The Reverse Review March 2012 by The Reverse Review

he reverse rev ie w

w the re revie v

Building your

er ev

this issue

r se

evie

re e

INSIDE

e rs

checklist for 2012

NAVIGATING CHANGES FROM CORDRAYâ&#x20AC;&#x2122;S CAMP PG. 17 THE INDUSTRY WITHOUT WELLS fargo AND Bank of america PG. 28 + GREGG SMITH SITS DOWN IN OUR HOT SEAT!

THE

REVERSE march 2012

review

The truth about reverse mortgages and how they can help Secure retirement CEO, Genworth Financial Home Equity Access, Inc.

Pete Engelken

The Reverse Review March 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

CLIENT FOCUS

INTEGRITY

RESPECT FOR EACH INDIVIDUAL

TEAMWORK

INNOVATION

RESPONSIBLE CITIZENSHIP

At our core, each of us finds what truly matters. At Urban Financial Group, our path to success boils down to six unwavering principles: Client Focus, Integrity, Teamwork, Respect for Each Individual, Innovation and Responsible Citizenship. These values are woven into the DNA of our entire staff and embedded in our culture. These six principles guide our behavior and set the bar higher for each of us every day. So in a world where people and businesses are faced with and tempted by shortcuts, we at Urban resolve to take the right path – every time. It’s this determination to do the right thing that has made us a leader in Reverse Mortgage lending. When you let your values guide you, the right path becomes clear. Goals are reached. Business grows. Find out how we can partner with you. Email us today.

sandy@urbanfinancialgroup.com

* According to RMI measuring number of endorsed wholesale units January – December 2011

The Reverse Review March 2012

From the Editor industry insight to the hard-working members of the reverse mortgage community. In my short time here, I have had the pleasure of meeting so many of our readers and contributors and have been sincerely humbled to learn how much they care about the seniors they serve. Inspired by this earnest dedication, I pledge to bring you insightful, comprehensive and hard-hitting stories that get to the heart of the issues facing this industry.

A note from Jessica Linn

Not long ago,

a dear friend and grad school colleague of mine told me about an opening at The Reverse Review, a magazine that she had come to know well as a reporter covering the reverse mortgage beat. Immediately, I was enthralled with the idea of working on a niche publication that serves such a closely knit industry. A reporter at heart, I was excited by the prospect of delving deep into the issues affecting a specific sector of the business world. Just three days later I found myself in publisher Reza Jahangiri’s office, talking at length about the magazine and the industry it serves. It’s hard to believe that I am sitting here now, writing my first letter to our readers as editor-in-chief! I am honored to be entrusted with a magazine that brings the latest news and

I hope you enjoy all the hard work that the TRR team put into this month’s issue. I look forward to meeting many of you at the National Reverse Mortgage Lenders Association conference later this month. Please don’t hesitate to say hello! All the best,

Editor-in-Chief { Jessica Linn }

Want to talk to Jessica? Reach her at jessica@reversereview.com

Meet the Team Senior Publisher Reza Jahangiri

Publisher

Erik Richard

Editor-in-Chief Jessica Linn

Creative Director Traci Knight

Copy Editor

Kersten Wehde

Advertising Sales Rep. Brianna Conlon

Publisher

Reverse review publishing Printer The Ovid Bell Press Advertising Information phone : 949.269.1600 email : brie@reversereview.com Subscriptions email : information@reversereview.com Editorial Content email : jessica@reversereview.com © 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

In this issue, we aim to do just that with a roundup of stories covering topics ranging from the state of the HMBS market to the changes expected from the CFPB. Our feature this month by Genworth CEO Pete Engelken takes a shot at misperceptions surrounding the industry. In it, we hope you find useful tools for tackling the challenging questions many in the reverse mortgage sector face.

FACEBOOK, TWITTER, LINKEDIN

Table of Contents

TRR 03.12 FEATURE

Legal

15 | Reverse Mortgage Documentation: Learning the Lessons from Forward Mortgage Foreclosures

How attitudes toward the forward mortgage marketplace on Capitol Hill may impact the reverse mortgage space H . W e st Ri c h a rd s

Christopher j. W i lli s and Me rcedes Kell ey T uns tall

17 | The New Director of the CFPB Issues Mortgage Origination Examination Guidelines

What you need to know about the REO process

Jim Mil ano

j a m e s w ri g h t

In the wake of unexpected exits from three major lenders, the remaining players stand strong.

Featuring Gregg Smith

p re s ide n t an d c o o o f o n e re v e rs e m o rtg ag e

EV ER

RS E

the HECM Purchase Process INSIDE this issue

Br ought t o you by Reverse Mort gage D aily

The industry’s headlining stories of the past month

38 | the last word

E R E VI E W THE VERS RE R

HOW TO NAVIGATE

B r ou gh t to y ou by R e v e rse M a rk e t In sight

The industry’s latest stats and rankings

12 | the hot seat

WITH A CFPB DIRECTOR IN PLACE, THEIR MISSION IS CLEAR pg. 20 A LOOK AT HOW OUR INDUSTRY IS MAKING A DIFFERENCE pg. 28

+ MARC HELM SITS DOWN IN OUR HOT SEAT!

HE REVERSE REV IE W

10 | industry update

E TH

WT VIE RE

07, 09 | Stats

W IE

Essentials

The five falsehoods surrounding the reverse mortgage

RE V

John k. lunde T o rre y L a rse n g re g g m a sk e Hank Rhoads

W THE RE REVIE VE

pe t e e n g e l k e n

28 | the few, the proud, the survivors

E RS

The truth about reverse mortgages and how they can help secure retirement

Spotlight Article

Industry dynamics shift as Ginne Mae extends HMBS approval

21 | Another Twist in the World of HMBS

32 | reverse mortgage myths: REFUTING THe FICTION

Bi l l Wa lt e n b a u g h , SRA

THE

Secondary Market

Weighing the benefits of including bankowned comparable sales in an appraisal

Ra lph Rosynek

27 | Ask the appraiser

E V IE

T&I default guidelines dominate industry conversation

“... a surprising number of financial and retirement advisors do not consider the potential benefits of a reverse mortgage and do not educate their clients on reverse mortgages because of basic misperceptions, confusion or general lack of product knowledge.”

R SE

19 | Financial Assessment: Round One

Appraising

ER EV

Underwriting

D av id A. Fontanil la

Servicing

25 | Understanding Default in the Reverse Mortgage World

Navigating changes from Cordray’s camp

Legislative

22 | Housing Issues Are Front and Center on the National Stage

Examining the forward process to save you from the pitfalls

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

THE

REVERSE MARCH 2012

review

Anticipating change over the horizon s h an n o n h i c ks

THE TRUTH ABOUT REVERSE MORTGAGES AND HOW IT CAN HELP BUILD RETIREMENT SAVINGS

Pete Engelken

march 2012

cover

reversereview.com

8 TRR

The Reverse Review March 2012

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

John K. Lunde

Gregg Smith

J ohn K . L und e

Gr e gg Smi th

07, 09, 28 | The Industry Stats and Rankings / The few, the proud, the survivors 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 Gregg Smith is president and COO of One Reverse Mortgage. Smith is focused on the overall health of the company including driving key initiatives to increase loan volume, expanding the company’s reverse mortgage market share and managing the company’s operations team. Prior to One Reverse, Smith founded one of the nation’s first online mortgage companies, Access National Mortgage, which was subsequently sold to Webster Bank in 1999.

me r cedes k e lle y t uns tall

ji m mi lan o

r alp h r osynek

17 | the new director... g Jim Milano is a partner with the law firm of Weiner Brodsky Sidman Kider. Milano’s practice focuses on regulatory compliance for the financial services industry, particularly with respect to reverse mortgage issues. Milano is nationally recognized as one of the leading lawyers in the area of reverse mortgage law, and is a frequent speaker on topics of interest to industry members at various trade association conferences and webinars.

19 | financial assessment: round one g Ralph Rosynek has been The Reverse Review Underwriting columnist for more than two years. Rosynek is the vice president for National Correspondent Production at Reverse Mortgage Solutions, Inc. RMS is a premier provider of reverse mortgage servicing, a Ginnie Mae seller/servicer and offers complete mortgage banking support and services to the reverse mortgage industry. He is currently seated as a member of the NRMLA Board, co-chair of the Professional Development Committee and holds HUD HECM Direct Endorsement credentials. rrosynek@rmsnav.com 708.774.1092

dav i d A . F ontan i lla

h . we s t r i c h ar d s

De n n i s Gasso way

21 | another twist in the world of HMBS g David Fontanilla is the cofounder and managing partner of Pioneer Analytics & Consulting Group LLC. Prior to Pioneer, he was a director at Knight Capital Americas, LP, where he led the reverse mortgage sector and was the catalyst behind Knight’s acquisition of Urban Financial Group. Fontanilla has also served as vice president in the MBS Trading Group at Deutsche Bank, an associate in the securitized products group of Morgan Stanley and an analyst in the mortgage securities department at Goldman, Sachs & Co.

22 | Housing Issues Are Front and Center on the National Stage g H. West Richards, executive director of the Coalition for Independent Seniors, served in the U.S. House of Representatives and held the distinction of serving as the youngest chief of staff in Congress. Richards worked in association with the law firm of Troutman Sanders, LLP and later headed up Business Development for Arthur Andersen Business Consulting in Atlanta.

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

Christopher J. Willis

Mercedes Kelley Tunstall

Jim Milano

Ralph Rosynek

David A. Fontanilla

H. West Richards

Dennis Gassoway

| TRR

15 | reverse mortgage documentation g Mercedes Kelley Tunstall is of counsel in the Consumer Financial Services group at Ballard Spahr LLP. Tunstall counsels clients on compliance with consumer financial services laws, including proceedings of the Consumer Financial Protection Bureau and the Federal Trade Commission. Tunstall is a member of her firm’s Collection Documentation Task Force and specializes in helping financial institutions develop, market and service financial products using new technologies and methods.

Ch r i s top her j. W i lli s 15 | reverse mortgage documentation g Christopher J. Willis is a partner at Ballard Spahr LLP and a member of the firm’s Dodd-Frank Task Force and Collection Documentation Task Force. Willis’ 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.

Report January 2012

Top Lenders Report

12345 MetLife Bank, N.A.

One Reverse Mortgage Endorsement

1379

Lender

Endorsement

439

Genworth Financial

Endorsement

386

Endorsements

Urban Financial Group

Generation Mortgage Co.

