com

8 TRR

| 23

The Reverse Review January 2012

u o y s

HAVE

e k ta ?

It takes a lot to create an attention-grabbing, informative article and we know there are people out there who can get the job done. The Reverse Review is on the hunt for contributors to join the team and be a part of the industryâ&#x20AC;&#x2122;s premier publication.

| TRR

Email emily@reversereview.com to start the conversation and possibly see your name in print!

THE

REVERSE review

assist

servicing

Want to comment on this article? Comment online at reversereview.com

going to the source

Extra burdens on servicers From a servicing 8

Fixing the problem

starts at the

spotlight

In the past year or so, we’ve seen an increasing number of borrowers failing to keep their T&I payments current. Many are unaware of or forgetful about this obligation. Sadly,

The structure of the payment plans available and the actions required by the servicer are governed by HUD. If the borrower then defaults on the payment plan and a new plan cannot be reached with the borrower, the servicer must submit a request to HUD to call the mortgage note due and payable, which can lead to foreclosure proceedings.

appraising

In the forward mortgage world, of course, servicers are routinely required to set up escrow accounts to pay taxes and insurance on behalf of their borrowers. By contrast, reverse mortgages do not have escrow accounts and the homeowners are responsible for paying those bills themselves, just like on a non-escrow forward mortgage.

servicing

How serious is it? It was all over the news when a 101-year-old reverse mortgage borrower was recently facing foreclosure because she failed to make her T&I payments. That’s not the kind of publicity the reverse mortgage business needs.

many seniors do not have the money to make these payments and their reverse mortgage loan is fully drawn down. When there are no funds available from the loan, the servicer must advance funds to bring T&I payments current, under HUD guidelines. The servicer must then attempt to put the borrower on a payment plan to cure the default.

legislative

On the servicing side, a key challenge for companies that service reverse mortgage loans has been tax and insurance (T&I) default delinquencies and the financial and workload burdens it places on servicers. Owner occupancy and repair requirements also continue to be of concern when borrowers fail to respond to our outreach efforts. [Looking to the future, there is a growing sense of urgency as servicers prepare to migrate from HUD’s 22-year-old Insurance Accounting Collection Systems (IACS) to the new HERMIT system.]

Clearly, though, T&I default is on many minds, including those at HUD charged with developing a policy to improve its effects.

secondary market

he reverse mortgage industry has weathered some uncertainty in the past year driven by continuing declines in home values that have limited available equity. The surprise exit of two large bank originators, Wells Fargo and Bank of America, has added uncertainty, as has delayed retirement among those demographically eligible for a reverse mortgage.

originating

Ja m e s W ri gh t

underwriting

Solving the T&I Dilemma

Clearly, though, T&I default is on many minds, including those at HUD charged with developing a policy to improve its effects.

beginning, namely qualifying and educating homeowners during the origination process. Unfortunately, that isn’t always helpful in predicting what the borrower may do three years from now or what event may occur in their lives that prevents them from paying T&I in the future.

reversereview.com

8 TRR

| 25

The Reverse Review January 2012

servicing

going to the source

Even though the reverse mortgage qualification process does not require that borrowers demonstrate that they can meet their T&I responsibilities, we need to understand and make clear to the general public that the reverse mortgage is not to blame for creating this situation.

But just because reverse mortgages didn’t create this issue, doesn’t mean our industry is absolved from trying to help find a way to reduce the frequency of T&I defaults. 26

| TRR

perspective, delinquent T&I payments create large financial and logistical burdens on servicers. Dealing with customers’ failure to make T&I payments requires the hiring of additional staff and increases employee work loads. At RMS, for example, we had to increase our T&I staff by 300 percent in the last 12 months and also needed to hire supplemental seasonal help to handle the added load. Much of that work involved sending multiple letters to customers, supplemented by multiple phone calls to the borrowers and alternate contacts, such as their adult children. For the borrower, it also requires servicers to make advances on already fully drawn loans. Once you put borrowers on repayment plans, the servicing costs continue to increase due to plan management (tracking and monitoring the borrowers’ adherence to the plan requirements), increased volume in payment processing, and renegotiating broken plans if possible. Since all borrowers can’t be placed on a repayment plan and some fail to meet their plan obligation, this leads to more defaults, foreclosures and real estate-owned properties. Needless to say, all of this could lead to negative impacts on your customer relations and brand recognition and increased litigation. Even though the reverse mortgage qualification process does not require

that borrowers demonstrate that they can meet their T&I responsibilities, we need to understand and make clear to the general public that the reverse mortgage is not to blame for creating this situation. Homeowners have always been responsible for paying their real estate taxes, either directly to their local taxing authority or through an escrow account, whether they have a forward mortgage or a reverse mortgage. If they don’t make those payments, the end result is the same: The servicer pays the taxes and the borrower has to reimburse the servicer either through a higher escrow payment or a repayment plan. If the homeowners do not have a mortgage and own the home free and clear, they are still required to pay their taxes or be subject to their property being sold at a tax sale. But just because reverse mortgages didn’t create this issue, doesn’t mean our industry is absolved from trying to help find a way to reduce the frequency of T&I defaults. In the past there haven’t been any credit overlays at origination to qualify the borrower’s ability to pay future taxes and hazard insurance premiums, including their ability to maintain other expenses. But the tide is changing and credit qualification is becoming a reality in the reverse mortgage industry. Sometimes the issue can be resolved with a simple

