The Reverse Review June 2012 by The Reverse Review

he reverse rev ie w

w the re revie v

BEHIND

THE SCENES OF

er ev

this issue

r se

evie

re e

INSIDE

e rs

NRMLA

REVERSE MORTGAGES MAKING HEADLINES PG. 16 METLIFE EXITS THE BUSINESS PG. 10 + KRISTEN SIEFFERT SITS DOWN IN OUR HOT SEAT PG. 12

THE

REVERSE review

june 2012

A HECM HeaRING

Industry experts, government officials and academics testify before Congress about the state of the program.

The Reverse Review June 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.

| TRR

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.

info@reverseit.com

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

reversereview.com

8 TRR

The Reverse Review June 2012

From the Editor exciting to watch these companies grow and thrive as they pick up the volume left behind.

Meet the Team

The fact that the industry continues to evolve only reaffirms the need for its participants to remain united in their common mission: to provide financial security for seniors in retirement. No matter how the industry expands and contracts, this collective goal will not waver. It’s important that we stand by that objective and that we do so with integrity.

A note from jessica linn

In the reverse mortgage industry, one thing you can count on is change. The most recent shift occurred when MetLife revealed its plans to exit the business. Industry players braced themselves for impact, but the news hit the marketplace with mild effect. The dust settled, people brushed off their suits and everyone returned to business as usual. It’s nothing we haven’t seen before, and it’s nothing we can’t handle. In the wake of the financial crisis, Fortune 100 companies have had to refocus on their primary business and leave behind non-core lending ventures. Even though all three banks had healthy reverse operations, in the end the business was too small a revenue generator to offset the risk and regulation. Big bank departures have created a great opportunity for specialty lenders to play a more dominate role in the space. It will be

Reza Jahangiri

Publisher

Erik Richard

Editor-in-Chief Jessica Linn

Creative Director Traci Knight

Copy Editor

To reinforce this need, NRMLA has called upon its members to sign a pledge to consumers, one that promises that they will act responsibly and in the best interest of the seniors they serve. The “Borrow with Confidence” campaign stresses our commitment to transparency, reassuring consumers that they can comfortably move through the lending process knowing that we are working for them. Read more about NRMLA and its mission in our special Spotlight section, and visit nrmla.org to sign the pledge and reaffirm your commitment to helping seniors age in place.

Editor-in-Chief { Jessica Linn }

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

Kersten Wehde

Marketing Director alycia colacion

Advertising Sales Rep. Brianna Conlon 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 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 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 the latest issue delivered directly to your inbox!

FIND US ON:

| TRR

t ay ec st onn c

Feedback

Senior Publisher

FACEBOOK, TWITTER, LINKEDIN

Table of Contents

TRR 06.12

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

FEATURE g

Special Industry Report

23 | All I realy Need to Know I Learned in Kindergarten

10 | MetLife Bows Out

How will the industry fare in the wake of the leading lender’s exit?

Super simple tips to ease the examination process bi l l t ra sk

Underwriting

15 | Wanted: Trainer, Educator, Underwriter

Will the exit of big banks mean more work for the underwiter?

The market reacts to the big bank’s announcement. m a rk a c c h i o n e

Originating

16 | Reverse Mortgages Making Headlines

As demand for the product increases, the media is taking note.

Why HECM endorsement volume has dropped and what we can do about it Ja ck D. Bel les

Appraising

27 | Competency: More Than Just Geographic

How AMCs assess an appraiser’s ability

Kim Schachinger

19 | What’s Behind the Numbers?

Secondary Market

25 | MetLife Exits Stage Left

Ra lph rosynek

Legal

“Most panelists spoke about the positive impact of the HECM program and the need for continued government support. Many, including the representatives from AARP and HUD, encouraged Congress to lift the cap on the number of FHA-insured loans to allow the program to reach its full potential.”

C h a rl e s g re ss

Spotlight Article

28 | Inside NRMLA: Who We Are and What We Do

Behind the scenes of the National Reverse Mortgage Lenders Association m a rt y b e l l

32 | A HECM Hearing

Industry experts, government officials and academics testify before Congress about the state of the program.

RS E W THE RE REVIE VE

E RS RE

EVIE

THE

J o h n La Ro s e

R SE

What Keeps Me Up at Night

this issue

ER EV

C O O o f U r ba n F i n a n c i a l G roup

INSIDE

Featuring Kristen Sieffert

EV ER

BEHIND

NRMLA

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 REVIEW THE VERS RE R

THE SCENES OF

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

REVERSE MORTGAGES MAKING HEADLINES PG. 16 METLIFE EXITS THE BUSINESS PG. 10 + KRISTEN SIEFFERT SITS DOWN IN OUR HOT SEAT PG. 12

HE REVERSE REV IE W

10 | industry update

E TH

WT VIE RE

07, 09 | Stats

W IE

Essentials

A House Financial Services subcommittee holds a hearing on HECM.

RE V

J e ssi c a l i n n

THE

REVERSE review

JUNE 2012

A HECM HEARING

INDUSTRY EXPERTS, GOVERNMENT OFFICIALS AND ACADEMICS TESTIFY BEFORE CONGRESS ABOUT THE STATE OF THE PROGRAM.

JUNE 2012

cover reversereview.com

8 TRR

The Reverse Review June 2012

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

John K. Lunde

Kristen Sieffert

John K . L unde

K r isten S ieffert

r alp h r osynek

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

12 | hot seat g Kristen Sieffert has worked in various capacities in the reverse mortgage industry for nine years. She started her reverse mortgage career with Financial Freedom, working in diverse roles including lender support, underwriting and relationship management. In 2007, Sieffert joined One Reverse Mortgage to help launch its wholesale division. She then moved up to VP of operations as the company became a top-five lender in the industry. Sieffert now serves as Urban Financial Group’s chief operating officer. She holds a B.A. from UCLA.

15 | Wanted: Trainer, Educator, Underwriter g Rosynek is the vice president for National Correspondent Production at Reverse Mortgage Solutions. RMS is a premier provider of reverse mortgage servicing, a Ginnie Mae seller/servicer and offers mortgage banking support to the reverse mortgage industry. Rosynek is currently a member of the NRMLA Board, co-chair of the Professional Development Committee and holds HUD HECM Direct Endorsement credentials. rrosynek@rmsnav.com 708.774.1092

K i m S chachinger

dennis sw it

Jack d. B elles

16 | Reverse Mortgages Making Headlines g Kim Schachinger is the vice president of marketing for One Reverse Mortgage, responsible for the development and execution of marketing and branding strategies. Schachinger is also an executive team member involved in developing business strategies and initiatives to grow the organization. Prior to joining One Reverse Mortgage in April 2011, Schachinger held the same role for In-House Realty, another organization in the Quicken Loans family of companies.

17 | insurance tip g Dennis Swit has more than 20 years of insurance industry experience and is currently managing partner of Loan Protector Insurance Services in Cleveland, Ohio. Loan Protector is a leading national provider of lender-placed insurance and insurance tracking services for both the forward and reverse mortgage industries. Swit is responsible for overseeing the company’s growth and client retention strategy and is actively involved in new business development, insurance tracking needs, analysis and program design.

19 | What’s Behind the Numbers? g Jack Belles co-founded Towne & Country Mortgage Services, Inc. in 1992. In 2002, the company changed its focus to reverse mortgage origination and took the name Reverse Mortgage of New England, expanding from Massachusetts to include Connecticut, New Hampshire, Rhode Island and Maine. Belles has more than 25 years of mortgage origination experience. 508.643.8180 jack@reverseanswers.com

B i l l T r ask

Ma r k Acchione

C har les Gress

23 | Everything I Need to Know I Learned in Kindergarten g Bill Trask is general counsel and executive vice president of Security One Lending. Trask has served the financial services industry for more than 16 years in both private practice and as general counsel to nationwide private mortgage banks. Prior to practicing law, Trask was vice president and general manager of a manufacturing subsidiary of a Fortune 500 company.

25 | MetLife Exits Stage Left g Mark Acchione is managing director of capital markets at One Reverse Mortgage, the nation’s largest retail-only provider of reverse mortgages. Acchione is responsible for capital market operations located in Detroit, Michigan.

27 | Competency: More Than Just Geographic g Charles Gress is a senior review appraiser at Toledo-based Martin + Wood Appraisal Group LTD. With 17 years of experience in the appraisal industry, Gress is involved in the attraction, education and retention of appraisers, having trained 30-plus in his time. Gress was the keynote moderator for the Collateral Risk Network in 2011.

Ralph Rosynek

Kim Schachinger

Dennis Swit

Jack D. Belles

Bill Trask

Mark Acchione

Charles Gress

| TRR

Report April 2012

Top Lenders Report

12345 MetLife Bank, N.A.

One Reverse Mortgage Endorsement

911

Lender

Endorsement

407

Genworth Financial

Endorsement

346

Endorsements

American Advisors Group

Urban Financial Group

Endorsement

293

Lender

281

Endorsements

SECURITY ONE LENDING

244

FIRSTBANK

GENERATION MORTGAGE COMPANY

207

MAS ASSOCIATES LLC

SUN WEST MORTGAGE CO INC

152

ATLANTIC BAY MORTGAGE GROUP

THE FIRST NATIONAL BANK

147

JAMES B NUTTER AND COMPANY

REVERSE MORTGAGE USA INC

UNITED NORTHERN MORTGAGE

GREENLIGHT FINANCIAL SERVICES

NATIONWIDE EQUITIES

NEW DAY FINANCIAL LLC

TOWNEBANK

CHERRY CREEK MORTGAGE CO INC

REVERSE MORTGAGE SOLUTIONS INC

SENIOR MORTGAGE BANKERS INC

STERLING SAVINGS BANK

ROYAL UNITED MORTGAGE LLC

HARVARD HOME MORTGAGE INC

MONEY HOUSE INC

FULTON BANK NATIONAL

PLAZA HOME MORTGAGE INC

CONTINENTAL HOME LOANS INC

OPEN MORTGAGE LLC

SIDUS FINANCIAL LLC

ASPIRE FINANCIAL INC

TOP FLITE FINANCIAL INC

M & T BANK

WHOLESALE CAPITAL CORP

MAVERICK FUNDING CORP

ASSOCIATED MORTGAGE BANKERS

GREAT OAK LENDING

SOUTHERN TRUST MORTGAGE LLC

NET EQUITY FINANCIAL INC

METRO ISLAND MORTGAGE INC

Trailing Twelve Month Endorsements

INDUSTRY SUMMARY Retail Endorsement Growth

-12.75%

10,000

Wholesale Endorsement Growth

8,000

-26.58%

6,000 4,000

Total Endorsement Growth

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

Wholesale *Numbers represent months

-19.25% *Figures above reflect change from prior month

RETAIL UNITS CHG%

WHOLESALE

TOTAL

UNITS CHG%

3,704 -17.96%

2,415 -13.29%

6,119 -16.18%

May 3,106 -16.14%

2,079 -13.91%

5,185 -15.26%

Jun

3,535 13.81%

2,322 11.69%

5,857 12.96%

Jul

3,352

-5.18%

2,159

-7.02%

5,511

Aug

3,705 10.53%

2,099

-2.78%

5,804

5.32%

Sep

3,612

-2.51%

1,972

-6.05%

5,584

-3.79%

Oct

3,032 -16.06%

1,612 -18.26%

Nov

2,675 -11.77%

1,978

22.7%

4,653

0.19%

Dec

2,676

0.04%

1,891

-4.4%

4,567

-1.85%

Jan

2,949

10.2%

2,212 16.98%

5,161 13.01%

Feb

2,870

-2.68%

2,547 15.14%

5,417

Mar

2,504 -12.75%

1,870 -26.58%

4,374 -19.25%

Apr

TOT

37,720

25,156

-5.91%

4,644 -16.83%

4.96%

62,876

reversereview.com

8 TRR

The Reverse Review June 2012

Contributors

Marty Bell

Jessica Linn

John LaRose

M A rt y B e l l

jessica linn

john lar ose

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

32 | a hecm hearing g Jessica Linn is the editor-in-chief of The Reverse Review. Prior to joining the magazine, Linn managed the marketing efforts for a commodity brokerage firm in the Chicago Board of Trade. She has worked on the editorial teams of Chicago Home & Garden, Chicago magazine and Time Out Chicago. Linn is a graduate of Boston University’s College of Communications and has a master’s degree in magazine publishing from Northwestern University.