Endorsement

354

Lender

245

Endorsements

AMERICAN ADVISORS GROUP

227

REVERSE MORTGAGE SOLUTIONS INC

SECURITY ONE LENDING

220

OPEN MORTGAGE LLC

THE FIRST NATIONAL BANK

132

MAVERICK FUNDING

CHERRY CREEK MORTGAGE CO INC

GMFS LLC

REVERSE MORTGAGE USA INC

MAS ASSOCIATES

SUN WEST MORTGAGE CO INC

SUN AMERICAN MORTGAGE

NEW DAY FINANCIAL LLC

NET EQUITY FINANCIAL INC

M AND T BANK

NETWORK FUNDING

MCM HOLDINGS INC

UNITED NORTHERN MORTGAGE

MONEY HOUSE INC

NEW AMERICAN MORTGAGE LLC

SENIOR MORTGAGE BANKERS INC

STERLING SAVINGS BANK

EQUIPOINT FINANCIAL NETWORK

ASSOCIATED MORTGAGE BANKERS

PRIMELENDING A PLAINSCAPITAL

CONTOUR MORTGAGE CORPORATION

PLAZA HOME MORTGAGE INC

UNIVERSAL LENDING CORPORATION

ROYAL UNITED MORTGAGE LLC

WELLS FARGO BANK

ASPIRE FINANCIAL INC

WEST TOWN SAVINGS BANK

SIDUS FINANCIAL LLC

VALUE FINANCIAL MORTGAGE

FIRSTBANK

HARVARD HOME MORTGAGE INC

Trailing Twelve Month Endorsements

INDUSTRY SUMMARY Retail Endorsement Growth

0.04%

10,000

Wholesale Endorsement Growth

8,000

-4.4%

6,000 4,000

Total Endorsement Growth

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

Wholesale *Numbers Represent Months

-1.85%

*Figures Above Reflect Change from Prior Month

RETAIL UNITS CHG%

WHOLESALE UNITS CHG%

TOTAL UNITS CHG%

4,049

-6.77%

9.33%

6,462

-1.34%

4,075

0.64%

2,805 16.25%

6,880

6.47%

4,515

10.8%

2,785

-0.71%

7,300

6.1%

3,704 -17.96%

2,415 -13.29%

6,119 -16.18%

3,106 -16.14%

2,079 -13.91%

5,185 -15.26%

3,535 13.81%

2,322 11.69%

5,857 12.96%

3,352

-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%

1,612 -18.26%

2,675 -11.77%

1,978

22.7%

4,653

0.19%

2,676

0.04%

1,891

-4.4%

4,567

-1.85%

TOT

42,036

2,413

26,530

-5.91%

4,644 -16.83%

68,566

reversereview.com

8 TRR

The Reverse Review March 2012

Contributors jame s w r i g ht

James Wright

Bill Waltenbaugh, SRA

25 | Understanding Default in the Reverse Mortgage World g James Wright is executive vice president of Investor, Client and Vendor Relations at Reverse Mortgage Solutions Inc. (RMS) in Spring, Texas. The company now includes an asset management solutions division that specializes in assisting lenders, servicers and investors in disposing of reverse REOs. jwright@rmsnav.com 281.404.7980

Torrey Larsen

Gregg Maske

Hank Rhoads

b i ll walte n b au gh , sra 27 | 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.

tor r e y larsen 28 | The few, the proud, the survivors g Torrey Larsen, who co-founded Security One Lending, is chief executive officer. Larsen is active in all aspects of the firm, with his central focus on overall business growth and strategic direction. Larsen has a broad background in the areas of corporate finance, capital markets and secondary marketing.

g r egg ma s k e

h an k r h oad s

p e te e n ge lken

28 | The few, the proud, the survivors g Gregg Maske has been in the mortgage industry since 1985 and is currently area sales manager for FirstBank Mortgage Partners. His responsibilities include recruiting and managing a team of salespeople in Alabama, Florida, Georgia, South Carolina and Tennessee, as well as helping to grow the reverse division from the ground level. Prior to joining FirstBank, Maske worked as sales manager for Wells Fargo, where he received production and quality awards for production.

28 | The few, the proud, the survivors g Hank Rhoads is a reverse mortgage advisor with Genworth Financial Home Equity Access, Inc. (GFHEA) for Sacramento and the Bay Area. GFHEA is a subsidiary of Genworth Financial, Inc., a publicly traded global financial security company with more than $100 billion in assets and a presence in more than 25 countries. Rhoads has been in the financial services industry for 15 years. Prior to joining GFHEA in August 2011, Rhoads was a reverse mortgage advisor with Wells Fargo for six years.

32 | reverse mortgage myths: REFUTING THe FICTION g

Pete Engelken

Pete Engelken has served as president and CEO for Genworth Financial Home Equity Access, Inc. and its predecessor, Liberty Reverse Mortgage, since 2005. Engelken has more than 20 years of management experience. Engelken earned a master’s degree in business administration and a Bachelor of Science degree in finance and economics from California State University, Sacramento. Engelken is a certified public accountant and he currently serves on NRMLA’s Board of Directors, holds the office of co-vice chair and chairs the Government Relations Committee.

s ha nnon hi cks Shannon Hicks

Want to write for this magazine? Email jessica@reversereview.com for more information 8

| TRR

38 | the last word g Shannon Hicks is vice president of Product Development at Reverse Fortunes, Inc. Hicks draws from his experience as a reverse mortgage originator and prior work in the financial services industry. Hicks has spoken nationally at NRMLA events and is host of Reverse Fortunes Weekly, the nation’s only weekly podcast for reverse mortgage professionals. 800.805.9328

Number

46b

Senior home equity increased 1.5% in the third quarter of 2011.

http://services.nrmlaonline.org/NRMLA_Documents/RMMI_Third_Quarter_2011.pdf

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.

12/1/11

11/1/11

10/1/11

9/1/11

8/1/11

$600.0

$400.0

$200.0

$0.0 8/1/10

7/1/10

6/1/10

5/1/10

4/1/10

3/1/10

2/1/10

1/1/10

20%

16%

14%

12% 12/1/11

Reverse Market Insight - Logo

11/1/11

October 9, 2009

10/1/11

9/1/11

8/1/11

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

reversereview.com

12/1/11

11/1/11

10/1/11

9/1/11

8/1/11

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

$800.0 11/1/10

$1,000.0

11/1/10

$1,200.0

10/1/10

$1,400.0 10/1/10

$1,600.0

9/1/10

$1,800.0 9/1/10

Fixed

8/1/10

7/1/10

6/1/10

5/1/10

4/1/10

3/1/10

2/1/10

1/1/10 ARM

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

12/1/09

{ FIGURE }

1/1/11

12/1/09

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%

PANTONE COLORS 3005C

8 TRR

Process Blk C

Brought to you by:

18%

REVERSE MARKET

INSIGHT

10%

The Reverse Review March 2012

Industry Update

March Edition

Brought to you by:

an update of this past month’s breaking news

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

headlining news

1. PREMIUMS TO INCREASE FOR FHA FORWARD LOANS, REVERSE MORTGAGES WILL NOT CHANGE

The Department of Housing and Urban Development announced adjustments to its mutual mortgage insurance fund and lending programs for fiscal year 2013. Changes include premium increases for forward single-family mortgages of about .1 percent, with multifamily loans set to see an increase of 5 to 20 basis points, depending on the program. HUD Secretary Donovan said the Home Equity Conversion Mortgage program will not change, citing recent improvements to the health of the program. // February 13, 2012

2. TOP LENDERS SEE BIG JANUARY VOLUME GAINS

Two top reverse mortgage lenders, Security One Lending and Genworth Financial Home Equity Access, saw their best months ever for production in January. They each experienced a 25 percent increase over the course of January, making it the best month in history for both companies, according to Reverse Mortgage Insight. Overall, the industry saw an 11.6 percent increase to 5,175 endorsements, the highest gain since September. // February 2, 2012

3. OBAMA: SHAPE OF FHA

REVERSE MORTGAGE PROGRAM IMPROVING

Obama’s proposed budget for 2013 projected that the Federal Housing Administration’s Home Equity Conversion Mortgage program will not require a government subsidy. Estimates indicated a .92 percent negative subsidy rate, which would mean that the program 10

| TRR

is expected to generate enough cash flow to stay afloat in the coming year. // February 13, 2012

4. LIVE WELL FINANCIAL

RECEIVES GINNIE MAE HMBS APPROVAL

After a three-year wait, reverse mortgage wholesaler and correspondent lender Live Well Financial announced that it received approval to issue Ginnie Mae HECM-backed mortgage securities. Live Well increased its forward business in the wake of Fannie Mae’s exit from the reverse mortgage space and is now focusing on reverse mortgages. The Richmond-based company said it plans to begin issuing in March of this year. // January 31, 2012

5. HECM PORTFOLIO TO

IMPROVE EACH YEAR, BARRING ANOTHER HOUSING CATASTROPHE

New View Advisors said the worst of the Federal Housing Administration’s “underwater problem” may be over, as long as the housing market sees a rebound. Nearly 20 percent of the FHA’s Home Equity Conversion Mortgage loans outstanding have a greater loan balance than the property is worth. Although the HECM program is valued at -$5.4 billion, New View said the program stands to gain and expects it will improve with each year. // January 31, 2012

6. RECORD $26 BILLION

MORTGAGE SERVICING SETTLEMENT ANNOUNCED

Housing officials announced the details of a historic $26 billion settlement that was reached with the five largest U.S. mortgage servicers: Bank of America, J.P. Morgan Chase, Wells Fargo, Ally Financial and Citigroup. The agreement, which was signed by the federal

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

government and 49 states, came in the wake of evidence that servicers were foreclosing on homeowners without completing measures to help borrowers refinance their loans or become current on payments in order to stay in their homes. // February 9, 2012

7. CFPB RELEASES NEW

MONTHLY MORTGAGE STATEMENT

The Consumer Financial Protection Bureau released a draft for its new monthly mortgage statement, created to help homeowners better understand their loans. The document, which outlines loan payments for forward borrowers, is required under Dodd-Frank to include details on the principal loan total, interest rate, late payments and penalty fees, housing counselors, interest rate reset dates and mortgage servicer contact information. The CFPB said it seeks public feedback on the draft. // February 14, 2012