reminder to the borrower emphasizing that their failure to maintain taxes and insurance can and will lead to foreclosure and loss of the home. But in most cases, unfortunately, it’s not that simple: The borrower simply doesn’t have the money and their reverse mortgage is fully drawn down. The National Reverse Mortgage Lenders Association (NRMLA) has formed a task force to address the issue and determine what steps the industry can take to reduce the magnitude of this problem. Fixing the problem starts at the beginning, namely qualifying and educating homeowners during the origination process. Unfortunately, that isn’t always helpful in predicting what the borrower may do three years from now or what event may occur in their lives that prevents them from paying T&I in the future.

Owner occupancy certification and required repairs Owner occupancy and required repairs are other big issues that place added burdens on servicers. The good news is that there are less of these than T&I defaults. The bad news is that they can lead to the same result: foreclosure. In order to qualify for a reverse mortgage, HUD requires that the borrower must certify that the property is his or her primary residence and continue to certify occupancy on an annual

servicing basis. Each year the servicer sends the annual occupancy letter to the borrower(s) for them to sign and return, certifying the property is their primary residence. But failure to return the occupancy certification letter triggers additional letters from the servicer, followed by multiple calls to the borrower and alternate contacts.

spotlight

IACS was developed back in 1989 as a prototype for the then-pilot Home Equity Conversion Mortgage (HECM) program. But it has been

appraising

HUD recently disclosed that no dates have yet been scheduled to test its new Home Equity Reverse Mortgage Information Technology (HERMIT) system, which will eventually replace its Insurance Accounting Collection Systems (IACS). But servicers must be prepared to transition to the new system when it gets the green light.

Among the many benefits of the new system, STORM will allow servicers to electronically transmit loan balance transactions, including initial loan data, which is manually entered today. It provides additionalloan level maintenance functionality to authorized users. It also enables servicers to file claims electronically. In addition, it enables document viewing and uploading capability.

servicing

However, many borrowers don’t properly understand their obligations under the repair set-aside rules, or believe their home doesn’t need to be repaired. In some cases they just don’t know how to go about getting the work done. A typical servicer contacts the borrower right at the beginning of their loan to remind them of the repairs

Transitioning from IACS to HERMIT

legislative

While the originator of the loan is responsible for getting the repair estimate, the servicer is responsible for making sure that the work is completed satisfactorily. In addition, the servicer tracks and monitors the repairs and, as needed, remits the repair funds to the contractor and borrower.

secondary market

Under HUD regulations, servicers are required to set aside 150 percent of the estimated cost of repairs from the loan proceeds at the closing. The borrower then has one year to make the necessary repairs, although most lenders require them to be completed in six to nine months after the closing.

Despite a servicer’s best efforts, the borrower sometimes fails to respond to letters and calls. If the borrower fails to make the repairs by the deadline, the servicer is required to notify HUD and may make a request to call the loan due and payable. If HUD approves, the servicer may declare the homeowner in default, and if the default is not cured, foreclosure proceedings may begin; but normally a demand letter will generate a response and the issue will be resolved. Still, the servicer incurs costs corresponding with the borrower, and fees are assessed to the borrower for their lack of response.

The new Web-based HERMIT software is powered by STORM (Servicing Technology on Reverse Mortgages), a servicing platform developed by RMS that can handle the increasing demand for HECM loans and provide one solution to support the entire reverse mortgage process. According to a recent statement by HUD, IACS is a time-consuming and manual process because the data resides across a variety of different platforms. The new system will help “improve overall monitoring and oversight over the various stages of the product’s life cycle,” HUD says.

originating

HUD also requires that reverse borrowers make necessary repairs to the property prior to the loan’s origination, or to use proceeds from the loan to pay for the repairs. About 10 percent of homes with reverse mortgages need such repairs at closing.

discontinue payments to the borrower. Many borrowers are dependent on that money to supplement their income for daily expenses, so it can be a harsh and unpopular order to enforce.