38 | What Keeps Me Up At Night g John LaRose is the chief executive officer of Celink, the nation’s largest reverse mortgage subservicer. LaRose also serves on the Board of Directors of the National Reverse Mortgage Lenders Association and is the co-chair of its Compliance Subcommittee.

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

Number Here are some interesting facts

about reverse mortgages.

TX CA NY

1,337 units

953 units

818 units

The HECM Big Three New York has surpassed Florida as a leading state for HECM endorsements, taking third place behind longtime leaders California and Texas.

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

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

| TRR

$30 billion increase

Do you have what it takes?

In senior home equity from the fourth quarter of 2011, reaching a total of $3.22 trillion

rminsight.net/wp-content/uploads/2012/04/trends_201202.pdf NRMLA/Risk Span Reverse Mortgage Market Index (RMMI) report

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.

1/1/12

12/1/11

11/1/11

10/1/11

9/1/11

8/1/11

20%

16%

14%

12% $1,000.0

$800.0

$600.0

$400.0

$200.0

$0.0 4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/10

5/1/10

4/1/10

3/1/12

Reverse Market Insight - Logo

2/1/12

October 9, 2009

1/1/12

12/1/11

11/1/11

10/1/11

9/1/11

8/1/11

reversereview.com

2/1/12

1/1/12

12/1/11

11/1/11

10/1/11

9/1/11

8/1/11

7/1/11

$1,200.0

7/1/11

$1,400.0 6/1/11

$1,600.0

6/1/11

$1,800.0 5/1/11

Fixed

5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/10

5/1/10

4/1/10 ARM

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

3/1/10

{ FIGURE }

1/1/11

3/1/10

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 June 2012

Industry Update

June 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.

MetLife Bows Out In late April, MetLife announced its exit from the reverse mortgage business. While not easy to digest, the move was anticipated by players accustomed to the industry’s persistent evolution. The insurance provider announced the sale of its servicing portfolio to Texas-based Nationstar Mortgage, the same company that bought the rights to Bank of America’s reverse mortgage servicing last year. One of the largest mortgage servicers, Nationstar is backed by Fortress Investment Group, a New York-based hedge fund and private equity group. MetLife was once the largest reverse mortgage provider in the U.S. with 23 percent of the market in the first quarter of 2012. But banking operations generated less than 2 percent of MetLife’s total earnings and subjected the company to strict federal oversight. In an effort to refocus on its core purpose

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

as an insurance provider—and to free itself of regulatory burdens—MetLife began shedding its banking operations, selling its depository bank business to GE Capital in December and its warehouse finance unit to EverBank in February. MetLife’s exit has left industry participants poised to capture the market share that the company has left behind. Some are bracing themselves to handle the inevitable uptick in volume, while others are snatching up some of the 500 former MetLife staffers. Most players seem to view the exit as a great opportunity for more specialized lenders to get a bigger piece of the pie. However the events turn out, one thing is certain: The reverse mortgage business is here to stay, with or without big banks. With more and more baby boomers entering retirement every day, the demand for the product is greater than ever before. The exit of a leading player is a sad loss for the reverse community, but the industry will no doubt continue to thrive as a business dedicated to helping seniors achieve financial security.

// The Industry Reacts //

Pete Engelken CEO, Genworth Financial Home Equity Access “It’s unfortunate… but it does not change the fact that the HECM products are better than ever… The reverse mortgage industry has proven that when consumer demand exists, specialty lenders, brokers, community banks and credit unions will fill the gap.”

| TRR

gregg smith COO, One Reverse Mortgage

peter bell President and ceo, NRMLA

Michael Kent Senior vice president, RMS

Torrey Larson CEO, Security One Lending

Reza Jahangiri CEO, AMERICAN ADVISORS GROUP

“The industry should not experience a gap in production due to the departure of MetLife… One Reverse Mortgage expects to see an increase in our originations and welcomes the opportunity to educate potential clients on the benefits of the program.”

“The whole MetLife team made a major contribution to the culture of the industry and was generous with their time and support of NRMLA. We expect and look forward to those leaving MetLife to move elsewhere within the industry and continue to contribute.”

“MetLife is leaving behind about $150 million to $160 million a month in production. We have reached out to our clients with assurances that we can still provide the liquidity they need. I think it presents a lot of opportunity on the retail side.”

“The departure was long suspected, but it was still a shock… Privately held companies now have the advantage over the larger ‘branded’ firms, which is unique. This is the precise moment by which lenders can demonstrate their ability to manage capacity and growth.”

“Even though the departed companies had healthy reverse mortgage business channels, they didn’t generate enough revenue to offset the trend to refocus on more core lending strategies. Small to mid-sized public companies and institutionally backed private entities are now the primary liquidity sources for the program, which creates tremendous growth opportunities for AAG.”

Industry Update

headlining news 1. HUD TO SURVEY REVERSE MORTGAGE BORROWERS TO ANALYZE QUALITY OF COUNSELING

HUD has initiated efforts to survey reverse mortgage borrowers who have undergone counseling to determine the effectiveness of the program. The survey is expected to be distributed soon via mail or email, and the results are due June 18. A notice of the survey said that the feedback collected could be used to institute future policy changes. // April 19, 2012

2. ONE MILLION-PLUS

REALTORS NOW HAVE ACCESS TO REVERSE MORTGAGE EDUCATION COURSE

More than a million licensed Realtors now have access to a reverse mortgage continuing education course made available online by the National Association of Realtors (NAR). The course spans three hours and is available on the NAR’s Realtor University platform. It focuses on the reverse mortgage for purchase and how it can enable qualifying homeowners to eliminate mortgage payments. The course debunks reverse mortgage myths and explains what types of properties qualify for the loan. // May 1, 2012

3. GINNIE MAE TO “TRIAGE”

APPLICATION BACKLOG, APPROVE MORE LENDERS

Ginnie Mae President Ted Tozer said the agency is making a concerted effort to “triage” its application problem after discovering that about half of the lenders who have applied for issuance in the last year have not been approved. Speaking to a group of mortgage bankers, Tozer said the agency is beefing up its staff to tend to the issue, and plans to push best prospects through first. Of the 85 applicants in fiscal year 2011, 50 were either denied or withdrawn, Tozer said. Of the 35 approved, only 22 have issued securities. // May 7, 2012

4. SENATE SUBCOMMITTEE

APPROVES 2013 REVERSE MORTGAGE COUNSELING FUNDS

After a year of much debate regarding funding for reverse mortgage counseling, a Senate subcommittee has confirmed its vote to set aside counseling funds for 2013. The Senate Transportation, Housing and Urban Development (THUD) appropriations bill includes $55 million for housing counseling, including HECM counseling. Next, the bill will go to a full vote in front of the Senate. The House will submit its own appropriations bill. // April 23, 2012

5. REVERSE MORTGAGE HMBS VOLUME REBOUNDS

Ginnie Mae HMBS issuance is steadily rising after suffering a decline late last year, with the most recent monthly issuance totaling $882 million. At the end of 2011, issuance of GMNA pools fell to less than $600 million monthly, with November and December totaling $536 million and $599 million respectively. // April 18, 2012

6. CALIFORNIA REVERSE

MORTGAGE BILL NO LONGER REQUirES IN-PERSON COUNSELING

A California Assembly bill that previously required face-to-face counseling for potential reverse mortgage borrowers has been amended to make inperson counseling optional. Introduced by Assemblywoman Susan Bonilla (D-Calif), the bill was similar to one that was passed in Massachusetts and is set to take effect in August. Lenders and counselors have openly protested the stipulation, claiming that it will cause additional stress on borrowers, who mostly prefer phone conversations. // April 25, 2012

7. GINNIE MAE REQUIRES NEW

and details on whether the borrower is a first-time homebuyer. For FHA loans, issuers will have to disclose annual and upfront insurance premium amounts. // May 7, 2012

8. HOUSE GOP QUESTIONS CFPB SPENDING, STAFFING

Several member of Congress wrote a letter to CFPB Director Richard Cordray stating that the agency must openly account for its spending plans. The congressmen requested documentation on the agency’s financial plans and forecast, budget justifications and performance measures. The letter also challenged the CFPB’s plans to increase its staffing, asking that the agency submit a written outline of its hiring plan. // May 4, 2012

9. REVERSE MORTGAGE APPLICATIONS RISE BY 4 PERCENT IN MARCH

The number of reverse mortgage applications rose by 4 percent to 7,075 loans in March, according to data released by HUD. Despite this 280-loan increase, March applications year-overyear are down nearly 20 percent. Reverse mortgage applications have slowly increased in the beginning of 2012, but endorsements have fallen sharply and are expected to fall further. // April 30, 2012

10.

COSTCO OFFERS FORWARD MORTGAGE LENDING Retail giant Costco has announced its plan to enter the mortgage business. The company has partnered with First Choice and approximately 10 other lenders to offer Costco members premium pricing depending on their membership level. The company issued more than 10,000 mortgages under the program during a testing phase last year. // April 30, 2012

LOAN-LEVEL DATA FROM ISSUERS

Starting in September, issuers of GNMA mortgage-backed securities will require loan-level data for single-family loan pools. The new regulation does not include HMBS pools, although it does apply to all other GNMA MBS pools. GNMA said it will require information on whether the loan was originated by a mortgage broker or correspondent lender,

reversereview.com

8 TRR

| 11

The Reverse Review June 2012

THE HOT SEAT

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

the hot seat From her favorite book to her thoughts about the reverse space, we get the personal and professional facts from Kristen Sieffert, COO of Urban Financial Group, in our monthly edition of The Hot Seat.

| TRR

kristen PERSONAL

Urban Financial Group Coo

You can’t always be No. 1, but you can always do your best while making those around you better.

My favorite vacation was in Costa Rica in 2008. There was no Wi-Fi and I had no cell service. It was the only time I actually disengaged from work for a full week and it was amazing.