8. PUERTO RICO REVERSE MORTGAGE GIANT PLANS TO MOVE STATESIDE, MAKE ACQUISITION

Money House, one of Puerto Rico’s largest reverse mortgage lenders, is expanding to the U.S. with plans to tap into the Hispanic market. With seven branches and 80 employees, the company is the second-largest reverse mortgage lender in Puerto Rico, with 26.5 percent of the market share. Money House CEO David Lewis said that the exits of Bank of America and Wells Fargo created a huge opportunity for the company to expand its reach stateside. // February 2, 2012

9. BANK SUPERVISORS

WORKING TO CREATE UNIFORM LOAN OFFICER STATE TEST

The Conference of State Bank Supervisors

Industry Update and State Regulatory Advisory announced its intent to develop a uniform state test of mortgage loan originators. The organizations have begun initial feasibility studies and will continue to assess how to best implement a standardized exam. // February 7, 2012

10. NEW BILL TO REQUIRE ALL NONBANK LENDERS TO SUBMIT FRAUD REPORTS

The Treasury announced that all nonbank residential mortgage lenders will be required to submit Suspicious Activity Reports (SARs) to the Financial Crimes Enforcement Network under a new rule. The rule will also require lenders and originators to establish antimoney laundering programs. The bill was developed after quarterly reports indicated that independent brokers and mortgage lenders originated many of the reported fraudulent loans. // February 7, 2012

11. GOOGLE SHUTS DOWN

MORTGAGE RATE COMPARISON TOOL

Google closed down its Advisor Mortgage platform, a tool that allowed users to access mortgage rate comparisons across states. In November, the search giant limited accessibility to the platform to only five states and Washington, D.C. In an email to National Mortgage News, a Google spokeswoman said the tool was shut down because it had experienced limited success. However, speculation arose that the move was a result of state licensing and not based on the success of the product. // February 5, 2012

12. GENERATION INTRODUCES NEW CFO

Reverse mortgage lender Generation Mortgage Company has named Carl Rojas its new Chief Financial Officer. Rojas, who formerly served as a

consultant for the company and then as Corporate Comptroller, will take over for Steve McClellan. Rojas said he intends to oversee the company’s growth in 2012; Generation currently ranks fourth among U.S. lenders, according to Reverse Market Insight. // February 12, 2012

13. L.A. TIMES: REVERSE

MORTGAGES MAY BE THE BEST OPTION

The “Money Talk” column in the L.A. Times recommended that a reader seeking advice on financial options for her 82-year-old mother consider a reverse mortgage. The reader said she was debating selling off her mother’s nearly paid-off home or putting off the sale by renting the property from her mother. Times columnist Liz Weston suggested investigating a reverse mortgage as an option to allow the reader’s elderly mother to age in place.

Let POM Escrow Give You Peace of Mind!

reversereview.com

8 TRR

| 11

The Reverse Review March 2012

THE HOT SEAT

20 things you need to know or may have been wondering march 2012

the hot seat From what he canâ&#x20AC;&#x2122;t go without to what he believes to be the reverse mortgage industryâ&#x20AC;&#x2122;s biggest challenge, we get the personal and professional facts from Gregg Smith, president and COO of One Reverse Mortgage, in our monthly edition of The Hot Seat.

| TRR

gregg PERSONAL

Ten years from now I’d like to spend my time playing with my kids.

One Reverse Mortgage

When I was younger I wanted to be a professional hockey player.

Every morning I read the Wall Street Journal.

I can’t go without my iPad.

I’ll never forget my dad.

President CoO

The best job I’ve ever had was working for my dad.

The worst job I’ve ever had was working for my dad.

My parents taught me the value of hard work.

My favorite time of the day is early morning.

The best lesson I’ve ever learned was to never have regret.

When I was younger I wanted to be a professional hockey player.

PROFESSIONAL >

The biggest challenge in the reverse mortgage industry is creating greater positive public

awareness. >

The future of reverse mortgages is expanding our customer base beyond the needs-based senior.

The greatest setback for our industry was the housing crisis.

Ten years from now the reverse mortgage industry will be a mainstream loan program.

People should seek a career in the reverse mortgage industry because it’s simply the most

rewarding sector of the mortgage industry. >

Before I entered the reverse mortgage industry I was a forward mortgage banker for 12 years.

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

becoming a reverse mortgage program expert. >

The most important thing financial advisors can learn about reverse mortgages is that it can

play a positive role in a senior’s financial plan. >

In shaping appropriate regulation of the reverse mortgage industry, government officials

need to understand the industry is ready and willing to help. >

The development of a proprietary market for reverse mortgages will require a stable housing

market coupled with a lower lending limit.

Reverse mortgage professionals can best support the public image of reverse mortgages by becoming a reverse mortgage program expert. reversereview.com

8 TRR

| 13

The Reverse Review March 2012

Three years of Borrower Surveys and

Thatâ&#x20AC;&#x2122;s Grand Slam servicing.

Servicing that Honors a Lifetime

R E VE R S E M O RT G A G E S E R V ICE R - CE L IN K . C OM

| TRR

(Full Borrower and Client Survey results can be viewed at celink.com)

learn

legal

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

Reverse Mortgage Documentation: Learning the Lessons from Forward Mortgage Foreclosures Ch r is t o p h e r j . W i lli s a nd M er ce de s K e lle y Tu n s tall

important that notaries actually witness the signature as it is made, even if the notary is familiar with the signer and his or her signature. Moreover, notaries should be aware of, and follow, state law regarding notary logs and other similar requirements.

legal

3 | Verification of Amounts Due

When foreclosure-related fees are added to a loan balance, make sure that they are permitted by the loan agreement and are reasonable in terms of amount and timing. A great deal of criticism of foreclosures in forward mortgages has revolved around these sorts of fees and charges, making it a prime target for scrutiny in the reverse mortgage context.

appraising

The focus on foreclosure documentation in forward mortgages has set the stage for similar scrutiny of reverse mortgages, and the extra documentation required in a reverse mortgage adds to this challenge. We believe that reverse mortgage servicers can avoid many of the difficulties that have befallen forward mortgages by simply examining their foreclosure processes and taking into account the lessons learned in the forward mortgage world. Time and effort spent on prevention now will likely be a very worthwhile investment in preventing litigation and governmental action later. x reversereview.com

8 TRR

spotlight

2 | Document Execution Many foreclosure-related documents have to be notarized, a process governed by somewhat archaic rules. In order to avoid challenges, it is

4 | Foreclosure-related Fees

servicing

1 | Chain of Title One of the most common assertions made in connection with forward mortgage foreclosures is that the foreclosing entity cannot demonstrate that it properly holds the note and/or the mortgage. For any loan that is acquired after origination, it is critical for the purchaser to have reliable documentation showing the transfer of the note and an assignment of the mortgage, and a way of authenticating that documentation.

legislative

Below we set forth some of the common areas of criticism that have arisen in forward mortgage foreclosures, as a way to preview for reverse lenders the types of issues that may arise in reverse mortgage foreclosures.

secondary market

Before getting into a discussion of the specific concerns raised in forward mortgage documentation and the lessons these concerns can teach reverse mortgage lenders, it will be helpful to identify how reverse mortgages are documented differently from forward mortgages. For example, many states require a borrower counseling form to be part of the mortgage documentation. Ensuring that all of the required signatures are on the form, and that the signatures are true and correct and can be properly proved, will be an extra step. When the mortgage is a Home Equity Conversion Mortgage (HECM), the required correspondence with HUD should be in the file. Also for HECMs, if there are two sets of deeds of trust and notes, one showing the name of the lender and one showing HUD, then a quality assurance review should take place to ensure that the borrower’s signatures and any required affidavits or notarizations are consistent with each other and are fully executed.

underwriting

or years now, we have seen headline after headline about documentation inconsistencies in mortgages causing problems for lenders and servicers who proceed to foreclosure. Concerns have been raised by courts, regulators and state attorneys general about whether required affidavits have the correct form, whether notaries have signed properly, and whether the chain of title is valid. For forward mortgages, the foreclosure process is the lender’s last resort, and is supposed to be an unusual end result for the lender. But for reverse mortgages, foreclosure is a frequent result of the mortgage, and this is all the more reason why it is important for reverse mortgage lenders to review their processes carefully to ensure that their documentation is free of the concerns that are so frequently discussed in the forward mortgage process.

In any foreclosure – whether judicial or non-judicial – the account must be reviewed for the proper amount due, including any applicable late fees, accrued interest and payments for taxes and insurance made by the lender. Before an employee signs a document attesting to the amount owed, be sure that the employee has access to the necessary records to validate that amount, and be mindful of any vulnerabilities in the recordkeeping system that might cause inaccuracies.

| 15

The Reverse Review March 2012

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

RMS FaMily oF CoMpanieS 16

| TRR

RMSnAv.com

legal

The New Director of the CFPB Issues Mortgage Origination Examination Guidelines Jim M ila n o

odule 2 Advertising and M Marketing

odule 3 Loan Disclosures and M Terms

understandable information about these products;

odule 4 Underwriting, M Appraisals and Originator Compensation

Module 5 Closing

• whether the entity provides timely, clear and understandable information about the costs and relative risks of reverse mortgages;

Module 6 Fair Lending

Module 7 Privacy

• whether the entity provides timely, clear and understandable information about the circumstances under which the borrower may be required to pay the loan in full; and

appraising spotlight

The procedures also direct examiners to look at other risks to consumers in connection with reverse mortgages, including:

• whether the entity provides timely, clear and understandable information about the requirements to pay property taxes, insurance, utilities, maintenance and other expenses after obtaining a reverse mortgage;

servicing

Regarding reverse mortgages, the procedures direct examiners to determine if an entity offers reverse mortgages, and if so, to determine whether it offers HECMs, and what percentage of the reverse mortgages originated are HECMs.

legislative

These Mortgage Origination Examination Procedures consist of modules covering the various elements of the mortgage origination process. Each module identifies specific matters for review. Examiners will use the procedures in examinations of mortgage brokers and mortgage lenders.

odule 1 Company Business M Model

secondary market

Further, on January 11, the CFPB issued the Mortgage Origination Examination Guidelines. The guidelines focus on the review for violations of federal consumer financial law in connection with mortgage origination.

underwriting

On January 5, the CFPB announced its federal nonbank supervision program, which is similar to the CFPB’s bank supervision program launched in July 2011. The nonbank supervision program is designed to ensure that nonbanks do not violate federal consumer financial laws, including RESPA, TILA, ECOA, HMDA, provisions of the Gramm-Leach-Bliley Act (i.e., privacy rules), the SAFE Act, FCRA and the Mortgage Acts and Practices – Advertising Rule (MAP Rule).