Servicers will need to reconcile their servicing accounts to balance with IACS before the release of HERMIT. HUD currently drafts insurance premiums electronically, based on servicer-entered loan balance information contained in IACS, so it’s extremely critical to both HUD and the servicer to maintain maximum accuracy in the system to ensure proper payment of insurance premiums and also proper payment of claims. Any corrections must be sent to HUD to make the adjustment. x

reversereview.com

8 TRR

underwriting

If all of these attempts fail, the servicer can request HUD to call the loan due and payable. If granted, a company sends out a demand letter and initiates foreclosure proceedings.

and to guide them through Acco r d i n g t o j am es the process. Often However, many borrowers don’t properly understand their this involves multiple obligations under the repair set-aside rules, or believe their letters and calls to the home doesn’t need to be repaired. In some cases they just borrower or alternate don’t know how to go about getting the work done. contacts in an effort to follow through and used by servicers ever since to collect ensure the repairs are completed. initial mortgage insurance premiums (IMIP) and monthly mortgage If the borrower has a credit line insurance premiums (MMIP) from and has not done the repair work, borrowers. the servicer is required by HUD to

| 27

The Reverse Review January 2012

value

appraising Have an appraisal-related question? Email information@reversereview.com

Meeting the FHA/HUD Minimum Property Requirements C h a rl e s G re s s

hile most homeowners may think a reverse FHA mortgage is a cinch, you can often be denied the loan if your home does not meet the FHA/HUD Minimum Property Requirements (MPRs). Loan officers, underwriters and homeowners can ask several quick questions to ascertain whether or not a home meets the MPRs during the appraisal walk-through. We spend time measuring, taking photos and checking to make sure the home is indeed FHA compliant. The appraiserâ&#x20AC;&#x2122;s visit to the property usually takes about 30 to 40 minutes, depending on the size and condition of the home. Below are some of the most common MPR items requiring repair.

1 Does the home (if built prior to 1978) have any defective paint surfaces?

or cracked concrete driveways or walkways that could cause someone to trip.

3 Are all of the utilities on?

If the home does not have all the utilities turned on, this will result This is the most common repair note in a mandatory reinspection of the we see in the field, usually around old subject property while all utilities are wooden windows, doors, trim and on. The appraiser will have to make the exterior of the house or garage. another trip back to the property and Make sure there are no defective paint document that all utilities surfaces anywhere on the site. are on and all the amenities (furnace, water heater, Are there any potential A cc o rd i n g plumbing, etc.) pertaining to to c h a rl es safety hazards that could these utilities are in working endanger the occupants? order. The most common safety Loan officers, Does the roof show any hazards are any steps on site underwriters signs of leaking or appear to and with three or more risers that homeowners have an economic life of less have no handrail; unsecured can ask than two years? doors leading to a large drop several quick off the back of the home; questions Most appraisers will call for broken windows on the home, to ascertain a second inspection when whether or garage or any outbuilding; this is the case. If there are not a home water heaters without obvious signs of curling meets the a pressure release pipe MPRs during shingles, missing shingles or connected to the pressure the appraisal water stains on the ceiling, relief valve; and raised walk-through. then you must have the roof

| TRR

inspected and given a clean bill of health before closing the loan.

5 Make sure the appraiser has access to the attic, all rooms, any crawl spaces and the garage at the inspection. At a minimum, the appraiser must enter his head and shoulders into the attic. The appraiser also must inspect for insulation, deficient materials, leaks or readily observable evidence of significant water damage, structural problems, previous fire damage, FRT sheathing, exposed and frayed wiring, and adequate ventilation by vent, fan or window. Make it easy for the appraiser to have access to the screwed-in crawl space or small scuttle to the attic by providing a ladder. Following these easy tips can ensure a successful closing on any FHA reverse mortgage. Make it a point to prescreen your prospective clients about the condition of their home; it may just save the deal. x

appraising

Ask the Appraiser

Have a question for our appraiser? Email him at information@reversereview.com and your question will be answered in our next issue

Bill Walt e n ba ug h, s r a

- Question submitted by Anthony Gatto

appraising spotlight

There are a lot of qualified appraisers who can reach the “correct value,” but the field narrows when it comes to educating the reader and explaining how the final conclusion was selected.

servicing

As my old high school football coach would say, “This is where we separate the men from the boys.” There are a lot of qualified appraisers who can reach the “correct value,” but the field

Assuming a recent date of valuation, more weight is generally given to comparable properties that sold recently because these properties best reflect what is currently occurring in the subject’s market. Comparable properties with little to no adjustments are also good indicators of value. It stands to reason that the fewer adjustments made, the more similar the comparable properties are to the subject. As such, most form appraisal reports list both the net and gross adjustments made for each comparable near the bottom of the market grid. The results of other approaches, such as the cost and/or income approach, can provide some insight for the appraiser to consider when electing a value for the sales comparison approach. Distressed sales, active listings and pending sales also provided valuable information and direction.

legislative

the range is tight, selecting a value is fairly straightforward and is easily understood by most readers of the

report. However, wide ranges require the appraiser to provide more support and reasoning to justify the value they select. In my opinion, effectively communicating this reasoning is what separates a good appraiser from a great appraiser.

secondary market

Although the purpose of making adjustments to comparable sales is to make them as similar to the subject as possible, the adjusted values rarely reflect the same result, creating a range from which the appraiser will elect their final value. When

originating

On the surface, this seems like a reasonable approach. Like properties are selected and then adjustments are applied to make them as similar to the subject as possible. It only stands to reason, if the adjustments make the comparable properties like the subject, an average of the adjusted sales prices should reflect a supportable final value. Although everyone easily understands this highly mechanical method, it’s not the procedure appraisers are taught to elect their final value by the sales comparison approach. Good appraisers put forth a lot more thought and effort into their conclusions. This process, known as the reconciliation of the sales comparison approach, is the technique used by appraisers to elect their final value within the adjusted range of comparable sales.

underwriting

narrows when it comes to educating the reader and explaining how the final conclusion was selected. It’s not easy and it takes someone capable of putting together a good argument. In some ways, a good appraiser is a lot like a good trial attorney: someone who can put the pieces of a puzzle together and convince the listeners, despite how they may feel, that he is right. The good appraiser builds a case that closes the door to opposition because it is already addressed in the report.

nce all the comp values have been adjusted, is the average of those values used to determine the value of the subject property?