My celebrity crush is Alexander Skarsgard.

If I were a professional athlete, I would be a top-ranked golfer. (Unfortunately, I have no golf skills whatsoever.)

My favorite movie is Eternal Sunshine of the Spotless Mind.

My favorite website is a tossup between ted.com/talks and anything that has to do with online shopping.

I never miss an episode of House of Lies.

I can’t go without sunshine. > Every morning I wake up and wish I had energy to go for a run. Instead I have coffee and get to work. Just add > I can’t go without sunshine. Just add sun and I am a happy camper. sun and I am a happy > When I was a kid I was a major girly girl. I would only wear dresses and was obsessed with My Little Ponies. camper. >

When I was younger I wanted to be a lawyer, because we don’t have enough of those running around.

I’ll never forget finishing dinner in Venice with my husband on our fourth wedding anniversary and walking into St. Mark’s Square to a sea of people. We discovered Elton John was having a concert in the square that evening, and he started with our first dance wedding song, “Your Song.” It was a pretty incredible evening.

My first job was working at What’s the Scoop yogurt shop with my best friend at the time. I am fairly certain we ate more yogurt than we actually sold.

My parents taught me life without problems is like school without classes. You don’t learn your lesson.

My music go-to is on Pandora. Right now my favorite Pandora station is based on the song “Home” by Edward Sharpe & The Magnetic Zeros.

My favorite book is The Fountainhead by Ayn Rand.

PROFESSIONAL >

FUN FACT

her favorite book is fountainhead by ayn rand

I am optimistic about the reverse mortgage industry because we have a lot of entrepreneurial companies doing some really great things to help continue our growth despite the many setbacks we have all faced.

I entered this industry because of the unique opportunity to enter a niche industry and have the ability at a young age to learn, grow and make a positive impact. (And let’s not forget the fact that one of my closest friends, Kim Smith, offered me the chance to work with her!)

Reverse mortgage professionals can best support the public image of reverse mortgages by continuing to do the right thing for the senior while complying with the rules and regulations that govern our space. It only takes one bad story to tarnish people’s perception of what we do.

reversereview.com

8 TRR

| 13

AMeRicAâ&#x20AC;&#x2122;S ReveRSe TiTLe.

The Reverse Review June 2012

ouR NAMe SAyS iT ALL.

For more information, contact Bob Beverly, National Sales Director at: 14

| TRR

727.481.3626 email rbeverly@amrevtitle.com web www.amrevtitle.com direct

Proud member of NRMLA

Assess

Underwriting

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

Q: “I have a borrower who owned 39

acres of land and gave 10 acres of that land to his daughter as a wedding gift. However, the legal description of the land includes the 10 acres because the parents also pay the taxes as part of the gift. Should we have the borrower tell the appraiser to just include 29 in the appraisal? Based upon the size of the parcel, is this a loan you will purchase?”

As an industry, we have come to realize that flexibility and change are constant. To further illustrate the fact that training and education need to be a focus for the industry, I am inviting you to take the time to put yourself in the role of the underwriter. Take a second look at the above scenario and send us your feedback as to what questions or additional information would be required to address the situation. Be brutal, be thorough, be honest and most of all, be mindful you could have five or six of these same or similar scenarios pop up every day in addition to an underwriter’s regular work. How would you handle this question without support?

spotlight

As new originators and lenders continue to enter the reverse mortgage space, will the lack of available training lead to poorly originated and processed files? Will underwriters then have to be trained in how to deal with substandard files? A growing concern

For example, consider the following question recently pulled from my inbox:

appraising

And now we face a new concern. With the recent exit of some major banks from the reverse mortgage space, where will the needed training, support and opportunities for increasing HECM skills and knowledge come from? Traditionally, these institutions spent considerable dollars and time investing in training large numbers of originators and support staff as a part of their customer-building efforts.

In addition to the FHA Resource Center, HECM guidelines and Mortgagee Letters, some lenders have customer support and service desks, published manuals and matrices, and various FAQ documents to address scenario issues. Despite all of these resources, a quick phone call or email to the underwriter appears to be the most convenient mode utilized by many to instantly access knowledge and support.

secondary market

oday’s underwriters are challenged by the need to create a pleasing “customer experience.” On top of this, HUD guideline interpretation, the ever-changing landscape of risk management and increased regulatory compliance are also nagging issues that we encounter every day.

Scenario resolution begs the question: Does the role of the underwriter include building the skills and knowledge of the inquirer and doing the research?

legal

Ra l p h Ros y nek

The scenario proposed often requires the originator or processor to be familiar with many different aspects of the borrower’s eligibility and property. There is a certain skill involved in learning how to acquire these facts, and that is learned through basic and ongoing training, education and experience. Should this knowledge be lacking, a processor or originator would not be able to properly handle an unusual or difficult question from the underwriter. What would the underwriter do if their support team were not trained to ask the borrower the appropriate second round of questions?

originating

Wanted: Trainer, Educator, Underwriter

Consider the classic scenario-inquiry format. Seeking advice and direction for a borrower scenario is a very common origination activity. The ability to weigh the facts with a lender at an early stage of pre-qualification is sometimes key to successfully meeting the needs of the borrower.

The scenario is frightening, to say the least. Would an underwriter be better off just saying no? That response would hardly lend itself to a quality customer experience. Unfortunately, the appropriate answer to this question will probably require a number of back-and-forth communications in order to formulate an informed opinion.

underwriting

among underwriters is the possibility that we will have to undergo even more basic training to learn to handle flailing support for file submission and delivery. This could very well happen if the remaining industry participants don’t make education and training efforts a priority.

Email your response to info@ reversereview.com and let’s see where this scenario leads us. We look forward to reading your input! x reversereview.com

8 TRR

| 15

The Reverse Review June 2012

analyze

originating

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

Reverse Mortgages Making Headlines Kim S chaching e r

pproximately 10,000 Americans turn 62 every day, according to U.S. Census reports. Due to the growing senior population, reverse mortgages are becoming an increasingly popular option for seniors concerned with having a comfortable retirement.

In the News Five years ago, a reverse mortgage was viewed as a last-chance mortgage to help seniors avoid losing their homes; the industry was viewed as a villain preying on vulnerable seniors. The truth of the matter is reverse mortgages are used for a multitude of reasons by seniors in a variety of circumstances. They aren’t for everyone, but they can provide financial flexibility for seniors who want to improve their financial situations after retirement.

Going to the source 16

| TRR

Recently, The Today Show highlighted the pros and cons of a reverse mortgage. The financial editor for The Today Show, Jean Chatzky, illustrated how a reverse mortgage can be an excellent tool. It becomes an extra source of income and can alleviate a senior’s concerns about being able to afford to stay in their home. In fact, with a reverse mortgage, a senior can stay in their home until they pass away or move out. “Even if a senior drains all the equity from their home, they can still stay in their home and cannot be forced to move,” Chatzky said. “The only stipulation is they must maintain the property and stay current with taxes and insurance.” Reverse mortgages also made headlines recently in The San Diego Business Journal. In the article, One Reverse Mortgage (ORM), a Quicken Loans Company and the company I work for, was highlighted as a business growing and expanding with

the demand in the industry. The article also highlighted ORM’s ranking in the industry as second, a spot it took over when Wells Fargo ended its reverse mortgage program. Another recent article about reverse mortgages was a New York Times story that discussed senior celebrity spokespeople in reverse mortgage advertising. Although some may look at this practice as a marketing gimmick, consumer studies indicate that seniors view these spokespeople as trustworthy and close to their own age. A celebrity spokesman might assure potential clients that the product is on the up and up.

Reasons for the Growth There are many factors for growth in the reverse mortgage industry. The main factor is simply that more and more American homeowners age 62 and older have financial needs that

There are many factors for growth in the reverse mortgage industry. The main factor is simply that more and more American homeowners age 62 and older have financial needs that their current retirement funds may not be able to satisfy. It is no secret that for many, retirement savings have significantly reduced in value over the past several years.

originating

I mprovement of quality of life g One of the benefits of a reverse mortgage is that it gives seniors financial freedom. With a reverse mortgage, any current mortgage is eliminated. Now, instead of worrying about paying monthly mortgage payments, seniors can enjoy things such as dining out and nights out on the town. Payment of hospital or medical bills g More and more Americans are going into debt because of medical bills. Never before has the cost of medical coverage been so high. Many seniors rely on Medicare, but the reality is that

Regardless of the anticipated growth, it’s important not to lose sight of the ultimate goal: the ability to give senior homeowners financial flexibility so they can comfortably retire and remain in their own homes. In this industry, there is no greater satisfaction than helping seniors do what they thought was impossible. x

spotlight

Top five reasons people are getting a reverse mortgage:

As more homeowners continue to reach the qualifying age of 62, many will continue to look for ways to augment their retirement income. According to HUD, more than 73,000 reverse mortgages were originated last year, about 12 times the number originated in 2000. According to the U.S. Census Administration on Aging, people 60 and older will constitute 25 percent of the U.S. population by 2050. This projected growth in the senior demographic will naturally equate to continued growth of the reverse mortgage industry.

appraising

3 T he money received from a reverse mortgage is tax free; it can be used for anything and it doesn’t affect Social Security benefits.

No End in Sight for Growth

For one, lenderplaced insurance carriers do not require an inspection of the property prior to the placement of coverage; and two, 99.9 percent of all properties are accepted and insurable under a lender-placed insurance program (except for those with pre-existing damage or those condemned by a governmental entity). Lastly, many homes insured by lender-placed insurance eventually end up as foreclosed properties and experience damage at some point during the foreclosure process. The rates charged for lenderplaced insurance need to be adequate enough to absorb losses as a result of unforeseen risks and the losses associated with foreclosure activity.

secondary market

3 A senior can qualify for a reverse mortgage even if they currently have a mortgage on their home.

Travel g Funds from a reverse mortgage give seniors a chance to take a dream vacation. Many seniors choose to take the proceeds from their reverse mortgage to visit family that live far away.

Why does lenderplaced insurance cost more than homeowner’s insurance?

legal

3 Qualifying for a reverse mortgage is much easier than a traditional mortgage because a reverse mortgage does not require credit and income information.

originating

Additional facts include:

Pay off debt g According to CNN Money, people 65 and older are carrying on average of $10,235 in credit card debt alone. Reverse mortgages provide the funds needed for seniors to pay down debt or eliminate debt completely.

underwriting

Home improvements g Seniors are hesitant to make home improvements while living on a fixed income. With a reverse mortgage, seniors are able to afford a new roof or remodel a bathroom or their kitchen.

There are also many seniors who don’t know all the facts about what a reverse mortgage can do for them. Many seniors don’t realize that they still own their home with a reverse mortgage and in no way will they owe more than their home is worth. A reverse mortgage is a nonrecourse loan, meaning the lender cannot demand a larger amount than the value of the home.

Medicare only covers a percentage of the total cost of medical expenses. On average, Medicare beneficiaries age 65 to 74 spend $2,920 a year in out-of-pocket expenses. The out-of-pocket costs only increase over time, potentially reaching $4,600 by the time seniors reach the age of 85. By then, that cost can eat up 30 percent of a senior’s income.

their current retirement funds may not be able to satisfy. It is no secret that for many, retirement savings have significantly reduced in value over the past several years. A reverse mortgage can allow seniors 62 and older to utilize tax-free cash for anything while continuing to live in their homes without monthly mortgage payments.