The procedures are broken down into the following seven modules:

legal

n January 4, 2012, President Obama appointed Richard Cordray to be the first director of the CFPB. Now that the CFPB has a director, per the Dodd-Frank Act, it has authority to regulate nonbank mortgage companies, among other nonbank financial services entities.

• whether the entity has adequate safeguards against improper marketing of reverse mortgages to seniors who have medical or 8

• whether the entity offers other financial products, like an annuity or long-term care insurance, with Ac c o r d i n g to J im the proceeds of the The hope and expectation from the mortgage industry was reverse mortgage, that the CFPB would be an information-based, driven agency. and if so, whether However, based upon the above guidance to examiners, it the entity provides appears the CFPB is engaged in a form of “back-door” timely, clear and rulemaking without the benefit of notifying the mortgage

industry, leaving no opportunity for the industry to comment. reversereview.com

8 TRR

| 17

The Reverse Review March 2012

legal goi ng to t h e source

One can only hope that this subjective and less formal approach to regulation by the bureau is an early aberration, and a more reasoned approach to regulation and rulemaking in the reverse (and broader) mortgage industry will ultimately prevail.

cognitive problems or in situations raising concerns about undue influence by third parties. The hope and expectation from the mortgage industry was that the CFPB would be an information-based, driven agency. However, based upon the above guidance to examiners, it appears the CFPB is engaged in a form of “backdoor” rulemaking without the benefit of notifying the mortgage industry, leaving no opportunity for the industry to comment. Of particular concern is the directive that examiners review and determine whether the entity has adequate safeguards against improper marketing of reverse mortgages to seniors who have medical or cognitive problems or in situations

raising concerns about undue influence by third parties. This requirement does not appear to be based in law or regulation. While the CFPB does have rulemaking authority over reverse mortgages, as provided by the Dodd-Frank Act, such rulemaking has not yet been initiated or undertaken. One can only hope that this subjective and less formal approach to regulation by the bureau is an early aberration, and a more reasoned approach to regulation and rulemaking in the reverse (and broader) mortgage industry will ultimately prevail. Further, the procedures also direct examiners to review whether a creditor originates reverse mortgage loans, and if so, to assess compliance with TILA provisions concerning

those loans. For more information, the procedures make a cross reference to the examination procedures under the newly recodified TILA, 12 CFR § 1026.33, now under the auspices of the CFPB per the transfer of power mandated by the Dodd-Frank Act, effective on the designated transfer date of July 21, 2011. The CFPB has also been tasked with finalizing a number of new regulations in order to implement the Mortgage Reform Act, enacted as Title XIV, part of the Dodd-Frank Act. With its first director in place, the CFPB is fully functional. 2012 is expected to be a busy year for the bureau and for the regulatory compliance functions within the mortgage industry. x

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 BIHG works on a national level

BayState Independence Housing Group, LLC Repairs Done...Ready to Close

877.906.3946 | www.independencehousing.com 18

| TRR

Assess

Underwriting

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

Ralp h ro s y n e k

3 Hold a town hall meeting with all company members. Have participants brainstorm and suggest new marketing opportunities, policies, procedures and “likes and dislikes” for management’s consideration.

3 And yes, get out the underwriting manual. Learn, absorb and ask questions. Underwriters will tell you that the number of unusual scenarios encountered (and processed) is increasing. The intensity list for underwriting is growing, especially in the area of occupancy and the always present “final value.”

spotlight

Going to the source

3 Review your Product Matrix – if you don’t have one, add it to your list to build one. A comparative “all in one” document will allow you to maximize minor variances from lender to lender in price, guidelines and operational requirements, which could lead to more loans approved and funded as well as additional marketing opportunities.

3 Force yourself to learn something new each day. We all know this program is a work in progress, so stay on the leading edge.

appraising

The likelihood and predictability of T&I default has been well documented and reviewed by lenders, servicers and HUD. This first round of assessment, which some hoped would adequately address the T&I problem, didn’t end up solving much. It seems as though the operation was successfully completed, but the patient wasn’t any better off. We have yet to see what’s in store for round two.

3 Review workflow and processes for purposes of enhancing efficiency and reducing unnecessary expenses.

3 Look for education, training and support resources to improve each area of the loan process. One of the best resources is our industry trade association, NRMLA. Are you a member?

servicing

This reassessment has given rise to a heightened awareness of the effects of a borrower’s prior delinquent T&I payment history, requiring additional focus on underwriting process to determine the ability and willingness of the borrower to meet these expense obligations in the future.

3 Review existing agreements (LO compensation agreements, lender agreements, vendor agreements, etc.) for another year of use and applicability to your present operations.

legislative

ecently, lenders and investors have suspended or changed their published financial assessment requirements. Based on NRMLA guidance put forth last fall, the best processes offered were aimed at addressing an increase in borrower tax and insurance defaults.

During the height of market focus on financial assessment, many of us didn’t realize the page had turned on the calendar. Now, we are looking at our 2012 to-do list. Perhaps your list should include some or all of the following:

3 When was the last time a group of you got together and actually read the documents from start to finish? You would be amazed by what is in your forms and what forms you are missing!

secondary market

Financial Assessment: Round One

3 Compliance, compliance, compliance: 2012 could be the year of greater audit and control reviews by outside parties. Be prepared!

underwriting

Ralph’s Checklist

3 Best business practices set a benchmark for performance that leads to quality loan files and a quality reputation. Have you circulated or posted these recently?

legal

Unsurprisingly, this overall marketwide experience has given rise to more underwriting requests for explanation of T&I payment history. Perhaps for the first time, originators are embracing the fact that the consumer disclosure stating, “This product may not be appropriate for all older American loan needs,” is a double-edged sword that must be mastered.

Lastly, consider the “Underwriter Question of the Day:” Can you define the components of “no seasoning requirement” and the underwriting evidence to support your claim that the transaction is not a “flip?” x

This reassessment has given rise to a heightened awareness of the effects of a borrower’s prior delinquent T&I payment history, requiring additional focus on the underwriting process to determine the ability and willingness of the borrower to meet these expense obligations in the future. reversereview.com

8 TRR

| 19

The Reverse Review 2012 “IMarch am extremely proud to be part of AAG - A trusted national reverse mortgage lender that is helping seniors overcome their ﬁnancial worries AND live the lives they’ve dreamed.”

- Fred Thompson, Former Senator and AAG Paid Spokesperson

VOTED BEST LEAD PROVIDER BY REVERSE MORTGAGE DAILY, 2011.  Highest average home value in the industry.

 Every lead receives a FREE

info pack including DVD, two brochures presented by Senator Fred Thompson.

Find out more about AAG leads. The most trusted brand in the industry.

 Fulﬁllment pack also includes

letter from Senator Thompson introducing lead partner including contact details.

 LIVE email notiﬁcation of lead assignment with follow up reporting.

 Daily reporting.

The Best Advice for a Better Life

| TRR

Call today to ﬁnd out more or visit us online.

949.224.6091 | www.AAGreverse.com

HMBS

secondary market

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

Live Well Financial news is significant because the company intends to begin issuing HMBS immediately despite the existence of potential sale treatment/ accounting issues and the additional financing needs that will arise.

8 TRR

spotlight

reversereview.com

appraising

The change I’m referring to is the recent announcement that after a three-year wait in the approval cue, Live Well Financial has received approval from Ginnie Mae to be an HMBS Issuer. Although other firms including One Reverse Mortgage (affiliated with Quicken Loans) and Genworth have received HMBS Issuer approval from Ginnie Mae within the last year, the

The answers to these questions going to the will be revealed so ur ce over the next few months or years. Thankfully, ... industry industry participants participants should take should take comfort that this potential comfort that game-changer this potential is a positive game-changer development is a positive because having development more HMBS Issuers should because having help even the more HMBS playing field for Issuers should originators. help even the playing field for originators. The industry will have to adapt once again, and new winners and losers will be revealed over time. So sit back, relax, and get your popcorn ready, because the latest installment of this reverse mortgage movie is coming to a theater near you! x

servicing

The active issuers consist of MetLife, Urban Financial Group, Reverse Mortgage Solutions, Generation Mortgage and Sun West Mortgage Company. Given this dynamic, the traditional mortgage broker has been left with a lot less leverage in terms of pricing. Furthermore, correspondents, even those with significant scale, have had to be very prudent in terms of how they deal with the “big five.” But this is the reverse mortgage industry, where the one true constant is change (and usually the sweeping, massive, completely surprising type of change).

legislative

Today, it is not a surprise that the firms prospering are those that adapted swiftly and correctly anticipated how to capitalize on market changes, as well as important legal and regulatory changes that affected the mortgage market. But perhaps the single most important determinant of success has been the ability or inability of a reverse mortgage firm to obtain approval to be an HMBS Issuer from Ginnie Mae. After the exits of Wells Fargo, Bank of America, Financial Freedom and KBC

Bank (which owned the Senior Lending Network), as well as Goldman Sachs’ short-lived attempt at being an HMBS Issuer, the HMBS market was left with so few issuers that it had taken on the look of an oligopoly.

secondary market

’ve always been fascinated with the pace and magnitude of change that the reverse mortgage industry has faced in the last few years. From the days when Fannie Mae was the dominant buyer, to the development of the private-label securitization market, to today’s Ginnie Mae HMBS market, the winds of change have ended the business of some firms and accelerated the business of others. Moreover, such change has threatened the viability of the industry itself. The fact that the industry continues to exist and has several firms that are thriving is truly a remarkable accomplishment and speaks to the resiliency in which all of us who have worked in reverse mortgages have always taken pride.

underwriting

David A. F o n ta ni lla

legal

Another Twist in the World of HMBS

By doing so, Live Well Financial can once again change the market dynamics by adding another much-needed competitor to the mix. Moreover, it will be interesting to see if Ginnie Mae continues to approve new HMBS Issuers that may already be in the approval cue. Will the previously approved firms mentioned above end up issuing Ginnie Mae HMBS sooner than they would have liked to? Will brokers and correspondents align themselves with Live Well Financial to add another whole loan takeout option? Will pricing power once again shift back to the whole loan originators instead of the aggregators?