These days, being a good appraiser goes way beyond filling out the proper form. It even goes beyond the keen ability to distill, interpret and analyze volumes of data. The good appraiser is the one who can do all of these and then, through reasoning and commentary, lead the reader to their final conclusion. x

reversereview.com

8 TRR

| 29

The Reverse Review January 2012

spotlight article An in-depth look at an emerging industry topic you do not want to miss.

The Role of the Government in the Future of the Reverse Mortgage Market

ary janu n o t edi i

Ji m Mi lan o

recently was asked to speak at a forward mortgage servicing conference about the role of government in the mortgage market. As I thought about this topic and summarized my thoughts, my outline reflected what most already know: The government currently is the mortgage marketplace. Since the so-called “mortgage meltdown” of 2008, private participants either have left the mortgage industry, gone bankrupt, shut their doors, or, if they still remain in business, are more or less dependent upon the government for funding, product design and offerings, a secondary market, or all three. Moreover, the government (at both the federal and state levels), of course, continues to act as a regulator and an enforcer, and in many instances in a much more aggressive fashion. In short, the role of government in the mortgage market is both pervasive and dominant. What does this mean for the reverse mortgage market in 2012?

This month’s Spotlight features Jim Milano

Want to see more articles like this one? Go to reversereview.com

going to the so u rc e

Likewise, to a great extent, economically it would appear that the reverse mortgage market is, for better or worse, somewhat tied to the fate of the forward mortgage market for now.

I have often said that a reverse mortgage is first and foremost a residential mortgage loan, and the regulatory compliance rules that apply to forward mortgages also apply to reverse mortgages, in addition to the specific federal and state reverse mortgage rules. Likewise, to a great extent, economically it would appear that the reverse mortgage market is, for better or worse, somewhat tied to the fate of the forward mortgage market for now. With that as a backdrop, we can make some observations about where the reverse mortgage industry may be headed in 2012 and beyond.

Four areas come to mind: 1g secondary markets and structured finance; 2g variety of product offerings (or lack thereof); 3g tighter regulations (particularly in the area of 4g

| TRR

“qualified mortgages” and ability to repay); and servicing.

spotlight article

In summary, in 2012, Ginnie Mae issues will continue to be paramount, and the industry will continue to be heavily dependent upon government programs (FHA HECMs) and government partners (FHA and GNMA). While product offerings may not greatly diversify in 2012, a number of new and interesting players are coming into and will look to come into the reverse mortgage industry. And, while industry members may have an opportunity to comment on proposed FHA rules for limited HECM underwriting, some in the industry have already refocused on HECM for Purchase and are looking at new and innovative ways to utilize the HECM Saver. Servicing capacity could be addressed through the entry of one or more new servicers. Private market product alternatives may not blossom in 2012, but the seeds have been planted and sporadic sprouts will be seen.

servicing appraising

spotlight

Statutorily (or regulatory) mandated underwriting requirements seem to be headed our way in the FHA HECM world. Some view this with disdain, concerned about the effects on operations and loan volume. Others view it as the next best and logical step to shore up HECM borrower tax and insurance delinquencies going forward, creating longevity for individual borrowers and providing the industry with overall sustainability.

legislative

What will it take for proprietary reverse mortgages to make a comeback? Innovation? Restored confidence in the broader secondary credit markets? Gyrations with the FHA-insured HECM (necessity being the mother of invention)? Or will more burdensome and onerous regulations snuff out any such innovation? Alternatively, will statutorily mandated underwriting requirements (think “qualified residential mortgages” in the forward world) further enhance mortgage credits and the pools they form, creating an upward spiral of higher confidence and credit ratings? While some have reported an increased interest in non-HECM “home equity release” programs, evidence of serious committed capital has yet to fully manifest itself. One would hope and expect to see further interest and more committed capital in this area in 2012.

The forward mortgage market has seen challenges in servicing (including the so-called “robo-signing” scandal and its fallout; increased and enhanced loss mitigation requirements from the GSEs, FHA, and Treasury HAMP; and state law “foreclosure moratorium”related restrictions). With reverse mortgages, servicers continue to grapple with T&I delinquencies and the possibility of related HECM foreclosures. And with the exits of several large banks, overall industry servicing capacity will have to be addressed.

secondary market

Part of restoring confidence in the rating agencies may depend upon the underlying loans in the pools that the rating agencies review and rate. If the rating agencies are called upon to rate pools with low defaults, over time, perhaps that confidence will return.