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

reversereview.com

8 TRR

| 17

The Reverse Review June 2012

Your direct path to growth in the

Reverse Mortgage market.

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 18

| TRR

RMsnAv.com

originating Want to see new stories like this? Visit reversereview.com.

What’s Behind the Numbers? Jack D . Be l l es

legal secondary market

appraised for four to five years ago or what they were offered for their house at that time, the reality is, that was then and this is now.

But the fact is, a lagging economy has ramifications. I have a number of potential and existing clients who live in multigenerational households. In these cases, the seniors’ children have moved back home, often with their own children in tow. Job loss, foreclosure, divorce and illness are just some of the factors that can

I currently have one such client, who is living in a multigenerational household and discussing the possibility of a reverse mortgage. He is looking to pay off his existing mortgage to free up monthly cash flow, open up a line of credit and come up with a way to avoid leaving debt for his heirs. Unfortunately, not all of these goals can be accomplished simultaneously. The best thing to do is get all of the involved parties together to discuss the options. Maybe a reverse mortgage is a short-term solution. Maybe it is a long-term solution. Or maybe the answer is to do nothing at the present time to see if the situation changes. 8

spotlight

The realization that such a large asset, which kept increasing in value for so many years, has now stalled or greatly depreciated is unnerving to a generation of people who thought that their future would be much different than the reality they are now facing.

lead to this less-than-optimal living arrangement.

appraising

I believe the reduction in HECM endorsement numbers is largely due to our present economic state and uncertainty about the future. A recent headline in The Wall Street Journal read, “Economic Reports Fan Fears: Dimmer Jobs Picture and Sluggish Home Sales Cast Doubt on Recovery.” Long gone are the days of preparing an amortization schedule with a 4 percent home value growth rate. Although many of our clients want you to know what their house

originating

With 25 years of mortgage origination experience, 10 of which are in reverse, I have never before observed a time when those people who should be signing up for this program are not. I speak with people every day who would benefit tremendously from this program, but for some reason, they are holding off. There seems to be something keeping a large number of potential clients from moving forward with the process.

underwriting

ith HECM endorsement volume down 27 percent from last year, the industry seems to be at a loss for answers to why this is happening. Is it the exit of Wells Fargo, Bank of America and just recently, the exit of MetLife? Is it the economic times and uncertainty about the future? Is it Dodd-Frank, appraisal management companies, appraised values, counseling issues or something else?

Accor din g to jack

I have never before observed a time when those people who should be signing up for this program are not. I speak with people every day who would benefit tremendously from this program, but for some reason, they are holding off. There seems to be something keeping a large number of potential clients from moving forward with the process. reversereview.com

8 TRR

| 19

The Reverse Review June 2012

To Move Forward, Work In Reverse Join a winning team in a growing industry

To learn more about becoming a reverse mortgage advisor, scan the image below or visit

www.genworth.com

© 2012 Genworth Financial Home Equity Access, Inc. 10951 White Rock Road, Suite 200, Rancho Cordova, CA 95670 • NMLS # 3313 | TRR (800) 218-1415 • For a complete list of licenses, visit: www.genworth.com/reverse/licenses W-030612

originating

The HECM Saver There is one specific product that might spur endorsement volume: the HECM Saver. The potential market for this program is tremendous. I believe that, as we continue to promote and market this product, more and more seniors will turn to it as a viable option to help them age in place.

I understand the firewall and the reason it has been put in place. But the facts were not diligently reviewed and in the end the loser was the reverse mortgage applicant who was turned down.

spotlight

As an industry, one of our primary tasks is to manage expectations in regard to the current value of a client’s

Case in point: Recently, all of our data reflected that the appraised value of a particular property should

appraising

Managing Expectations

secondary market

I firmly believe that when we as an industry get the word out about this program, more and more seniors will turn to the Saver in order to age comfortably in their homes.

In fairness, I must admit that there are a lot of knowledgeable appraisal companies and great appraisers out there who know a lot more than I do when it comes to appraising. Still, I believe that the rebuttal process for low appraisal values needs to be dramatically improved.

There is one specific product that might spur endorsement volume: the HECM Saver. The potential market for this program is tremendous. I believe that, as we continue to promote and market this product, more and more seniors will turn to it as a viable option to help them age in place.

You know how the rest of story goes. We spent a tremendous amount of time doing additional research after the appraisal had come in much lower than we anticipated. The lower appraised value was not going to give the borrower enough money to pay off his existing loan. We submitted volumes of data in the rebuttal. We waited 48 hours, only to have the appraiser come back and say, through the management company, that he disagreed. If the appraiser uses sales that are more than 6 months old and you can provide newer comparable sales that are closer in proximity, there should be an avenue to challenge these findings other than the system that is currently in place.

legal

They had agreed to give me a few minutes of their time, but I was there for two hours. Eventually, I will write this loan, but first their son must approve.

Accor ding to jack

originating

This couple wanted to stay in their home for two more years. The goal was to get cash-flow relief for those two years and then downsize. With no upfront mortgage insurance, the HECM Saver was the perfect fit. The financed closing costs were $4,000. If the financed closing costs were $4,000 and you could reduce annual cash outflow by $34,800 in the first year of the loan ($69,600 in the first two years of the loan), and have a line of credit of $55,000, wouldn’t you proceed?

It is imperative to your success to do your homework before meeting with a potential client. Nothing is worse than asking the client what the value of his home is, drawing up paperwork at that value and then going through the process, only to find out that had you investigated the three to five most recent comparable sales, you could have managed your client’s expectations right from the beginning. By printing out the comparable sales to show the client what similar houses in their area are selling for, you can make the expected home value in today’s market clear from the outset. I believe it is always better to objectively estimate the value ahead of time rather than deal with a disappointed borrower after the facts become evident.

underwriting

Last week, I met with a couple referred to me by a CPA. The couple’s son warned them against a reverse mortgage. They decided that, since their CPA of 25 years told them to at least speak with me, they should give me a few minutes to explain the program. The market value of their home was about $450,000. The mortgage balance was $130,000 and they had $35,000 in credit card debt. The total monthly payments on the mortgage and the credit cards are $2,900, or $34,800 per year.

come in somewhere between $275,000 and $290,000. This was based on data collected from similar sales that occurred within the last six months.

property. Remember when I mentioned how clients often want to discuss the home’s value from years past? Don’t fall into that trap.

I believe that there is still tremendous opportunity in this business. It is more important than ever to adjust the sails to maximize the headwinds we face. Change seems to be the only constant. Do your homework, work smart and keep the faith! x

reversereview.com

8 TRR

| 21

The Reverse Review June 2012

Put Your Career on Track

• Continuing Education for FPAs and RE Agents • Credit Union Partner Program • Quality Branded Marketing Materials

• President’s Club - Earn Stock in S1L • Top Compensation Plan • National Spokesperson – Pat Boone

“At Security One Lending our Success is Measured by your Success.”

| TRR

learn

legal

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

All I Really Need to Know I Learned in Kindergarten B ill T rask

The examiner has a job to do and providing him with what he needs

A ccording to bi ll

Play fair. In other words, give the examiner what he asks for... Help him follow along with each file’s story by including all the necessary documents and removing the distractions.

spotlight

2 2 2 2 Play fair. In other words, give the examiner what he asks for. Of course, you want to spend some time in your files understanding if there are issues and clearing out unrelated or unnecessary documents. As we noted in last month’s article, everything an examiner knows about a file comes from its documents. Help him follow along with each file’s story by including all the necessary documents and removing the distractions.

2 2 2 2 2 Say you’re sorry when you hurt somebody. No lender follows every rule perfectly every time. Eventually, an issue will arise. When it does, re-emphasize that you want to comply with the rules, you make a genuine effort to comply with the rules (assuming you can prove that) and you will make the necessary changes to better comply with the rules in the future.

appraising

2 2 Share everything. During an on-site examination, the examiner needs a workspace—usually a phone and desk will do. Some use laptops and will ask for an additional monitor for viewing files if you provide them

2 2 2 Warm cookies and cold milk are good for you. When the examiner arrives, show him where he can get coffee, water or snacks; how to get to the restroom; and ask if he needs anything else. If he provided a list of documents or an officer’s questionnaire beforehand, have those items ready when he arrives.

will shorten the examination process, build confidence in you as a knowledgeable, honest professional, and let him know that he will receive the level of transparency necessary to complete the examination.

secondary market

Hopefully, you’ve considered the health of your compliance system before today. The number of rules in the mortgage lending world has increased to rush-hour traffic proportions. Look both ways before you cross the street. If not, you will need to fall back on another one of Fulghum’s truisms: Clean up your own mess. Shore up your compliance efforts today and make sure you apply the appropriate resources to the task. If you need help, ask for it. A simple Web search or a phone call to a colleague will turn up a number of good compliance experts.

in an electronic format. Have the space ready when the examiner arrives. I prefer a space near my office, but away from production and operations.

legal

world, watch for traffic.

originating

2 When you go out into the

underwriting

obert Fulghum recently released the 15th anniversary edition of his book All I Really Need to Know I Learned in Kindergarten. The book‘s longevity is due to one simple fact: It’s true. This might not be the first place you look for guidance when tomorrow at 9 a.m. an examiner from the Department of Financial Institutions will be sitting in your office looking at loan files, but I recommend you come along and listen to what we learned as 5-year-olds.

Fulghum has a few other bits of advice from our early years. In or out of the examination context, they make life a little easier if we follow them: Don’t hit people. Put things back where you found them. Don’t take things that aren’t yours. Wash your hands before you eat. Flush. Learn some and think some and draw and paint and sing and dance and play and work every day some. Take a nap every afternoon. Hold hands and stick together. Be aware of wonder. x

reversereview.com

8 TRR

| 23

The Reverse Review June 2012

| TRR

HMBS

secondary market

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

According to mark history has taught us that our product is extraordinarily underwriting

resilient and will prevail under the harshest of conditions.

originating legal secondary market

appraising

MetLife Exits Stage Left S Ma rk Acchione

In the hours, days and weeks after Bank of America announced its exit, fixed spreads gapped out to a historical wide for the prevailing coupon, liquidity became temporarily scarce and end buyers ignored relative value and priced in the unknown. As reality set

in, secondary activity recovered and the dust settled, slowly but surely.

The shock factor that followed just a few months later as Wells Fargo publicized its exit paled in comparison. The market responded to the withdrawal of the industry’s top originator/ issuer with little fanfare and a temporary pop in spreads, followed by an immediate correction. Then it was business as usual. And now, as MetLife exits stage left, the market remains relatively unchanged. As I’m writing this, it’s been days since

MetLife’s announcement and pools are trading normally and in line with weeks prior.