| 21

The Reverse Review March 2012

monitor

legislative

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

Housing Issues Are Front and Center on the National Stage H. We s t R ic h a r ds

resident Obama recently announced his latest plan to revive the housing market, outlining a proposal intended to help homeowners take advantage of historically low mortgage interest rates, even if they owe more than their homes are worth. In order to facilitate this proposal, the president has asked Congress for a tax on large banks to help “responsible homeowners” who are current on their payments refinance at today’s low rates. While some experts remain skeptical and the proposal faces an uphill battle in Congress, Obama said he is not waiting to take action, announcing, among other initiatives, a new Homeowner Bill of Rights and streamlined mortgage forms. The costs associated with the proposed refinancing program are between $5 billion and $10 billion and are supposed to be covered by a new tax on the nation’s largest banks, which would need to be approved by Congress. Gene Sperling of the White House National Economic Council expressed his support for the president’s plan: “Well, let’s understand what the heart of the president’s proposal is. The heart of it is very simple. It’s saying that we should allow all responsible borrowers the chance to have streamlined refinancing, when

we have historic low mortgage interest rates.” He explained that many folks are simply, “… falling through the cracks because they didn’t get a GSE-backed loan or, oddly enough, sometimes because they had too much equity in their home, which makes no sense.” Ethan Handelman, vice president for policy and advocacy for the National Housing Conference, urged Congress to embrace the proposal in the spirit of bipartisanship. “President Obama’s announcement last week reinforces what we all know: We need coordinated action at many levels to restore housing markets, help struggling households and support a broader economic recovery. That action must, by necessity, be bipartisan and cooperative.” While a handful have voiced their support, many politicians, as well as media and housing analysts, have attacked the president’s new plan, citing that his original Home Affordable Modification Program (HAMP) is a failure and that the new follow-up plan will do no better. The president’s latest proposal comes as the Republican presidential candidates vote in Nevada, which happens to be the state with the highest foreclosure rate in the country. “After promising to help millions, we continue to see the same proposals from President Obama and getting the same results: a

While a handful have voiced their support, many politicians, as well as media and housing analysts, have attacked the president’s new plan, citing that his original Home Affordable Modification Program (HAMP) is a failure and that the new follow-up plan will do no better. 22

| TRR

deepening housing crisis,” Republican National Committee spokeswoman Kirsten Kukowski said in response to the president’s housing initiative. According to CIS sources who participated in a recent bipartisan luncheon on Capitol Hill, the House GOP claimed that Obama’s housing plan is a no-go. Republican House Finance Committee staffers asked, “How many times do we have to have the government try to fix housing? We’ve had HARP, HAMP, and others and they’ve all failed.” They also questioned why we would give more risk to the FHA, which was said to be failing, just so a few borrowers current on their mortgage can save a couple hundred bucks a month. Our sources said this wasn’t an appropriate stimulus, especially on the back of the already beaten-up FHA. So, contrary to a positive statement recently

legislative

Furthermore, Donovan pointed out that most of the president’s proposals, such as the investigation into foreclosure and other mortgage abuses related to the housing and financial crises, can be done without lawmakers. “Those are steps that we can take on our own,” he said.

Expressing his support for CFPB reform, Chairman Bachus recently said, “No member of Congress opposes robust consumer protections, but many of us object to the structure of the CFPB. It was designed in a way to avoid transparency and oversight, and it gives unprecedented and wide-ranging powers to a single individual. The reforms we seek are common sense measures that will ensure the bureau fulfills its consumer protection mission while being accountable for its actions and use of resources.” The second bill (HR 2081) would remove the CFPB director from the Federal Deposit Insurance Corporation’s board. 8

spotlight

Donovan said the administration isn’t going to wait on lawmakers to move forward.

In the wake of Cordray’s appointment, we can expect to see some significant changes now that the CFPB is functional. In recent conversations, a senior Republican House Financial Services Committee staffer indicated to CIS sources that the Republicans would likely shift their attention from Dodd-Frank reform to reforming the CFPB. We were told to expect bills that would bring CFPB under regular appropriations, would remove Cordray from the FDIC board and put him on the Fed board instead, and would ensure that privileged material from companies handed over to the CFPB stays that way. It was further noted that the last point is one that Cordray has previously requested in legislation, so the hope is that the “privileged material” clause will be quickly approved.

appraising

Senate Majority Leader Harry Reid (D-Nev.) said Friday that legislation to improve the ailing housing market continues to be “high on the priority list,” although it is interesting to note that the chamber has yet to produce a bill.

servicing

Despite this opposition, HUD Secretary Donovan said at the White House earlier last week that “the very institutions that made many of these mortgages that caused much of the damage that we’re trying to repair ought to participate in helping to solve it, and we think the bank fee is a good source to do that. If Congress believes that there are other ways that we should look at paying for this, I think we would be open to discussions – as the president has done in other situations, we are open to having a discussion with Congress about the best way to make sure the cost of this is covered.”

The Stretch IRA/401(k) A Stretch IRA (also known as a legacy IRA or a multigenerational IRA) is not a new type of IRA account. A Stretch IRA is a way to use your IRA as an estate strategy tool. You simply stretch the life of your traditional or Roth IRA by naming an IRA beneficiary that will allow you to extend your IRA’s tax-advantaged growth as long as possible. For example, if you are married, your spouse could inherit your IRA, roll it into his or her IRA, and name your children as beneficiary. When your spouse dies, your children can inherit the IRA and take distributions each year based upon his or her life expectancy. Your children can also name beneficiaries so that if they die before all distributions are made, remaining distributions continue on the same schedule, instead of requiring a lump sum distribution.

legislative

While lawmakers have generally expressed support for simplifying complex financial paperwork, newly appointed Director Richard Cordray will lead the charge, further agitating Republican lawmakers still upset over his recess appointment.

Can an IRA or 401(k) be left to your heirs and continue to go untaxed until they withdraw or enter retirement? - Anthony Gatto

secondary market

House Financial Services Committee Chairman Spencer Bachus (R-Ala.), who would be charged with steering the president’s proposal to the House floor, dismissed it as “not a serious plan to help the nation’s housing market.”

Furthermore, CIS sources were told that House Republicans are moving forward with three bills that would reconfigure the bureau. All of them face steep odds to enactment, with Democrats controlling the Senate and White House. One measure (HR 1355) would bring the CFPB under appropriators’ jurisdiction. As it stands now, the agency gets its money directly from the Federal Reserve (up to a certain percentage of the Fed’s operating expenses). In fiscal year 2013, the agency’s budget totaled $597 million (although it could ask for more). Republicans have consistently railed about the CFPB’s funding stream, arguing that it makes the agency unaccountable. But, of course, that’s exactly what the writers of Dodd-Frank intended – to keep the agency out of the congressional budgeting fray.

underwriting

Meanwhile the CFPB is working on a one-page mortgage document designed to explain the costs associated with a home loan.

legal

released by Congressman Barney Frank, it appears that as of now, the president’s plan will not get far in the House.

Have a question for this column? Email information@reversereview.com reversereview.com

8 TRR

| 23

The Reverse Review March 2012

legislative Supporters of the bill say it would prevent potential conflicts of interest. The third bill (HR 3871) would clarify that privileged information shared with the CFPB by banks would not waive attorney-client privilege and open up the institutions to third-party subpoenas. It was also stated during the bipartisan panel luncheon that those who thought GSE reform was a non-starter for some members of the House should note that it’s almost completely dead now. A senior House Financial Services staffer said that if the Senate and a number of House members don’t have a stomach for GSE reform, then it is silly to ask members to take tough votes on an issue that has no chance of passage, or even consideration, in the Senate. On the other side of the aisle, House Democrats said they don’t have a specific agenda since they can’t

control anything on the House side and that they will go with the flow as Republicans bring issues forward. The House Democrats hope to make sure that Dodd-Frank is implemented the way it was planned and that they will continue oversight in that area. As for the Senate Democrats, they seem to be taking a slow approach to everything. Leadership in the Senate Banking Committee noted that if the right plan came along for GSEs, they could get behind it; otherwise, they don’t see any action or traction on this issue during a politically volatile year. In summary, the most salient point here is to recognize how all of this illustrates the prevailing themes emerging inside Congress and the White House in 2012. The bottom line for the reverse mortgage industry is that while divided government continues to envelop the nation’s capital, it remains clear that when it

National Appraisal Management for Reverse Mortgages. Appraisal Management Done Right!

comes to housing policy, the White House is intent on using its power to bypass Congress and openly plans to begin regulating the housing industry by leveraging each and every tool at its disposal. This isn’t to say that Congress does not continue to retain a great deal of power; the Democratcontrolled Senate can certainly assist the White House in many ways, and the Republican-controlled House of Representatives can absolutely control purse strings. The key to our industry will be to navigate each of these governing bodies by keeping them informed of our value as well as our needs and requirements to serve America’s seniors. We must continue to be fully engaged with both chambers of the Congress, the White House and the executive branch agencies directly impacting our industry. x

VOTED

BEST AMC p Geographic Competence p Managed Assignments p Borrower Contact p Reduced Revisions Requests & Compliance

CALL TODAY

or visit us online and discover the difference!