Coincidentally (or perhaps not), during this time, proprietary reverse mortgages virtually disappeared from the landscape, Fannie Mae both discontinued the Home Keeper loan and the purchase of HECMs, and the fixed-rate full draw HECM became most prevalent. However, during this time, HECM for Purchase and HECM Saver programs also were introduced. Some nevertheless believe that these two additional HECM products have not achieved their full potential in the reverse mortgage market.

Other HECM programs exist that could make up some of the perceived lost volume (HECM for Purchase and HECM Saver), but, as discussed above, these programs seem to have been underutilized to date. The nimble (and capital-sufficient) reverse mortgage companies probably will place more focus on these additional products in 2012.

originating

offered is the more “plain vanilla” 30year fixed-rate conforming loan with an 80 percent or less LTV ratio.

underwriting

In the area of structured finance, the conventional forward mortgage securitization market currently is a shadow of its pre-2008 self. Opinions differ on what it will take for that market to return, but one view holds that until confidence is restored in the rating agencies, capital will continue to follow governmentsponsored housing, insurance and guaranty institutions (the governmentsponsored enterprises Fannie Mae and Freddie Mac, the FHA and GNMA). One consequence of this for the reverse mortgage industry today, given the disappearance of proprietary reverse mortgages, and Fannie Mae as a purchaser, is that Ginnie Mae is the primary execution strategy, and there are capital and corresponding accounting requirements that go with being a Ginnie Mae issuer. For 2012, this reality will continue to come into focus and play a significant role in the reverse mortgage industry.

Stay tuned! x

reversereview.com

8 TRR

| 31

The Reverse Review

Emily Vannucci

reverse course

January 2012

Policy The Changing Public Landscape of 2011 discontinues reverse mortgage product and ceases sales

Bank of America cited â&#x20AC;&#x153;competing demandsâ&#x20AC;? upon its departure.

changing

public policy landscape of

2011 32

| TRR

july

ahead

june

and the year

announces its departure from the reverse mortgage market FHA issues a warning regarding the FHA HECM program announces a financial assessment plan barney Frank announces retirement from Congress

reversereview.com

december

FHA announces the current lending limit has been extended through 2012

november

october

september

August

approx. $44 million restored and $4 million devoted to reverse mortgage counseling

President signs spending bill, some Housing Counseling Funds restored

8 TRR

| 33

The Reverse Review January 2012

with more than

10,000 american

baby boomers

reaching retirement

each day,

it is more important than ever to preserve and develop alternative methods of financing retirement and the unexpected costs that materialize late in life. For seniors trying to find the right balance of financial resources for their retirement years, having more options to consider is better than fewer, and the reverse mortgage industry is planning for that reality. The good news for those seniors is that the industry is battling to preserve as many financial tools as possible, including Home Equity Conversion Mortgages (HECMs). There is no question that 2011 was a very busy year for the reverse mortgage industry. The political upheaval and social unrest of the 1960s led rock-n-roll legend Bob Dylan to croon, “The times, they are a-changin’.” For the reverse mortgage industry, 2011 felt a little like 1969 all over again.

Major Announcements 8 In 2011, two of the industry’s leading lenders announced that they would depart from the reverse mortgage market. Bank of America and Wells Fargo have discontinued their reverse mortgage products and ceased sales. The news heard industrywide raised many questions about the future of reverse mortgages, but the long-term impact has yet to be measured. Wells Fargo exited after failing to resolve a dispute with federal regulators over how to address delinquent borrowers. Bank of 34

| TRR

America cited “competing demands” when it announced its departure from the market in August. At the time, Bank of America held 9.4 percent of the retail market and 18.3 percent of the wholesale market for reverse mortgages, and employed 600 people in its reverse mortgage division. For sure, many of the other industry lenders looked at the departure of these mega-banks as a market opportunity, with more market share available to pursue and secure. There are other lenders “still here … to pick up the slack and keep the product going,” Generation Mortgage CEO Jeff Lewis told the media last summer. Indeed, according to Reverse Mortgage Insight’s (RMI) November 2011 newsletter, reverse mortgage lenders have already picked up some of the market share in the wake of Wells Fargo’s departure in November. RMI’s analysis showed reverse mortgage endorsements holding steady against October after a doubledigit drop in volume. RMI’s data showed 4,654 HECM endorsements in November, one more than in October.