So what’s next? Who becomes the beneficiary to the 30 percent-plus HMBS market share MetLife left behind? Urban Financial and RMS, whose aggregate share of February HMBS issuance totaled 48 percent, will likely make an aggressive move to capture the remnant pieces. Generation and Sunwest will naturally increase their shares. Additionally, growing participation in the HMBS space becomes more

important as the industry is handed back to the true specialty mortgage banker. Newly approved issuers and those in line for approval will help fill the gap left by the last of the big banks, supporting a healthy, well-balanced market.

spotlight

umming up the secondary market days after the highest volume issuer calls it quits is a daunting task. But history has taught us that our product is extraordinarily resilient and will prevail under the harshest of conditions.

Once again, the program has proved its resiliency. And with or without hearty bank participation, the HECM story remains unchanged. When the dust settles, those who have positioned themselves properly will come out on the other side stronger than ever. x reversereview.com

8 TRR

| 25

m WE knoW The Reverse Review June 2012

ReveRse

a 1 out of every 5 reverse mortgage

appraisals is completed by Landmark.

a Voted the #1 AMC by Reverse Mortgage Daily readers

a The only AMC to be an active member a Customized policies and procedures to

At Landmark, we understand that senior clients are very special and deserve to be treated as such. It is because of our deep understanding of the industry and its clientele that we are able to provide custom solutions that match their needs.

a Approved with more reverse wholesale

Try Landmark Today and see our experTise aT work.

of NRMLA

better serve the senior community

lenders than any other AMC.

a Our staff is knowledgeable and trained to understand the entire reverse mortgage process.

2012 Landmark Network, Inc. The Landmark Logo is a trademark of Landmark Network, Inc. and its related entities. All | TRR 26ÂŠrights reserved.

888.272.1214

landmarknetwork.com

value

appraising

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

“As market values began to decline nationwide, some folks who stood to gain financially on the closing of a loan started looking into where the appraiser was located when the appraisal did not “make value.”

8 TRR

spotlight

reversereview.com

appraising

Since the market began its downward spiral in 2008, appraisers everywhere have seen this scenario happen more and more often. Before the

I suggest that AMCs reach out to their panels and ask appraisers to send in samples of their highend, unique property estimates so they can determine whether or not an appraiser is competent. Based on the review of the samples, AMCs can make an informed decision as to whether or not to engage a certain appraiser for a particular assignment. This way, next time the lender client has an assignment with a high-dollar loan amount, the competent appraiser can be engaged. AMCs and staff firms that want to ensure they’re engaging the best appraiser should move away from basing assignment decisions solely on geographic competency and seek to better understand an appraiser’s abilities in a comprehensive fashion. This is the only way to ensure the best appraiser is selected. Let’s face it: Competency outweighs geography. x

secondary market

competent to complete a report based on his proximity to the subject. So under this premise, if I am an appraiser who just started a new career in San Francisco and knows nothing about that market, I am assigned an order just because my new office address is within the geographic limits. What’s wrong with this picture?

legal

ompetency under Uniform Standards of Professional Appraisal Practice (USPAP) is very clear. It says an appraiser must: ( 1) be competent to perform the assignment; (2) acquire the necessary competency to perform the assignment; or (3) decline or withdraw from the assignment. Instead of making this determination the appraiser’s responsibility as USPAP intended, some AMCs are taking it upon themselves to decide whether or not an appraiser is geographically

originating

C ha rl es G ress

I would like to see AMCs dig deeper to understand the credentials of their appraisers. I think a thorough analysis based on more than just geography would be a better method to gauge who is capable of appraising certain property types. This type of granular-level vetting could greatly enhance an AMC’s ability to provide accurate estimates for its clients. Knowing which appraiser is best suited to perform an appraisal on a million-dollar-plus property is truly a step in the right direction. You could have 20 appraisers who, based on the current system, are geographically competent to complete the assignment, but how do you know if they are

competent to complete a high-dollar subject? How many have they done? Maybe they are great at doing 1,500-square-foot ranches, but have they ever done a 5,000-square-foot mansion?

underwriting

Competency: More Than Just Geographic

meltdown, nobody cared about where we came from, geographic competency or familiarity with the market. Scrutiny was minimal and most appraisals were accepted without issue. But as market values began to decline nationwide, some folks who stood to gain financially on the closing of a loan started looking into where the appraiser was located when the appraisal did not “make value.”

| 27

The Reverse Review June 2012

spotlight article HERE’S AN INSIDE LOOK AT THE NATIONAL REVERSE

june

MORTGAGE lenders ASSOCIATION.

on editi

marty bell nrmla

ou might compare NRMLA to a reverse mortgage. As the industry’s trade association, our mission is to provide our primary constituency, our members, with the security and the peace of mind that enables them to function best. But in order to accomplish that we need to deal with three additional constituencies: the government, both federal and state; the press, both local and national; and consumers, both seniors and their families. Serving each constituency can require its own set of skills, strategic approach and a whole lot of studying. At times it can feel like finals week at college, when you never have enough time to do all you want to but you have to get it done anyway. At others, it feels like you’re on a runaway stagecoach with an edgy team of horses that keeps hearing gunshots and starts to run wild, only to be calmed down again—but just temporarily.

A Typical Week at NRMLA

This month’s Spotlight features A LOOK AT THE PEOPLE BEHIND NRMLA.

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

As the reverse mortgage

industry’s trade association, NRMLA has a pivotal role in protecting the interests of its members. Senior Vice President Marty Bell walks us through the association’s day-to-day operations.

We need to deal with three additional constituencies: the government, both federal and state; the press, both local and national; and consumers, both seniors and their families. 28

| TRR

Peter Bell, the president and CEO, is in the office for part of Monday, racing to get things organized before he heads out for the rest of the week to meet with legislators on pending reverse mortgage legislation in Boston and Sacramento. He’ll participate in our weekly update call with Rasky Baerlein Strategic Communications, reviewing recent press coverage and next steps for our public affairs campaign; sit down with the staff to review the evolving agenda for our upcoming Western Regional Conference in Irvine; touch base with our registered lobbyists, David Horne and Melody Fennel, on our effort to get the HECM volume cap removed by the House Financial Services Committee; speak with members on pending legislative issues; perhaps conduct one of our monthly board meetings; and give half a dozen interviews in response to press queries. Peter grew up on Long Island, studied history at Hiram College in Ohio, and then came to Washington in the mid-’70s, where he worked as a paralegal at a law firm that represented the housing industry. When that industry decided it needed a trade association, it brought on Peter to organize it, and 35 years later, he’s still running it. In 1997, he was approached by Jeff Taylor of Wendover Consultants and Pat McEnerney, who were seeking advocacy in the nation’s capital 8

spotlight article accordin g to marty

8 TRR

| 29

spotlight

reversereview.com

appraising

Prior to Steve’s arrival at NRMLA in March of 2010, the committee operated with less discipline. 8

secondary market

On Wednesday, he flies to San Francisco and drives to Sacramento to meet with the staff of Assemblywoman Susan Bonilla of California’s 11th district, located halfway between San Francisco and the state capital. At the urging of the California Senior Legislature, a voluntary group that meets annually to recommend action to elected officials, Bonilla has written a bill now in the Assembly that also requires face-to-face counseling. Peter will argue for an opt-out clause for those who cannot get to counseling offices, which Bonilla will eventually add to her bill. Along the way, in airport lounges, hotel rooms and even the jazz clubs he likes to frequent in his spare time, he’ll be writing his column for a new issue of Reverse Mortgage magazine

Meanwhile, back in our maze of an office 10 blocks from the White House up 16th Street, Steve Irwin, our executive vice president, runs the day-to-day operations and, though a staff this small requires that everyone is involved in everything, he focuses largely on convening NRMLA’s nine committees to deal with policy and intra-industry issues. Steve grew up in various cities around the country, did his undergrad work at Grinnell College in Iowa, earned an MBA from the University of San Francisco’s MacLaren School of Business and promoted events in New York rock clubs. He has spent the past 17 years in the reverse mortgage industry, and served as the first vice president of servicing operations at Financial Freedom Senior Funding Corporation when it was the largest company in the industry. Not many people have as comprehensive a picture of the details of the reverse mortgage rules, delivery process and borrower experience as does the former head of the servicing department for the industry’s largest lender.

legal

On Monday night Peter heads to Boston where our local lobbyist from the Rasky office, Jeff Terrey, will usher him, board member George Downey and Independent Certification Committee Chairman Brett Kirkpatrick to meetings in the State House on Tuesday. There they will meet with state regulators to argue that the state simply does not have the bandwidth to require face-to-face counseling of all potential borrowers, a provision in a law passed in 2010 and due to be implemented this August.

or his blog; participating in conference calls with committee members; rounding up speakers for upcoming conferences; arranging future events with our conference planner, Sarah Aaronson; and leading our weekly Friday call with the six executive committee members and staff.

originating

Our member website, nrmlaonline.org, continues to be a source of information on all industry developments for reverse mortgage professionals.

Having dealt with seven presidential administrations and 10 HUD secretaries, Peter provides strategic overview, coordinating activities and advocating policies for the membership on Capitol Hill, dealing with the regulators in Washington, D.C., as well as lawmakers in various state capitals. He has described his job as “explaining how government works to our members and how our industry works to government.” When searching through 15 years of NRMLA archives and the history of the HECM program, it is apparent that this association has been involved in each and every change to the statute since its inception and has been key to the development of many necessary regulations.

“There are many things we have had to fight for,” says Bell, “and many others we have had to fight against. But I think our track record is almost perfect in both instances.”

underwriting

When [the housing] industry decided it needed a trade association, it brought on Peter to organize it, and 35 years later, he’s still running it… At the time, the HECM was still a demonstration program for HUD that was not made permanent until the following year. One of the first things Peter explained to his visitors was that to be taken seriously in Washington, an organization that sold to consumers— particularly to a protected class— needed a code of conduct that all members agreed to adhere to and that served as the association’s rallying point. With that set in motion, Peter, who already had more than 20 years of experience working with HUD, corralled the industry participants together to form NRMLA, which began with 17 member companies and grew to 32 by 2001, 63 by 2002. It now has 320 member companies.

for the fledgling reverse mortgage industry. At the time, the HECM was still a demonstration program for HUD that was not made permanent until the following year. One of the first things Peter explained to his visitors was that to be taken seriously in Washington, an organization that sold to consumers— particularly to a protected class—needed a code of conduct that all members agreed to adhere to and that served as the association’s rallying point. With that set in motion, Peter, who already had more than 20 years of experience working with HUD, corralled the industry participants together to form NRMLA, which began with 17 member companies and grew to 32 by 2001, 63 by 2002. It now has 320 member companies.

The Reverse Review June 2012

spotlight article But he has provided a strong sense of organization and management and a great deal of output. In a week, he may meet with the HUD Issues Committee and draft a letter to HUD on the committee’s behalf, urging the removal of restrictions on seller concessions on HECMs for Purchase; meet with the Risk and Compliance Committee to review recommendations on Mortgage Origination Exam Guidelines to the new CFPB; push the effort of a new data collection working group; begin to pull together a new committee of HMBS issuers; and attend an MBA conference across town. Being the most tech-savvy of us all, he has also taken on the lion’s share of responsibility for implementing our new, complex and versatile contact management system.

and searching for inaccurate or cranky reporting. As senior vice president of communications and marketing, I take on the day-to-day responsibility of managing our public affairs campaign and talk regularly with Larry Rasky, Dave Tamasi and the rest of the team at Rasky Baerlein. We have a meeting with both of our staffs each Monday to review our ongoing agenda, and I also speak with them nearly every day to make sure we are responding promptly to any negative press as well as finding opportunities to spread the story from our point of view. Since we engaged the Rasky team and assumed a “war room” approach to press more than a year ago, there seems to be a noticeable shift in the overall attitude toward our product and our industry.