Find Value Everywhere No Discount Appraisers Nationwide Coverage 100% Manual QC © 2012 Landmark Network, Inc. The Landmark Logo, “Appraisal Management Done Right!” and “GeoSelect” are trademarks of Landmark Network, Inc. and its related entities. All rights reserved.

| TRR

888.272.1214 LandmarkReverse.com

Clarify

servicing

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

Understanding Default in the Reverse Mortgage World Jam e s W rig h t

*N on-occupancy for 12 consecutive months *F ailure to make required repairs or maintain property *D elinquent taxes and/or not maintaining hazard insurance

From the time a loan is considered due and payable, either by death or HUD approval, a series of actions must take place. For example, in the case of the last borrower’s death, the servicer has 30 days from the notification date to complete an appraisal. Therefore, a servicer must have the oversight to

Indeed, while reverse mortgage servicing is itself a niche within the mortgage servicing industry, reverse REO servicing is an even finer niche within a niche. Understanding the complexity and timelines of processing a reverse REO is key to mitigating risk and losses. x

Going to the source

spotlight

*T ransfer of title

Even after a servicer has documented and followed all the timelines to get to this stage, it’s not over yet. At this point, it is a real estate owned (REO) property with a new set of timelines and requirements that new reverse mortgage servicers and non-servicers may not fully understand.

appraising

*D eath of the borrower (and coborrower, if applicable)

But there are cases that can’t be resolved and the next step is to submit a request to HUD to call the loan due and payable. Once HUD approves, the clock starts ticking on resolving the issue with the borrower or through an alternative action such as a deed-inlieu, short sale or foreclosure.

servicing

Five such scenarios are:

Cases that can’t be resolved

If the due and payable issue cannot be resolved either by the loan being brought back to an active status and in good standing or through a deedin-lieu, short sale or full sale of the property, then the servicer has no alternative but to foreclose. Once a sale date has been set, a servicer is required to obtain a new appraisal 15 days prior to the sale date.

legislative

But in the reverse sector, that word most often means a predictable conclusion: that the senior has left the residence under several different but predictable conditions. As a result, the timing can be challenging for actually declaring a loan “due and payable” (a.k.a. in default).

The overall objective is correcting the issue, whether by establishing a payment plan for delinquent taxes and insurance, or working with the borrower and their representative to make the necessary repairs.

This timeline is based on HUD requirements, which in this case do not differentiate between forward and reverse mortgages. The final action that must occur immediately upon the due and payable approval is to issue a repayment letter outlining the options to repay the loan instead of the alternative action, foreclosure.

secondary market

In the forward mortgage world, “default” generally reflects failure, as in a borrower who stops making payments or a loan that stops performing according to expectations.

A servicer must document all attempts and conversations with a borrower in order to provide proof of its actions to HUD.

underwriting

hose of us in the reverse mortgage servicing business often speak a different language than our colleagues on the forward side. One example is the use of the word “default.”

For the three issues that require HUD approval, a series of borrower contact letters and calls – and any additional outreach – must be made, including inspections of the property.

ensure the appraisal is ordered in a timely fashion. The appraisal company must understand the timelines and those timelines must be managed. In addition to the appraisal, a servicer must complete an inspection of the property within 45 days of the loan being called due and payable.

legal

Of these scenarios, only death and transfer of title allow a servicer to call the loan due and payable without HUD approval.

Once a property becomes real estate owned (REO), it falls under a new set of timelines and requirements that new reverse mortgage servicers and non-servicers may not fully understand. reversereview.com

8 TRR

| 25

The Reverse Review

DEDICATED TO THE REVERSE MORTGAGE INDUSTRY

March 2012

AMERICA’S REVERSE TITLE. OUR NAME SAYS IT ALL.

For more information, contact Bob Beverly, National Sales Director at: 26

| TRR

727.481.3626 EMAIL rbeverly@amrevtitle.com WEB www.amrevtitle.com DIRECT

Proud member of NRMLA

value

appraising Ask the Appraiser

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

Bill Walt e n ba ug h, SRA

uestion: Should an appraisal include or exclude bank-owned sales comps?

servicing

appraising

spotlight

I like to explain it this way: A good comparable property is one the typical buyer of the subject would also consider when in the market for a home. Essentially, these properties are considered “reasonable alternatives.” They are similar with respect to location, condition, utility and appeal. For the most part, the owner of the property doesn’t

matter; a similar turnkey conditioned property from a lender is just as appealing as a similar turnkey conditioned property from the Average Joe homeowner. At the end of the day, it comes down to availability and competition. If there are enough “reasonable alternative” properties available at a lower price, the price of the competing properties will need to be lower in order to compete.

legislative

One of the main tenets of appraisal theory is the principle of substitution. This principle dictates that a buyer will not pay more for a property than the price of an equivalent substitute property. As such, the value of a property (or any other goods or services, for that matter) is limited by its competition. When enough “distressed” properties are available, the subject will need to compete with those properties.

As a general rule, appraisers should avoid using bank-owned comparable sales in the market approach. However, when the abundance of these properties begins to define the market, it is irresponsible for an appraiser to exclude or ignore the consideration of these transactions in their analysis. x reversereview.com

8 TRR

secondary market

transaction. This standard requires appraisers to consider all relevant transfers and determine which sales should be used in the analysis to arrive at a credible opinion of value for the subject property. To do this, the appraiser investigates the circumstances of each transfer to determine if atypical motivations or sales concessions were involved in the transaction. However, just because a property is bank-owned doesn’t mean the transaction is atypical. These days, many bank-owned properties are in similar, if not better, condition than non-distressed competing properties. As such, given adequate market exposure, the typical buyer in the neighborhood will also consider these properties when in the market for a home.

underwriting

The Uniform Standards of Professional Appraisal Practice (USPAP) is the standard appraisers must adhere to when completing an appraisal for a federally related mortgage

One of the main tenets of appraisal theory is the principle of substitution. This principle dictates that a buyer will not pay more for a property than the price of an equivalent substitute property.

legal

This is a great question and one that has become more relevant over the past several years. Not long ago, foreclosures and short sales were few and far between and the need to consider these transactions in the market approach was unnecessary. Most “distressed” properties were rough around the edges and the typical buyer didn’t consider them reasonable alternatives. These properties were typically purchased by investors with the intent of cleaning them up, making a few renovations, then listing and selling the property at a higher price for entrepreneurial profit. However, today’s market is much different. In some neighborhoods, “distressed” inventory and sales can make up a significant portion of the market. When this happens, these properties can’t be ignored.

g o i n g t o the so u r ce

| 27

The Reverse Review March 2012

spotlight article Here’s a look at how the industry is faring in the wake of the unexpected exits of three leading lenders.

h marc on i t edi

john k. lunde reverse market insight

first story t isn’t often that I feel the urge to write a magazine-length article, given that I spend a few days each month creating short newsletters about reverse mortgage industry trends and lender rankings. It’s not that I don’t enjoy writing (I do), but in my opinion, a certain amount of passion needs to be present to produce written words worth reading. This month I found a muse in the subject that has been on all our minds more than once in the past year: the exit of Wells Fargo, Bank of America and Financial Freedom from our industry in 2011. The situation has left me to wonder what the impact of this exit will be in 2012 and beyond. Many of us in the industry have looked at the overall volume trends with some dismay and even pessimism. After all, who could look at three consecutive years of endorsement declines without some level of concern about what the future holds?

The Few, The Proud, The Survivors ... lenders remaining in our industry are slowly but steadily backfilling the distribution niches that were vacated by their exiting counterparts. 28

| TRR

12,000 10,000 8,000 6,000 4,000 2,000

The chart above paints a gloomy picture of case numbers issued (we use this interchangeably with applications). December in particular was a sour end to the year. Since case numbers are our best indication of future endorsement volume, it’s hard to feel any enthusiasm here. However, below the surface of these numbers, there is a picture that is perhaps more encouraging as we separate the effects of lender exits listed above.

1/1/12

9/1/11

11/1/11

7/1/11

5/1/11

3/1/11

1/1/11

11/1/10

9/1/10

7/1/10

0 5/1/10

Want to see more articles like these? Go to reversereview.com

14,000

3/1/10

This month’s Spotlight features stories from the industry.

lEndorsements

16,000

1/1/10

HECM volume trends

lCase Numbers Issued

spotlight article So let’s put December’s application numbers in context. Instead of the lowest volume since January 2010 for the industry, it is just as correctly understood as a fallback to May 2011 volumes for the surviving lenders. While we’d all like to see volumes bounce back in January, even if they don’t, it’s only giving back what survivors gained from exiting lenders in recent months.

lSurvivors

9,000 8,000 7,000 6,000

Lastly, there is a rightful discussion of who might be benefiting most from lender exits. To answer that, we look again at case numbers issued, but this time by originator. The chart is a bit messy since we’ve included all eight of the remaining top 10 lenders by origination volume (excluding broker/TPO).

5,000 4,000 3,000 2,000

9/1/11

11/1/11

7/1/11

5/1/11

3/1/11

1/1/11

11/1/10

9/1/10

7/1/10

5/1/10

3/1/10

lMetLife Bank lAmerican Advisors Group lGeneration Mortgage Co. lSecurity One Lending lOne Reverse Mortgage lUrban Financial Group lGenworth Financial lReverse Mortgage USA

servicing

1,400 1,200

by Originator

1,000

appraising

800 600 400

200 0 01 | 02 | 03 | 04 | 05 | 06 | 07 | 08 | 09 | 10 | 11 | 12 | 01 | 02 | 03 | 04 | 05 | 06 | 07 | 08 | 09 | 10 | 11 | 12

2010

second story

spotlight

HECM case numbers issued

When we look at the trends for our industry, it’s important to remember that while we’ve been through some battles in the past few years, there are some very talented people in this industry that still know how to grow volumes and companies. There may be fewer of them, and they may have a thousand-yard stare at times, but the survivors can be proud of their accomplishments in tough times. x

legislative

That suggests to me that the lenders remaining in our industry are slowly but steadily backfilling the distribution niches that were vacated by their exiting counterparts. The storyline becomes not a decline, but ongoing reclamation of what was lost in 2011.

secondary market

This second chart suggests a very different storyline than the first. Exiting lenders decline dramatically (as can be expected), but at the same time we see surviving lenders increasing volume substantially – especially in the months after exiting lenders withdrew.