Washington Changes 8 Even as the corporate DNA of the industry is transforming, the regulatory and oversight environment presented a number of challenges to the industry that will likely continue into 2012 and beyond. Everything

-- fluctuations in federal lending limits, threats to housing counseling programs, retirements of key industry leaders on Capitol Hill, the sluggish economy -- has given industry leaders plenty to work on in 2011 and even more to plan for in 2012. Representative Barney Frank, the top democrat on the House of Representatives Committee on Financial Services, has always demonstrated an understanding of the reverse mortgage industry and the benefits the product can provide to consumers. In December, he announced his retirement from Congress, sending shockwaves throughout the financial services

industry and the reverse mortgage industry. The full impact of his departure won’t be measured until he’s left office in January 2013, but lenders will sorely miss a friendly voice in Congress. Industry leaders praised Frank for his understanding of the complex reverse mortgage markets. “From the standpoint of the reverse mortgage industry, we are losing an influential member of Congress who is perhaps the single most knowledgeable individual on Capitol Hill when it comes to reverse mortgage issues. Congressman Frank took the time to learn our topic (as he typically has done with most topics that have come under his jurisdiction) and has been helpful to us on many occasions over the years, both in achieving our legislative objectives and in getting other members of his committee to be supportive on matters concerning us,” said the National Reverse Mortgage Lenders Association said in a statement.

Counseling on Counseling 8 In one of the few bills that actually made it all the way through Congress and was signed by the president, there was a provision for providing funding for housing counseling administered by the Federal Housing Authority. The Senate’s Transportation, Housing, Urban Development (THUD) appropriations bill restored funds for housing counseling that had been zeroed out by the House of Representatives’ version of the bill. Last year, FHA had $88 million to counsel Americans on their forward mortgages to avoid foreclosure and to meet the mandated housing counseling requirement for federally backed HECM loans. The counseling funding levels were in flux throughout the legislative process, but the U.S. Senate succeeded in restoring some of these funds – approximately $44 million – with $4 million devoted to reverse mortgage counseling. Industry representatives in Washington, D.C., had been working with key senators like Washington state’s Patty Murray,

65 years old each day and that rate will hold for nearly 20 years. the chairperson of the Senate THUD Appropriations Subcommittee to restore those critical funds. Those funds are important to consumers. Had the federal funding disappeared, the cost for counseling likely would have been passed on to the consumer. “It could have been essentially a tax on borrowers, forcing them to cover the costs of mandated counseling for the loans they were researching. You have to pay the counseling costs whether you secure the loan or not, a significant expense to borrowers on fixed incomes,’ said H. West Richards, Executive Director of the Coalition for Independent Seniors (CIS), one of the groups lobbying for the

restoration of the counseling funds. In October, top regulators at the Federal Housing Authority issued a cryptic warning regarding the future of the FHA Home Equity Conversion Mortgage (HECM) program. Acting FHA Commissioner Carol Galante released a letter that indicated federal regulators were taking steps to head off an increase in the delinquency rates among HECM loan holders. While the industry provides an “important financial option for senior homeowners,” she wrote, the program had essentially been unchanged for 20 years and the time had come to review its performance and its value as a government-backed service. Citing the “distressed economy and housing market conditions,” Galante outlined a series of adjustments to the “sustainability” of the HECM program designed to shore up the Mutual Mortgage Insurance Fund, including the introduction of the HECM Saver product, the reduction of “principle limit factors,” and new guidance on handling property liabilityrelated delinquencies. The meat of the letter, and the

More than

Beginning in 2011, more than 10,000 Americans turned

35% of Americans

already 65 or older live on Social Security alone.

language that has set off speculation and consternation among industry insiders, touched on additional financial assessments for potential borrowers – to ensure their ability to sustain the loans and related costs like taxes and insurance payments. The HECM program doesn’t require credit checks or financial assessment of borrowers because the loans are based on the value of the property and not other financial factors. “HUD does not prohibit the inclusion of additional financial capacity and credit assessment criteria and processes in the origination and approval of HECM transactions,” Galante wrote. HUD, it appeared, was throwing open the door to financial assessment of HECM borrowers for the first time. Galante has been acting FHA commissioner since July 2011. President Obama formally nominated her to head the agency in October, and the Senate Banking Committee has approved her nomination. But Senate Republicans are blocking her nomination due to a dispute over reforming mortgage giants Fannie Mae and Freddie Mac.

The industry looked at Galante’s letter and asked what it meant. Analysts found it unusual for a 8

For seniors trying to find the right balance of financial resources for their retirement years, having more options to consider is better than fewer, and the reverse mortgage industry is planning for that reality. The good news for those seniors is that the industry is battling to preserve as many financial tools as possible, including Home Equity Conversion Mortgages (HECMs).

reversereview.com

8 TRR

| 35

The Reverse Review January 2012

federal regulator or oversight agency to raise the issue of a new financial assessment function without providing industrywide guidance on how to structure, implement and reconcile the new qualifying requirement. Other than

caution to carefully abide by fair housing and fair lending laws, FHA was leaving lenders to figure it out for themselves. The letter sparked weeks of lobbying, hour of meetings and lots of speculation about how new financial assessment tools would be developed and implemented. It even sparked the creation of the reverse mortgage industry’s own “supercommittee,” a panel of lenders brought together to examine the issue and develop recommendations and standards for financial assessment procedures. Getting in front of the pack, in November MetLife indicated their reverse mortgage division would begin to utilize financial assessment in securing reverse mortgages. Their approach didn’t sit well with others in the industry. MetLife’s plan focuses on three elements: residual cash flow, credit history and principal limit usage (PLU) to determine a borrower’s ability to meet loan obligations. Using tax returns, credit checks, mortgage history and other financial information, MetLife will screen potential borrowers before awarding a loan. The plan allows for some flexibility in the approval process, awarding borrowers for strong showings in one area to make up for shortfalls in other areas of assessment. MetLife’s one-size-fits-all approach didn’t address the needs of other lenders. Many believed that industry standards should be identified, but with plenty of flexibility to allow lenders with different market demographics and business models to develop financial assessment parameters that would help them better serve their client base.