In the office next to Steve, Darryl Hicks is on the phone answering questions from members or consumers who submitted queries to our consumer website, reversemortgage.org. Darryl’s title may be vice president of communications, but he’s really our utility infielder, skillfully playing whatever position he’s needed to fill on any given day. Darryl hails from Lancaster, Pennsylvania, and covered the political and regulatory scene for National Mortgage News. He was one of only a handful of reporters who covered the reverse mortgage business before he joined the NRMLA staff in 1999. He takes on most of the responsibility of writing our weekly reports and member alerts when news is breaking and contributes stories to most issues of the magazine. Darryl takes the lead on coordinating the Certified Reverse Mortgage Professional designation program and convening the Independent Certification Committee that administers it; works with the rest of us to plan agendas, round up speakers, organize preparatory phone calls and prepare materials for our conferences; and devotes a good deal of time to member development and servicing members’ requests for assistance.

Coincidently, I grew up on Long Island like Peter and spent most of my adult life in Manhattan, working as an editor and reporter at Sport magazine and New Times before I got derailed for 25 years and produced shows on Broadway. Politics was always my third passion, and when Peter offered me the chance to begin Act III of my career, I relocated to this tree-filled park of a city. In addition to managing the public affairs campaign and fielding interview and information requests from the press, my plate-load includes editing Reverse Mortgage magazine, marketing all of our conferences and any other products, writing the text for and supervising development of the new consumer website, and organizing and editing all the material for our consumer-oriented “Borrow with Confidence” campaign.

I arrive each morning and go right to the day’s news clips that we receive from various sources, measuring the current temperature of our industry 30

| TRR

Backing all of us up with constant support is our Operations Department— or the Fabulous Four—under the guidance of Chief Financial Officer Patty Winter and including Director of Financial Services Violet Arthur, Director of Membership Services Linda Latimore and Operations Specialist Jeri Greaves, whose domains cover all financial issues including budgeting and accounting, membership matters and event registration.

What’s Ahead As the industry’s advocate, NRMLA works with federal and local government officials on legislation and regulation to continually review the financial product and the methods by which it is marketed and presented. We view our responsibility as winning trust for the entire industry. But individual relationships can only go so far. One bad news story about anything that can be interpreted as financially abusive or even misleading affects all of our members.

th Here is our yea is legislative agenda agenr’s da for this year: We will continue our effort to eliminate the volume cap or obtain an extension on its current suspension. The original 1987 statute calling for a reverse mortgage demonstration program contained a volume cap of 2,500 loans. Within two years, that was raised to 25,000 loans and then frequently raised again until it reached 275,000 in 2006. Since 2006, the cap has not increased, but has been suspended on an annual basis. When there is a cap in effect, and volume approaches the cap, it can force seniors into making a rushed decision. At our urging, elimination of the cap is now contained in the Senate’s FY 2013 Appropriations bill. Whether this bill can get through both houses in the current political climate remains to be seen. We will seek a permanent extension of the $625,500 loan limit. Like the cap, the maximum claim amount has risen over time. In 2006, it was attached to the Freddie Mac lending limit, then at $417,000. Then, as part of the American Relief and Recovery Act of 2009, it was raised to 150 percent of the Freddie Mac limit, or $625,500. Since then, this limit has been extended annually and is due to expire December 31, 2012. Higher loan limits are of great value to those seniors who have built up substantial equity in their homes.

spotlight article We will work to eliminate the ban on seller concessions in HECM for Purchase deals.

legal

Time to climb back onto the stagecoach. There actually hasn’t been a gunshot in the last week or… Oops. There’s the phone. See you. x

secondary market

Since the CRMP launched in 2010, 39 professionals have received the designation. The process to obtain credits and meet other eligibility requirements continues to become more convenient. Last year, we offered all 12 continuing

And finally, the largest single gathering of reverse mortgage professionals each year will take place October 15-17 at the Hyatt Regency on the Riverwalk in San Antonio, Texas. We are coordinating our effort with the Texas Mortgage Bankers Association, and this year’s annual Reverse Mortgage Day in Texas will be incorporated into the larger NRMLA event.

originating

Other current “Borrow with Confidence” tools include “Your Road Map to Reverse Mortgages,” a step-by-step guide through the loan process from first

Our member website, nrmlaonline.org, continues to be a source of information on all industry developments for reverse mortgage professionals.

education credits that applicants must earn before sitting for the exam at the annual meeting in Boston. In addition, the examination is now available in almost all hometowns at your local Pearson Testing Center. We continue to step up promotion and recognition of our CRMPs by listing them in Reverse Mortgage magazine and listing notice of their certification on the website. underwriting

Our public affairs effort has now gone through two stages and is about to enter a third. The first stage was establishing a “war room” response effort to negative press. The second stage was reaching out to the press to place our own stories about industry developments. Stage three is a consumer-aimed messaging campaign under the banner “Borrow with Confidence” to give seniors the assurance that they can borrow safely from a NRMLA lender. At the core of the campaign is a Pledge to Reverse Mortgage Borrowers, a 19-point commitment to best practices that our board unanimously voted all members should sign.

hearing about the product to the close of a loan. We view this as a valuable first step for any senior who is interested in exploring whether or not the product is right for them. “Should My Mom and Dad Get a Reverse Mortgage?” is a tri-fold brochure created to prepare seniors’ adult children for a discussion about borrowing. All of these tools—as well as a guide to member lenders—are available on our redesigned consumer website, reversemortgage.org, which was launched this past New Year’s Eve. We intend to create additional tools.

appraising

Attention

spotlight

Loan Officers! Fidelity Homestead Associates provides a contractor membership registry to expedite professional home improvement and repair estimates. Spend your time working on loans. Let us handle the repair issues. Most estimates within 48 hours.

855-4-FHA-Work - FHAWORK.net

reversereview.com

8 TRR

| 31

The Reverse Review

June 2012

j e s s i c a l i nn

A HECM HeaRING

Industry experts, government officials and academics testify before Congress about the state of the program. 32

| TRR

Speaking before members of the Subcommittee on Insurance, Housing and Community Opportunity, eight strategically appointed panel members from various sectors of the industry presented their views on HECMs, as well as concerns about the state of the program and recommendations for its improvement.

Housing experts and reverse mortgage professionals testified before members of Congress last month in an oversight hearing established to examine the health and future of the FHA’s HECM program. Speaking before members of the Subcommittee on Insurance, Housing and Community Opportunity, eight strategically appointed panel members from various sectors of the industry presented their views on HECMs, as well as concerns about the state of the program and recommendations for its improvement. Specifically, panelists were asked to address the mechanics of the program; its administration; issues affecting stakeholders; benefits to borrowers; the program’s safety, soundness, and sustainability; and the risk HECM brings to FHA solvency. Among those who testified were counseling representatives, including Daniel Fenton of Money Management International and Barbara Stucki of the National Council on Aging; AARP Policy Advisor Lori Trawinski; NRMLA President Peter Bell; CIS Chairman Jeffrey Lewis; HUD Deputy Assistant Secretary Charles Coulter; and

two housing industry experts, New York Law School’s Houman Shadab and George Mason University’s Anthony Sanders. The hearing was especially pivotal as it preceded a muchanticipated CFPB hearing scheduled this fall, which will examine the results of the CFPB’s HECM study that is slated for release in August. Some participants saw this as an opportunity to publicly tackle any looming questions thoroughly before the CFPB finalizes its findings. At the hearing, most panelists spoke about the positive impact of the HECM program and the need for continued government support. Many, including the representatives from AARP and HUD, encouraged Congress to lift the cap on the number of FHA-insured loans to allow the program to reach its full potential. All of the panelists agreed that the need for HECMs will no doubt increase as more and more baby boomers reach the qualifying age of 62. But not all of the testimony was positive. Dr. Sanders

said that, while he has no objections to the HECM as a means to abstract equity, he does not think the program should be federally insured and subsidized. Professor Shadab expressed similar sentiments, recognizing the value of the product but encouraging Congress to relinquish the program to the private sector. Several panelists also raised concerns about the effectiveness of the program’s mandatory counseling. AARP’s Trawinski urged Congress to revisit the counseling requirements to ensure that the current guidelines were adequate, and it was suggested that perhaps the Government Office of Accountability should reassess the idea of face-to-face counseling. NRMLA President Peter Bell expressed concern over this suggestion. Speaking before attendees at the NRMLA Western Regional Conference in the week following the hearing, Bell said the idea of face-to-face counseling was a troublesome one that will need to be disputed. “This is an issue that we will be dealing

with and educating people on in the months and years ahead,” Bell said. Opinions on the results of the oversight hearing were mostly positive. CIS Executive Director H. West Richards said he felt it was a success. “The feedback on the hearing from top subcommittee staff was very positive and we felt that we had accomplished our goal by educating key members of the committee,” Richards said. CIS lobbyist Tom Worrall also called the hearing a success. Worrall said that, although educating policymakers is an ongoing process, the hearing “will go a long way to advance the industry’s interests within this congressional committee and on Capitol Hill.” Bell said at the NRMLA conference that although many of the participants expressed outright support for the program, it’s hard to determine what kind of impact the hearing will have. “Where are we now that we had this hearing? What’s next? It’s hard to say,” Bell said. “The budget battles are fierce and deep.” 8

reversereview.com

8 TRR

| 33

The Reverse Review June 2012

Charles Coulter Deputy assistant secretary Federal Housing Authority

Peter H. Bell President and CEO NRMLA

thumbsup

Daniel Fenton Housing director Money Management International

thumbsup

Supports the removal of the HECM C

Views the HECM Saver and other C

Calls counseling mandate a critical C

Views the product as vital

Supports the removal of the HECM C

Concerned about the consumer’s C

Sees vast potential for growth

Requests reverse-specific disclosure C

Recommends that a blind trust be C

cap

Predicts that HUD will properly C

address risk to ensure sustainability

| TRR

testimony “NRMLA urges the members of this subcommittee to support the continued availability of HECM by permanently removing the cap on the number of HECMs that FHA may insure to minimize any possible disruption in the availability of this important, personal financial management tool.” “We are requesting [the CFPB] create a definition of a qualified mortgage… to assure that reverse mortgages, other than FHA-insured HECMs, have an opportunity to qualify for an exemption from the risk retention requirements. We believe it is healthy for the reverse mortgage industry to be able to offer a range of product options, including proprietary (non-FHA-insured) reverse mortgages, in addition to HECMs. Having a specific definition of a [QM] for reverse mortgages will help facilitate the return of a conventional market with proprietary products.” “NRMLA fully supports the revision of mortgage disclosures as required by the Dodd-Frank Act. However, we believe it is imperative that a disclosure for reverse mortgages be developed independently of the effort on forward mortgages and that a format devised explicitly for reverse mortgages be utilized.”

satisfaction

“Although some major players have left the HECM market for varying reasons, there is tremendous need and opportunity for the HECM product. We believe that as the market stabilizes and HUD is able to complete policy and process guidance, this will address risk issues to ensure sustainability of the program and address uncertainty issues for originators and servicers.”