It’s clear that a couple of lenders have seen huge increases in retail/direct volume in the past two years, especially MetLife, One Reverse and American Advisors Group. But what’s equally impressive is that each of these eight lenders has substantially increased its volume in the past two years, and most have seen their profits more than double in size.

underwriting

1/1/10

1,000

legal

HECM case numbers issued

lllExiting Lenders

Torrey Larson Security One Lending I remember February 4, 2011, as if it were just last week. It was the first of two

major events to hit the reverse mortgage industry last year and alter its landscape. Bank of America had officially announced its exit from the reverse mortgage

2011

industry. My first thought was, “What do they know that I do not know?” The industry had experienced so many changes in the previous two years, and I initially thought

that the exit was a result of programrelated issues. Last year was the tipping point for many privately held firms, as Wells Fargo also 8 reversereview.com

8 TRR

| 29

The Reverse Review March 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 30

| TRR

spotlight article announced its exit from the industry. No doubt the change will be viewed as the largest market share play the industry has seen in many years. Originators were aggressively courted by many lenders, and firms took various approaches to recruiting non-restricted free agents. Some paid large

The next challenge was to adequately support the additional loan volume from an operational and

integration perspective. The key to providing great customer service is to measure capacity levels in terms of both staffing and liquidity, and ensure that you stay ahead of the curve. 2012 should be a great year for reverse mortgage lenders, originators and

appraising

I worked very hard over the years to build and nurture relationships with my associates, community resources and customers. This has made my transition to another company very easy and seamless. The name on my business card may have changed, but people still know me for who I am and the reputation I have built during my career. x 8 TRR

| 31

spotlight

Iâ&#x20AC;&#x2122;ve had great success growing my business since I joined GFHEA. Low interest rates are making it easier for seniors to afford the product, and I expect the need to continue to grow as more and more seniors reach retirement age.

reversereview.com

servicing

My search for new opportunities ended with Genworth Financial Home Equity Access (GFHEA). I really wanted to be part of a company that had a reputation for having a great customer experience, along with a strong brand and leadership position in the industry.

legislative

was a top producer at Wells Fargo and enjoying the fourth story best year of my career when I received the news that Wells was going to leave the reverse mortgage industry. I remember how hard the first few mornings were after that announcement, not knowing what would come next. I felt shell-shocked and lost, and I even questioned whether I wanted to stay in this industry. Then I considered how much I had achieved professionally and how many seniors I had helped over the years, and I knew I wanted to be in this business for the long haul.

secondary market

Hank Rhoads Genworth

underwriting

Reverse mortgages have provided me with a great sense of truly helping borrowers, more than I felt during my 26 years in the mortgage business. There is a definite need ost people in the for this product, and a need for mortgage industry professionals to deliver it to the have had to deal with customer. This product can truly significant change over the past change the quality of life for so many few years. Like many, I had to seniors, and this cannot be said deal with one such change when about most mortgages. Donâ&#x20AC;&#x2122;t get me Wells Fargo decided to eliminate its wrong; the product is not the answer Reverse Mortgage Division. I was for everyone. But for the qualifying serving as the sales manager for senior who understands the benefits, Alabama and Georgia it is a one-of-a-kind at the time, and the product. For those of you news was shocking Reverse who have sat with a senior to me, considering mortgages and watched his or her the success we were have relief during closing, you having in the reverse provided know there is no greater market. During all of my me with a feeling. recruiting conversations great sense I would talk about the of truly In my opinion, we are just commitment Wells had helping now seeing the beginning to reverse mortgages of what is to become a very borrowers, and the stability of large industry. People are more than I such a sound company. living longer and the need felt during my Needless to say, over for this product continues 26 years in the next few days I growing each and every the mortgage questioned whether day. Educating the public, business. There to stay in the reverse as well as the seniors, and is a definite business or move back correcting misinformation need for this to the forward world at are the main challenges we product, and Wells. face. I have yet to address a need for a group, organization or Even though Bank of professionals to individual that completely America and Wells deliver it to the understands the reverse both decided to exit customer. mortgage. My hope is the reverse business, I to stay in the reverse decided to stay and seek mortgage industry and new employment. I decided to work keep educating and providing with FirstBank, a smaller bank that assistance to seniors, as this is my realized the need for this product passion. x and was willing to separate this product line into its own division.

gregg maske FirstBank third story Mortgage Partners

vendors. Everyone has the opportunity to have a positive or negative impact on this industry. We all have an obligation to be great stewards of the foundation established by the leaders before us. Just remember that with great opportunity comes great responsibility. x legal

signing bonuses, while others struggled with that offering and extended more aggressive compensation plans. All in all, everyone benefited.

The Reverse Review March 2012

| TRR

The truth about reverse mortgages and how they can help secure retirement â&#x20AC;&#x201C; A look at the top five myths surrounding a HECM plan CEO, Genworth Financial Home Equity Access, Inc.

number of financial myths

THe decrease in risk for avg. senior who chooses a RM

11%

Pete Engelken

Avg. monthly benefits from Social Security at age 62

$750

reversereview.com

8 TRR

| 33

The Reverse Review March 2012

A record number of people are entering retirement as

the baby boomer generation

approaches 65 years old. Between 2010 and 2030, the retiree population is expected to increase by 75 percent (from 40.2 million to 71.4 million). 1 While this generation of retirees is healthier, more active and living longer than ever, many retirees are seriously unprepared economically for the financial requirements of retirement. Over the past 20 years, we have seen a fundamental shift in how Americans prepare for retirement. In the past, the retirement income formula

included three pillars: (1) Social Security, (2) employer-provided and -defined benefit pension plans and (3) personal savings. Today, all three of these pillars

Seniors Facing Retirement Risk (Unable to Sustain Their Pre-Retirement Lifestyle) Without Reverse Mortgage With Reverse Mortgage

69%

60%

Low Income

58%

47%

Middle Income

52%

42%

High Income NRII Fact Sheet No.1, March 2010. Center for Retirement Research at Boston College.

| TRR

are under stress. Our Social Security program is over-burdened and in desperate need of change to ensure its future health. Employers, once the guarantors of secure retirement for loyal employees, now have shifted retirement savings risk to individuals by replacing the previously defined benefit plan with newly defined contribution plans such as the 401(k). And responsible American savers have been hit with one of the worst investment decades since the Great Depression. To further complicate matters, many retirees of this generation are faced with costly maintenance and health care responsibilities for their own aging parents, who are also living longer. Across all income levels, retirees are at risk of no longer being able to sustain their pre-retirement lifestyles. Based on the National Retirement Risk Index (NRRI), the majority of retirees surveyed face retirement risk. Five out of 10 high-income retirees are at risk of financial stress, while this number jumps to seven out of 10 for lowincome households.2 Although these statistics sound bleak, the good news is that many options and viable solutions do exist to help people improve their chances of successfully achieving their retirement income goals and financial security. To help successfully navigate the retirement planning waters in this environment, one needs a comprehensive retirement plan that considers all available asset classes and resources, including among other possibilities, cash, fixed income, equities, guaranteed income and personal home equity. In fact, accessing home equity through a qualified reverse mortgage should be considered by retirees and financial planners in the overall retirement equation. Based on a 2010 Boston College study, when a reverse mortgage is considered in the equation, retirement risk may be reduced across all income segments.3 This is great news for Americans 62 years and older who collectively have more than $3 trillion of their wealth accumulated in the form of home equity.4 Home equity is too large an asset class for seniors and retirement planners to ignore when devising an individualized retirement strategy. When appropriate, there are two primary ways to unlock accumulated home equity in a personal residence: (1) sell the home or (2) 1. Retirement Population Statistics: US Census Bureau, US Interim Projections, March 2004, Table A. 2. Ibid. 3. NRRI Fact Sheet No. 1, March 2010. Center for Retirement Research at Boston College. 4. Home Equity Statistics: National Reverse Mortgage Lenders Association (NRMLA/Risk Span RMMI Q1, 2011).

Top five financial advisor myths

1 A reverse mortgage should be introduced as a last resort.

2 It’s too expensive to do a reverse mortgage.

3 It’s better to sell and rent or downsize than to take out a reverse mortgage.

4 A home equity loan is better for my clients than a reverse mortgage.

5 It’s legally challenging to offer reverse mortgages.

While this generation of retirees is healthier, more active and living longer than ever, many retirees are seriously unprepared economically for the financial requirements of retirement. borrow against the stored wealth. The first option, selling a home, may not be a preferred strategy for many seniors who often have deep emotional and physiological attachments to their homes and communities. In fact, 88 percent of seniors5 say they want to “age in place” and continue to live in their homes for as long as they can. A reverse mortgage can be a viable and affordable financial option for these retirees, who can gain access to additional cash flow while they continue to live and enjoy their home. Over the years, I have come to know many financial planning professionals who do consider home equity as part of the retirement planning process when developing financial strategies with their clients, including clients of moderate to high incomes. These planners really understand the reverse mortgage product and its potential benefits and consider it a valuable alternative or supplement to other income sources in a sustainable retirement plan. However, a surprising number of financial and retirement advisors do not consider the potential benefits of a reverse mortgage and do not educate their clients on reverse mortgages because of basic misperceptions, confusion or general lack of product knowledge. So, what are financial advisors’ top misconceptions about using reverse mortgages?

1 " A reverse mortgage should be introduced as a last resort. I’ve had many conversations with financial planners who say they have clients who will get a reverse mortgage… in a few years. These advisors and their clients think about accessing home equity only after other assets are reduced. However, many of us in the reverse mortgage industry suggest that by waiting until such a late date to consider the use of a reverse mortgage, the planner may be missing some smart and creative planning opportunities that could help maximize the value of the client’s other retirement income resources, including Social Security benefits, retirement savings assets and pension plan distributions. In addition, home equity distributions may have advantageous tax consequences, which could result in numerous income tax planning benefits depending on the client’s individual situation. I will address a few of these potential planning opportunities later in the article. Further and perhaps more importantly, there is potential risk in waiting too long to consider the home equity option. Over time, the home equity cushion in a retiree’s home could decrease, as we have seen with recent depreciating home values. Another risk is that the current governmentsponsored and proprietary reverse mortgage programs

may not always be available, and interest rates could begin increasing once again. Conversely, if better opportunities come along in the future, refinancing a reverse mortgage is an easy and affordable option.

2 " It’s too expensive to do a reverse mortgage. Too expensive compared to what? For this statement to make sense, we would need to compare a reverse mortgage to a similar alternative or substitute product. Yet I’m not aware of any other financial product that contains all the features, benefits, flexible payment options and consumer protections that the HECM reverse mortgage offers. This product was specifically designed to provide safe access to a percentage of a senior’s home equity by converting it into retirement income, with a government guarantee that the loan will be nonrecourse and that neither consumers nor their heirs will ever be personally liable for the debt regardless of whether the loan balance exceeds the home value when the loan becomes due and the home is sold. One of the most undervalued elements of the HECM program is the possibility for the consumer to request a line of credit or request equal periodic disbursements throughout the life of the loan. This is a very powerful feature, and one that provides flexibility and numerous financial planning opportunities. Many financial planners 8

5. Statistics on Aging in Place: AARP Home and Community Preference Survey, November 2010. reversereview.com

8 TRR

| 35

The Reverse Review March 2012

3 " It’s better to sell and rent or downsize than to take out a reverse mortgage. Not necessarily. Assuming that the client is not attached to his or her home, it’s nonetheless important to consider that selling and moving carries non trivial hard costs and opportunity costs. Selling and moving transaction costs can easily be $35,000 for a $500,000 sale assuming, 6 percent realtor commissions for the sale transaction and another 1 percent for moving expenses. As a renter, there is also a good chance that multiple moves will be required over time. If the senior elects to rent, he or she will have sold a valuable asset with the potential for appreciation in exchange for the inherent inflation risk associated with rental costs. If the client buys another home, there will be additional transaction costs incurred in the purchase, which takes another bite out of the home equity. After considering all the transaction and relocations costs, the net benefit to the consumer through a reverse mortgage could exceed the net benefits of other real estate transactions. With a reverse mortgage, homeowners (and heirs) retain any remaining home equity, after the loan is paid in full, at the time of sale. Moreover, the heirs have the option of either keeping the home or selling the home. Home retention and access to equity could also result in significant tax benefits to the homeowner. Interested seniors should consult with their tax advisors as the potential tax advantages exceed the scope of this article.