| TRR

Loan Limits Stay the Same 8

The industry looked at Galante’s letter and asked what it meant. Analysts found it unusual for a federal regulator or oversight agency to raise the issue of a new financial assessment function without providing industrywide guidance on how to structure, implement and reconcile the new qualifying requirement. “Some of our lenders were hoping for a different approach,” said Richards. But other lenders aren’t rushing to implement their own financial assessment programs before receiving more direction from federal regulators. Many industry representatives have pushed FHA and HUD to provide some certainty about elements of financial assessment programs so that lenders can approach the matter efficiently. “This is like playing football without a game plan,” said one industry lobbyist who requested anonymity in order to avoid antagonizing regulators at FHA. “You can’t just draw up plays in the huddle and expect everyone to stick to the plan. FHA is just handing over the football and waiting to see what happens.” While the financial assessment matter is yet to be resolved industrywide, potential borrowers in 2012 can expect to endure some sort of financial assessment before securing a reverse mortgage on their property. Most likely, with financial assessment requirements in place, fewer potential borrowers will qualify for HECM loans, adding more uncertainty to the reverse mortgage equation.

For borrowers and lenders, FHA’s evolving policy on HECM loan limits has provided uncertainty and instability in the market. At stake is how much a borrower can borrow against their home and the ability of lenders to provide consistent levels of service, especially in high-cost housing markets. In December, FHA announced that the current lending limit of $625,500 had been extended through 2012. Earlier in the fall, Congress approved a proposal to lift the limit to $729,750. Before the FHA announcement, lenders and borrowers worried that lending limits would revert back to $417,000, severely limiting the accessible capital equity and making the product less enticing for potential borrowers. FHA’s announcement allows another year for the $625,500 loan limit but doesn’t provide long-term certainty some would prefer. Another Agency With Oversights Set on the Reverse Mortgage IndustrY 8 Part of the sweeping financial reform legislation enacted in the wake of the financial services industry meltdown created a consumer-oriented oversight panel known as the Consumer Financial Protection Bureau (CFPB). In October the CFPB launched the Office of Older Americans, an agency dedicated to examining financial products marketed toward older Americans as well as those who advise seniors about these products. The agency’s director, former AARP national board member Skip Humphrey, has identified health care and housing products, including reverse mortgages, as areas of interest. With the reverse mortgage industry enjoying high levels of customer satisfaction, oversight from the CFPB could present an opportunity to break down the stereotypes about reverse mortgages. The CFPB is designed to weed out the bad actors and, in turn, could provide the data that demonstrates the high levels of

satisfaction consumers enjoy from their reverse mortgages. The CFPB is still a loose end. The first nominee to head the agency was successfully blocked by the U.S. Senate. The current nominee suffered a setback in December when a Senate vote failed to advance his nomination. The agency’s purview over reverse mortgages is still undeveloped, but depending on who eventually heads the CFPB, the industry could face more scrutiny in 2012.

Reverse for the Future 8 Even with the challenges of the economy and the uncertainty of the federal regulatory landscape, reverse mortgages have a bright future. The American population is aging quickly, and presents a solid path for growth for reverse mortgage lenders. Beginning in 2011, more than 10,000 Americans, the baby boomers, turned 65 years old each day and that rate will hold for nearly 20 years. More than 35 percent of Americans already

65 or older live on Social Security alone. Federal budgets are shrinking and Social Security and Medicare reform could change the way those programs work in the future. “Industry leaders fighting to preserve the HECM program realize the potential market opportunity the wave of retirements represents to the reverse mortgage industry. As the population grows older, more Americans will qualify for reverse mortgages, and with other benefits and retirement funds shrinking, tapping into equity wealth can be a lifeline for families paying for college, meeting a medical expense, paying their taxes and supporting retirement,” said Bob Yeary, Chairman of RMS, who also serves as the Board Secretary of CIS. Still, significant challenges face the industry. Recently released data from HUD calculates that 46,000 borrowers are in some form of delinquency on their reverse mortgages. HUD’s hope is that by opening the door to financial assessment, they can close the door on increased delinquency.