Highlights notable consumer C

“Although FHA has experienced a decline in the number of HECMs insured since its peak of 115,000 endorsements in 2009, the demand potential for HECM going forward remains significant… HUD continues to see this as a vital and important program for seniors.”

ability to afford counseling

established to fund counseling

“The requirement that consumers receive mandatory counseling from a HUDapproved counselor is perhaps the most important consumer protection feature of the HECM program.”

documents

“In the President‘s FY 2013 Budget, HUD proposes to permanently eliminate the statutory cap on the number of HECM loans that can be endorsed for FHA insurance. Removing this cap, which is a remnant of the original demonstration project, along with the securitization of HECM loans through Ginnie Mae, will ensure that HUD continues to contribute to meeting the needs of seniors…”

cap

safeguard

testimony

varied products as key for growth

testimony “Chief among [the challenges] is agencies’ ability to provide services to seniors who are unable to pay for their own counseling sessions when government funding is not adequate to meet demand… ” “Counseling agencies may also charge a fee as part of closing costs, removing the need for an up-front payment; however, this creates a financial model where independent, HUD-approved counseling organizations are paid on a per-loanclosed basis and not a per-counselingsession basis. We believe this situation is less than ideal because specific agencies can become dependent on loan volumes related to specific lenders for their financial survival.” “We urge that members of the subcommittee continue the dialogue on developing a sustainable model for funding for reverse mortgage counseling… One alternative that we suggest… is amending [the Housing and Economic Recovery Act of 2008] to allow the establishment of a blind trust that will compensate counseling agencies on a per-client-counseled basis, irrespective of whether the client enters into a reverse mortgage. The trust could be funded by a standardized closing cost on all reverse mortgages and contributions from the reverse mortgage industry and government as needed.”

Jeffrey M. Lewis CEO and chairman

Generation Mortgage Company Coalition for Independent Seniors (CIS)

Dr. Anthony Sanders Professor of real estate finance George Mason University

thumbsup

Supports government involvement in C the HECM market

Notes that big banks did not depart C

because of concerns about product quality

Says action is being taken to address C T&I issue

Does not believe the government D should insure or subsidize the product

Says government is micromanaging D homeownership decisions

Wary of the program’s cost to D

sustainable without FHA insurance

Thinks Congress should reduce loan D amounts

Fears that taxpayer funds will be D used to subsidize risks taken by financial institutions g

“Congress may want to consider changes to the statute that would allow financial professionals to offer comprehensive financial planning to clients—including HECMs—in a manner that ensures full disclosure and continues to fully protect consumers from fraudulent and unethical practices.”

Believes the HECM product could be D

“We expect to see modifications to the program itself that would allow originators to mandate monthly escrow payments for tax and insurance or to set aside some portion of the proceeds as a contingency fund, should the borrower struggle to keep up with his obligations. These changes will protect consumers, as well as the FHA insurance fund going forward.”

“The HECM is an example of the best kind of government program: a program that utilizes the reach and financial heft of the government to leverage privatesector involvement, pays for itself, is run largely by the private sector and provides a life-transforming financial product for consumers…”

testimony

growth

thumbsdown

taxpayers

Sees the HECM Saver as key for C

Houman Shadab Associate professor of law New York Law School

testimony

“FHA insurance for HECMs protects the lender rather than the borrower. In the event that the amount owed by the borrower exceeds the value of the property, the loss to the lender will be covered by FHA. But under the reverse mortgage program, any payments due the borrower are also protected. HUD has a legal obligation to make such payments in the event that the lender does not. So HUD is “on the hook” for negative equity in a home (as well as defaults due to failure to pay property taxes and maintain property insurance).”

“Conventional reverse mortgages will likely increase in market share as the economy recovers, housing prices stabilize and credit conditions improve. Currently, the most important obstacles to the development of private reverse mortgages seem to be continued uncertainties regarding housing prices and the willingness of lenders, insurers and investors to assume housing price risk.”

“The costs to taxpayers are the losses absorbed by HUD for the housing price shortfall, default and support. As our population ages and reverse mortgages become more common, we have to be careful about projected losses to taxpayers from yet another housing subsidy program.” “I am not against reverse mortgages as an equity extraction tool. But I do not see any reason for the federal government to guarantee and subsidize it. And we need to stop micromanaging the homeownership decisions for American households.”

“The relatively small market share of conventional reverse mortgages is likely due in large part to the inability of conventional reverse mortgages to compete with HECM loans. In other words, FHA insurance of reverse mortgages may be “crowding out” private market participation.” “Although conventional reverse mortgages have higher interest rates than HECM loans, there is good reason to believe that interest rates for such loans would likely decline over time due to the competition that would accompany a growing conventional reverse mortgage market. In addition, securitization of conventional reverse mortgages would also likely cause borrowing costs to decrease.”

“A reverse mortgage for seniors is a reasonable idea, but should not be guaranteed by the federal government.”

reversereview.com

8 TRR

| 35

The Reverse Review June 2012

Dr. Barbara R. Stucki VP of home equity initiatives National Council on Aging (NCOA)

Dr. Lori A. Trawinski Senior strategic policy advisor AARP Public Policy Institute

thumbsup

Suggests Congress fund HECM C

Thinks Congress should fully fund C

Warns that HUD regulations could C

Supports the removal of the HECM C

counseling

cause problems by being overly restrictive

Supports the effort to enhance C consumer education

Sees the HECM product as C innovative, essential

HECM counseling cap

Believes that seniors should have C access to their home equity

Sees government insurance as C

essential to consumer confidence

The hearing was especially pivotal as it preceded a muchanticipated CFPB hearing scheduled this fall, which will examine the results of the CFPB’s HECM study that is slated for release in August. Some participants saw this as an opportunity to publicly tackle any looming questions thoroughly before the CFPB finalizes its findings.

| TRR

“We recommend [that Congress] adequately fund HECM counseling, so seniors can understand their options and the financial implications of these loans.” “[We recommend that Congress] ensure that HUD regulations, such as the financial assessments lenders may conduct at origination, are not allowed to become overly restrictive to ensure that the HECM program remains a viable option for “cash poor” seniors… Seniors with modest incomes who do not qualify for conventional home loans may have few alternatives besides a HECM to tap home equity.” “[We] encourage HUD to continue using the HECM program as a platform to foster innovation through collaborative efforts with the mortgage industry, housing programs and aging services community. There is an urgent need to break down service silos and address problems holistically to promote consumer confidence in these loans and sustain them in their homes.”

“The issue for many low-to moderateincome seniors today is not whether to tap [into home equity], but when and how. NCOA believes that the HECM program serves a unique and important role in meeting these emerging needs.”

testimony

testimony “The HECM housing counseling program should be fully funded by Congress, particularly since HECM housing counseling is required by law and lenders are prohibited from paying for counseling on behalf of borrowers.” “AARP understands the need to examine a borrower’s financial ability to pay property taxes, homeowners insurance, homeowners association dues and assessments, and to be able to maintain the property. However, we do not believe that credit scores, payment history or the existence of a bankruptcy filing or foreclosure should be part of the financial assessment. Rather, the determination should be whether borrowers have the ability to meet their basic living expenses, financial obligations and property charges, and this should be determined after taking the cash flow from the potential reverse mortgage into consideration.” “To guarantee continuity of the HECM program, AARP supports legislation that would remove the statutory limit on the number of loans that can be insured by HUD in a given year…” “AARP continues to believe that older Americans should have a means by which to access their home equity without having to sell their homes or take out a home equity loan, and that a reverse mortgage can be an appropriate financial product for some people.”

Associated Mortgage Bankers, Inc.

Partner and Grow Become a reverse mortgage partner today!

Wholesale Program aNo HUD Approval Required aFree Technology a24 Hour Underwriting aDedicated Account Executive aMarketing Material aLicensed Mortgage Bankers in: CA, CO, CT, DC, FL, GA, HI, ID, MD, NJ, NV, NY, OR, PA, TN, TX, VA, WA and WY

Guiding Your Financial Future

When you consider the number of leads and clients you’ve been forced to turn away when approached with someone who was an ideal candidate for a Reverse Mortgage, you’d quickly discover that a large stream of income has slipped right through your fingers. Now, Associated Mortgage Bankers can help you capitalize on Reverse Mortgage opportunities by showing you how to turn home financing opportunities into a steady flow of revenue through our unique platform. As a non-FHA approved or FHA approved mortgage broker, Associated Mortgage Bankers can provide you with the ability to:

aGenerate an additional source

of revenue, with minimal effort

aReceive top-notch industry

training on the FHA market

aRevisit your existing book of

Become a reverse mortgage partner today!

business for new opportunities

Call Melissa Jedlicka or visit us online today!

888-684-0960 | www.ambmortgage.com

Associated Mortgage Bankers Inc. is a licensed mortgage lender also DBA as CalCon Mutual. The following states require disclosure of licensing information. (If your state is not listed, it doesn’t require a specific license disclosure or we are not currently licensed in that state.) California – Licensed by the Department of Corporations under California Finance Lenders Law – License #603J070; Colorado –to check the license status visit http://www.dora.state.co.us/ real-estate/index.htm Georgia Residential Mortgage Licensee (#29819; New Jersey – Licensed Mortgage Banker – NJ Department of Banking; New York – Licensed Mortgage Banker, N.Y.S reversereview com Department of Financial Servicers, license # B500812; Oregon License No ML5108; Pennsylvania – Licensed by the Department of Banking-License # 31797; Texas, Texas Dept of Banking ; Virginia Licensed by Virginia State Corporation Commission, License MC5518. Restrictions may apply. Equal Housing Lender, Associated Mortgage Bankers Inc Nationwide Mortgage Licensing System Number 24794