4 " A home equity loan is better for my clients than a reverse mortgage. Not necessarily. Traditional home equity loans and HELOCs typically require strict credit and income levels for approval by the lender, and they come with required monthly 36

| TRR

procedures and compliance guardrails. Seniors, mortgage originators and advisors should avoid working with any financial planner who seeks compensation related to originating a reverse mortgage.

mortgage payments. Those monthly payments create a financial headwind if the client’s primary objective is to generate more cash flow. Furthermore, in the current economic environment, it is much more difficult for consumers to gain credit access to home equity loans, particularly for seniors facing reduced or limited incomes. In addition, most reverse mortgages have a nonrecourse clause, designed to prevent the client or his or her estate from owing more than the value of the home when the loan becomes due and the home is sold.6 There are no prepayment penalties with an FHA HECM reverse mortgage.

With six out of 10 retirees dependent on financial advisors for retirement planning advice,7 it is critical as an industry that we effectively engage and educate planners on the potential benefits of reverse mortgage solutions for their clients. For example, reverse mortgages may be used to help avoid retirement planning mistakes involving (1) inappropriate and inefficient utilization of Social Security benefits and (2) excessive distributions from retirement savings causing unnecessary and rapid draw-down.

5 " It’s legally challenging to offer reverse mortgages. With the legislative and regulatory changes during the past few years, mortgage lenders and financial planners are more cautious than ever before in considering the cross-sale of financial services products and reverse mortgages, to ensure that reverse mortgage originators and financial planning professionals are not violating state and or federal laws. With properly designed safeguards and firewalls, reverse mortgage professionals can easily work with professional financial advisors to devise sound retirement and estate plans. It is important that both parties understand the state and federal laws and regulations, and that the lender is knowledgeable in this area and has established processes,

age you choose to start receiving benefits

are unaware of the newest and lowestcost product in the HECM family, the HECM Saver, which nearly eliminates the initial closing costs and the initial mortgage insurance premium!

Using a Reverse Mortgage to Help Defer Taking Social Security Today, record numbers of people are electing to take Social Security income distributions at age 62, which is the earliest age possible. Many financial planners suggest that healthy seniors delay as long as possible before starting their Social Security benefits, up to age 70. For example, a person who would receive Social Security benefits of $1,000/month at a full retirement age of 66 would get only $750/month if he or she claimed benefits at age 62. If instead, Social Security benefits were deferred until age 70, the same person would receive

Monthly Benefit Amounts $750 Differ Based on the Age You Decide to Start $800 Receiving Benefits This example assumes a $866 benefit of $1,000 at a full retirement age of 66. $933 $1,000 $1,080 $1,160 $1,240 $1,320

62 63 64 65 66 67 68 69 70 $0

$300

$600

$900

$1,200

monthly benefit amount 6. Federal Trade Commission. Reverse Mortgages: Get the Facts Before Cashing in on Your Home’s Equity. 7. INFRE, Society of Actuaries, LIMRA Report. 2011. The Financial Recovery for Retirees Continues.

$1,500

$1,320/month.8

$400,000

This, however, is easier said than done. People are electing to receive their benefits early because they need the income to sustain their quality of life. That’s where a reverse mortgage can help. A senior can tap into home equity through a reverse mortgage to create an “income bridge” so that he or she may defer taking Social Security benefits until age 70. At age 70, the client can stop taking monthly distributions from a reverse mortgage and start taking Social Security benefits, which will then have nearly doubled for the rest of his or her life. Because any existing mortgage payments are also eliminated when taking out a reverse mortgage, there can be additional cash flow benefits for seniors. A Genworth Financial Home Equity Access case

$350,000

study illustrating how a reverse mortgage can be used to help improve cash flow and defer drawing Social Security benefits can be obtained by contacting brokerprogram@genworth.com.

Avoid Reverse Dollar Cost Averaging

Using a Reverse Mortgage to Stretch Retirement Savings Accounts

A reverse mortgage may also help seniors improve their overall portfolio returns over time. Many of us have heard about the benefits of dollar cost averaging while saving for retirement. The concept is based on a simple principle: If you invest a set amount in regular intervals throughout your working life, you’ll invest more of your funds at a lower average cost as the market moves up and down. In retirement, when taking systematic distributions from a retirement account, dollar cost averaging works in reverse, meaning you may withdraw more funds at lower values by selling more at lower prices. Assuming retirement savings are invested in the equity markets, one way to help avoid this phenomenon is to strategically use a reverse mortgage to take home equity distributions in lieu of retirement distributions during years following very low or negative returns in the equity markets. This gives your retirement savings a chance to rebound in future years when equity market gains return. A copy of the

Many retirees have a very difficult time keeping their distributions from retirement savings accounts at a sufficiently low level to ensure their savings last throughout their lifetimes. Unexpected life events or health issues often come up, and low interest rates and poor equity market performance have resulted in low investment returns over the past several years. One strategy for seniors and planners to consider is reducing the distribution from retirement savings each month and replacing it with a reverse mortgage home equity distribution from the HECM line of credit. By simply reducing the performance dependency of a single asset class, and adding a distribution from an additional asset class, the longevity of the retirement savings account can increase. This may help reduce the risk to the client of prematurely running out of money and depleting the retirement funds.

Example of Savings Spend-down Scenarios With and Without a Reverse Mortgage Loan

Without Reverse Mortgage With Reverse Mortgage

$300,000 $250,000 $200,000 $150,000 $100,000 $50,000

yr30

yr28

yr26

yr24

yr22

yr20

yr18

yr16

yr14

yr12

yr10

yr8

yr6

yr4

yr2

retirement

savings stretch This example is calculated using Retirement Shortfall Calculator from bankrate.com. http://bankrate.com/calculators/retirement/calculate-retirement-income-money.aspx

GFHEA case study “Reducing the Impacts of Reverse Dollar Cost Averaging with a Reverse Mortgage” can be obtained by contacting brokerprogram@genworth.com.

Reverse mortgage originators are well positioned to work in local communities and partner with financial planners to provide education on the benefits of a reverse mortgage. Remember that as a reverse mortgage origination professional, you are the expert on these products, and financial planners will need your assistance in determining whether a reverse mortgage fits into an individualized client financial objective or retirement plan. We are seeing more and more clients being referred by financial planning professionals, and this trend will likely continue as more baby boomers enter their retirement years. Please remember to seek detailed advice from a tax professional or accountant as necessary. Keep in mind that you want to work with reputable, fee-based financial planners and work with a reverse mortgage lender who has welldesigned policies, procedures and the regulatory guardrails to help protect the client, the professional financial advisor and the reverse mortgage originator. x

To help successfully navigate the retirement planning waters in this environment, one needs a comprehensive retirement plan that considers all available asset classes and resources, including... personal home equity. 8. SSA Publication No. 05-10147, ICN 480136, July 2008.

reversereview.com

8 TRR

| 37

The Reverse Review March 2012

Opinion

last word

Anticipating Change Over the Horizon sh a n n o n h ic k s

s reverse mortgage professionals working to serve seniors in today’s market, we are forced to constantly check our rearview mirror as we cautiously proceed, always keeping an eye out for dramatic changes in regulation while searching the horizon for traffic congestion. This need for dexterous maneuvering is not likely to end, nor will it for quite some time. Consider the CFPB. It is coming along in its required study of our industry and must report results and recommendations to Congress before July 21. This signals more regulation and lender accountability. The question is, what can we do to prepare? Has the storm passed? One could say that until three years ago, our industry was on auto-pilot. We offered the same product for nearly 20 years with very few earth| TRR regulatory changes. 38shaking

Then it hit: required use of appraisal management companies, reduced principal limits, plunging home values and increased regulatory scrutiny. Was this an unfair attack or the natural maturing of our industry as we became more mainstream? The situation brings to mind a humorous quote: “I wouldn’t be paranoid if everyone didn’t pick on me.” Indeed, it does feel like those of us navigating the reverse mortgage space are being picked on, but the fact is, our industry is coming of age with the associated growing pains that follow. Reverse mortgages are now a common topic in the media, and more importantly, the industry is making the agendas of federal and state lawmakers. While home values seem to be settling and we have acclimated to new rules, licensing and products, we must be vigilant and always look ahead – not with fear, but with preparation.

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

We must focus on the future rather than fixating on what has already passed. Accept the changes and adapt. Second, we must fill our gas tank for the journey ahead and pack our bags properly for what may be over the horizon. We can fill our tank by continuing to work on our business and not letting the past or present regulations discourage us. We can prepare for what lies ahead by examining our own business practices and identifying weak points and things that can be shored up. Is your market overly focused on a vulnerable demographic that may no longer qualify? Is the focus on lower-valued homes leaving you exposed to possible interest rate increases or principal limit reductions? Are you broadening your reach to middle- and uppermiddle-class retirees? It really comes down to acceptance and preparedness. In the end, while the changes may be unpleasant, the result will be a more robust, mature and accepted product in both the minds of the public and lawmakers. So, keep the foot on the gas pedal and drive on, and don’t stare too long in the rearview mirror. x

g o i n g to the sour ce

While home values seem to be settling and we have acclimated to new rules, licensing and products, we must be vigilant and always look ahead – not with fear, but with preparation. We must focus on the future rather than fixating on what has already passed. Accept the changes and adapt.

reversereview.com

8 TRR

| 39

The Reverse Review March 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. 40

| TRR

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