“This could be a great time to be a reverse mortgage lender, with an expanding pool of borrowers, favorable economic factors and better products and services to offer,” said Richards of CIS. “Let’s hope that Congress doesn’t upend the program and take an important financial tool away from America’s seniors at a time when they need as many options as they can find.” Ultimately, the HECM program exists to give seniors another financial tool to meet their unexpected and often expensive late-in-life expenditures. The program offers thousands of older Americans the ability to age in place and live in their homes longer, while maintaining their financial independence. Congress and the administration can, and will, tinker with elements of the program, but its value to seniors is well documented and its record of success is worth preserving in 2012 and beyond. x

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 Pre-HUD and fee

calculator available on website.

P No survey required. Proud member of NRMLA

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

727.481.3626 or rbeverly@amrevtitle.com | Visit us online: www.amrevtitle.com reversereview.com

8 TRR

| 37

The Reverse Review January 2012

Opinion

last word

Want to comment on this article? Comment online at reversereview.com

Don’t Lose Sight of What Really Matters Rob Awalt

hen I was asked to write an article for “The Last Word,” my first thought was that it sounds so … final. For those of you that were able to join us at Cheers in Boston at the most recent NRMLA conference, you might think “last call” is more fitting than “last word.” Either way, I don’t think any of us would argue that 2011 was another year of change and challenge for our industry. We can be thankful that we survived and that some even thrived. Unfortunately, it was also a year when many had their “last word” in the reverse mortgage market. In January, people tend to reflect on the previous year and evaluate the year to come. This January, I propose that we sit back and take a moment to reflect on how we have grown and what we have overcome as an industry. After all, we are survivors. Whether you have worked in the industry for one year or 20, nobody can question your resolve. You have a reason to stand tall and to celebrate! I can tell you that each time I hear a story of a senior that has closed a successful reverse mortgage loan to save their home or to pay their bills or debt so that they can live without worry, I become thankful again for what we do each and every day. It is all too easy to get wrapped up in all of the changes and challenges

and lose sight of what really matters. What really matters is the 85-year-old woman with 23 grandkids in Texas, who will now have heat and power because of her reverse mortgage loan. If you still love the reverse mortgage industry, stand up and be counted! We have reason to be proud and excited that we are still in an industry that can do so much to provide solutions for our elders. In 2002, when I first stepped into the reverse mortgage world, I wasn’t sure what to expect. What became very apparent early on was the fortitude and determination of the people involved. It has served us well; if I look back and reflect on the changes over that time period it becomes a bit overwhelming. We are a resilient group of individuals who have made up our minds that this is where we want to be!

Either way, I don’t think any of us would argue that 2011 was another year of change and challenge for our industry. We can be thankful that we survived and that some even thrived. Unfortunately, it was also a year when many had their “last word” in the reverse mortgage market. 38

| TRR

It is all too easy to get wrapped up in all of the changes and challenges and lose sight of what really matters. What really matters is the 85-year-old woman with 23 grandkids in Texas, who will now have heat and power because of her reverse mortgage loan. There will always be change in our industry and in life. If we continue to focus on the solutions and not obsess about the obstacles, we can rest assured that we possess the tools to handle the task at hand. So take this moment to pat yourself on the back for a job well done and look forward with confidence. A mentor once told me, “If you think you can, or you think you can’t, you are right!” I will lift my glass to many more years in this industry despite the decisions that are made by others, which we cannot control; to staying in the game, even though sometimes it requires a helmet and full pads; and last but not least, to all of the happy seniors and their families that have experienced a better way of life … because you cared! Cheers to a great 2012. x

RMS introduces the

newest path to success.

s s s

Wholesale Lending Correspondent Lending Aggregation Partnering

RMPath.com We offeR exCePtionAL SeRviCe And MARket - LeAding PRiCing

s s s s s

Largest Privately Held Reverse Mortgage Servicer Rated 'Strong' by Standard and Poors Technology Leader REO Management and Leasing Services Forward/Specialty Mortgage Servicing

RMSnAv.com

RMS FaMily oF CoMpanieS reversereview.com

8 TRR

| 39

The Reverse Review January 2012

Enterprise Lending Solutions, Document Services and Compliance Solutions In every enterprise, there is an underlying rhythm â&#x20AC;&#x201C; a cadence â&#x20AC;&#x201C; in the execution of mortgage loans. Those companies that have seamless system integration and dynamic data flow across the enterprise are in rhythm and optimize their efficiency at every step. Their business flows in absolute harmony to increase productivity, retain customers, maintain compliance and reduce costs. Now your company can catch the rhythm and reach a whole new level of performance. Mortgage Cadence is orchestrating the ultimate mortgage origination performance by providing a true Enterprise Lending Solution (ELS) that handles both forward and reverse lending, as well as multiple business channels. With the Mortgage Cadence suite of solutions you have access to full end-to-end loan origination functionality, automated underwriting, business rule management,

Mortgage Cadence gives you the flexibility to easily adapt to industry changes and capitalize on new business opportunities; creating a more efficient, agile and profitable enterprise. | TRR 40

product and pricing, workflow automation, document services, and Web portals within one integrated platform. No other system in the market today can deliver this level of fully integrated performance tools and compliance support to accelerate the tempo of your enterprise.

888.462.2336

mortgagecadence.com