8 TRR

| 37

The Reverse Review June 2012

Opinion

last word

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

What Keeps Me Up at Night John LaRose

enerations are marked and defined by their movies. Dramas have impact, but it’s horror movies, the stuff of nightmares, that we remember most. My parents shuddered to Count Dracula and White Zombie—movies that probably wouldn’t raise an eyebrow today. For boomers like me, the definitive horror film was Alfred Hitchcock’s Psycho. I’m not embarrassed to say I was one of countless people unable to shower comfortably for months after seeing it. My worst nightmares today don’t come from movies. They come whenever some of my worst fears (fraud, defaults) about the vulnerability of some of our borrowers are realized. One nightmarish fear was realized when the following appeared in The Detroit News on January 25, 2012: Texana Hollis, who was evicted from her Detroit home at age 101, is getting offers of help from as far as Hollywood, Washington and Asia. She seemed full of life Tuesday after hearing that people including actor/filmmaker Tyler Perry, U.S. Rep. Hansen Clarke, D-Detroit, and a woman from Afghanistan had reached out to her. “Whatever they were saying, it was good,” Hollis said, acknowledging her difficulty hearing. “And Lord knows I appreciate every one of them. During my lifetime, I helped a lot, a lot of people. Never in this life would I ever think that it would come back to me.” Hollis was evicted from her house of nearly 60 years on the 8300 block of Carbondale Street on Sept. 12 after her son failed to pay property taxes to maintain a reverse mortgage taken out in 2002. Brian Sullivan, a spokesman for the U.S. Department of Housing and Urban Development, said two days later she could return to the house “for as long as she wants.” My son Ryan and I have worked aggressively and diligently to protect our borrowers and industry from scandals of this nature. We cannot, however, protect our borrowers from the loneliness that compels them to take calls from “lottery officials” or, in this borrower’s case, from the failure of a family member to pay taxes and insurance in a timely manner. Defaults are the stuff of my greatest nightmares. I picture Texana Hollis, sitting on the curb outside her padlocked home, and the image elicits more dread than the one of Janet Leigh succumbing to the blade in Psycho. In October, NRMLA membership prudently and responsibly recommended that financial assessment tools be implemented. Assessments of this kind would protect the integrity of our product and industry, and more importantly, they would help protect future borrowers from defaults. Urban Financial and other industry leaders are reportedly seeking input from the industry on the development of

| TRR

Going to the source

Defaults are the stuff of my greatest nightmares. I picture Texana Hollis sitting on the curb outside her padlocked home, and the image elicits more dread than the one of Janet Leigh succumbing to the blade.

borrower assessment tools. From a servicer’s perspective, these actions are viewed as a serious effort to proactively stem defaults, and are therefore a dream come true. The exit of our very own “Big Three” from the reverse mortgage industry can be partly attributed to what some may say is an “unbalanced” regulatory environment. Socrates said, “We must know how to choose the mean and avoid the extremes on either side, as far as possible.” That wisdom applies to government oversight and regulation, as well as the process of vetting borrowers for the reverse

mortgage product. We are not the solution for all cashstrapped senior borrowers, nor are all senior borrowers great for our reputation. We can, and should, meet in the middle. Borrower financial assessment tools move us there by protecting everyone. Generations have been marked and defined by their movies; leaders are marked and defined by their actions. Who is going to take the lead? If our industry is not going to support these initiatives, or take the lead in enacting acceptable financial assessment tools, we could be writing the script for our very own horror story. x

reversereview.com

8 TRR

| 39

The Reverse Review June 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

reversereview.com

8 TRR

| 41

The Reverse Review June 2012

th e

Jim Milano

* of

R e v erse

th e

M ortgage

M ar k et

Where are we and where do we go from here?

| TRR

reversereview.com

8 TRR

| 43

The Reverse Review June 2012

Clarify

servicing

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

What Happens After a Reverse Mortgage Closes? – Part I Ryan LaRose

t’s no surprise that forward mortgages differ in many ways from reverse mortgages, and the servicing responsibilities involved in both processes reinforce those differences. With a forward mortgage, borrowers rarely interface with their servicer and several forward mortgages may be held throughout one’s lifetime. With a reverse mortgage, servicing functions for the majority of borrowers will proceed without incident for the life of the loan. For others, phone calls to a service center will initiate shortly after the loan is closed and will continue for the life of the loan. Reverse mortgages will typically be held through the remainder of the borrower’s life and through a period of life—retirement and beyond—that is being redefined every day. A great deal has been written about the origination process of reverse mortgages, and appropriately so. Counselors, loan officers, processors, underwriters and closing/title agents are the first points of contact for

| TRR

the borrower. These first points of industry contact shape the reverse mortgage experience for every borrower. It is the responsibility of these individuals to ensure that the borrower has an understanding of the product, that the origination documents are properly executed, and that everyone is working hard to ensure that borrowers have a pleasant experience. Let’s move forward in the typical life cycle of the reverse mortgage as it is passed to the servicer. The sales and closing process of a reverse mortgage can often take up to six months, sometimes even longer. When the servicer receives a loan after closing it is being entrusted with a valuable asset that will be in its possession an average of seven years. There are multiple touch points that frontline industry professionals will have with borrowers in the origination process, but they are far fewer than the touch points a servicer will have with the borrower over the life of the loan.

These touch points begin with the servicer’s initial contact with the new borrower. On forward loans, a call from the borrower may be as brief as 45-60 seconds. Not on the reverse side! In the reverse world, borrower calls can average four to six minutes and it is not uncommon for these calls to go on for 30-plus minutes. In the aftermath of years of turbulence in the housing industry, a senior borrower requires more explanation and more patience, and those of us who service this product understand and accept this responsibility willingly. Some servicers have found it useful to provide information to new borrowers that answers frequently asked questions and provides them with an overview of their responsibilities once the loan has been closed. This booklet provides new borrowers with a wealth of information, and borrowers can save it for future reference too. In addition to welcoming borrowers to the reverse mortgage experience, servicers will answer all of the questions that arise post-closing, as well as those raised to borrowers by well-meaning relatives and friends. The importance of confidence and sensitivity on the part of the servicer as the borrower moves forward from closing cannot be underestimated and should never be undervalued. The next installment in June’s issue will explore customer service and statement processing. Stay tuned! x

average life paper remains very well bid and trades meaningfully inside of new issue given the spread pick versus competing assets, the roll down the curve and attractive cash flow profile. The Interest Only (IO) market has also tightened recently with dollar prices up anywhere from a quarter to a half a point. Demand still outweighs supply for this sector and we’ll continue to see contraction in yields.

HMBS Spreads Consolidate, Remain Resilient D ar ren S t u m be r g e r

fter a dramatic tightening to start off the year and amid a volatile rate environment, spreads consolidated during the sharp sell-off following mid-March’s Federal Reserve meeting. As we approach publication, current offer side levels for newly issued premium fixed-rate HMBS are 85 to interpolated swaps for corporate settle and 65 discount margin for newly issued premium floating-rate HMBS. Worthy of note, premium floatingrate HMBS have been better bid than par dollar price floaters, and it will be interesting to see if this trend continues. Fixed rates still compare well (10-40 basis points cheaper) to competing asset classes within the agency commercial mortgage-backed securities (CMBS) sector. They are also beginning to look fair to agency Collateralized Mortgage Obligations (CMOs). On the floating-rate side, 10.5 percent cap par priced bonds are in the low to mid-60s discount margin, which remain 30-35 basis points cheaper than 7 percent cap Ginnie Mae agency CMO floaters. Spreads should remain

In March, HMBS issuance volume topped $880 million (a 23 percent increase month over month), split 58 percent fixed rate and 42 percent floating rate. Wells Fargo led the top five issuers with 24 percent of the market share (mostly subsequent participations); RMS finished second with more than $200 million of new issuance and a 22 percent market share. Urban and MetLife finished third and fourth with 18 percent and 17 percent respectively, and Generation finished fifth with 8 percent of the market share. In March there was $455 million in securitized deal issuance brought to market by three Ginnie Mae sponsors, bringing year-to-date issuance to $830 million.

resilient and tighten marginally in rate backup scenarios, but don’t expect a meaningful tightening from here (where every new issue auction tightens the market 5-7 basis points). As we enter corporate earnings season, many of the negative underpinnings of the macro environment remain (Europe’s sovereign debt crisis, U.S. unemployment, gas prices, Middle East tensions) and should keep rates 2011 fixed-rate prepayments dropped range-bound and the discussion on more than 30 percent in March with QE3 brewing. Economic floating-rate dropping 14 fundamentals have been percent. As a whole, the generally positive and risky 2011 vintage of HMBS is going to the assets have been tightening sour ce running roughly 50 percent throughout the winter and of the baseline prepayment early spring, but a sustained curve. 2010 prepayments also backup in rates is not yet dropped marginally and are On the secondary warranted in the U.S. running closer to 40 percent On the secondary side, market activity remains vibrant and continues to see several hundred million dollars of flow per week. Liquidity has remained strong with no observable spread concession for the higher premium, four-year average life paper. Two- to three-year

side, market activity remains vibrant and continues to see several hundred million dollars of flow per week. Liquidity has remained strong with no observable spread concession for the higher premium, four-year average life paper.

of the curve. The reduced prepayment risk of HMBS relative to conventional MBS and zero percent risk weighting under Basel III (a regulatory standard expected to be implemented globally) will continue to be attractive features to bank buyers and money managers. x

reversereview.com

8 TRR

| 45

The Reverse Review June 2012

g oin g to the so u r ce

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

However, many borrowers don’t properly understand their obligations under the repair set-aside rules, or believe their home doesn’t need to be repaired. In some cases they just don’t know how to go about getting the work done.

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

| TRR

While a handful have voiced their support, many politicians, as well as media and housing analysts, have attacked the presidentâ&#x20AC;&#x2122;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.

reversereview.com

8 TRR

| 47

th e

Jim Milano

* of

R e v erse

M ortgage

Where are we and where do we go from here?

* th e

ortgage

M ar k et

Where is the reverse mortgage industry today and where is it headed?

To answer these questions, one should first look at the history of the reverse mortgage industry and the underlying “drivers” that could spur future growth, as well as expected “drags” and potential unexpected obstacles.

Abstract and Overview In this article I will review, briefly, the more recent history of reverse mortgages, particularly FHA-insured HECMs. I will outline where the industry stands today and provide some thoughts as to where I think the industry might be headed in the near and foreseeable future. In summary, the industry continues to face headwinds (and I submit that the most significant of these obstacles are not specific to reverse mortgages, but are based on broader economic or forward mortgage industry issues). Despite the downturn several years ago in the broader forward mortgage market, the reverse space is thriving as the senior population continues to increase exponentially. Seniors are living longer and have higher rates of homeownership, but they have not saved enough for retirement and a significant amount of their net worth is tied up in home equity. Public sources of retirement support will increasingly become strained. Thus, the current and future need for reverse mortgages as part of broader retirement planning and as a way to finance the senior population’s increasing longevity could not be more compelling. However, demographics do not equal destiny, and there are steps that reverse mortgage lenders (and the reverse mortgage industry as a whole) can take, not only to better serve this need, but also to protect themselves from unwanted and unwarranted threats to their professional reputation. Furthermore, trends in home prices, regulatory rulemaking and the return of a viable secondary market for all mortgages (not just reverse mortgages) will determine the future growth and profile of the reverse mortgage industry.

Brief History of the FHA HECM Program and Reverse Mortgages Authorized by Congress and started as an FHA pilot program in the late 1980s, the origination of reverse mortgages remained dormant until the early 2000s. Almost 8,000 HECM loans were originated in HUD’s fiscal year 2001. However, annual volume of HECM loans reached approximately 112,000 in HUD’s fiscal year ending September 2008. [Additionally, in 2007, conventional (or so-called “proprietary” or jumbo) reverse mortgages accounted for approximately 16 percent of the reverse mortgage market on a dollar volume basis.]

If one were to advise a business leader that his or her market would increase by more than 1,200 percent in six years, certainly that would garner attention and interest. Nonetheless, HECM loan volume declined to 73,000 loans for HUD’s fiscal year ending September 2011. And while HECM volume is expected to be lower than 73,000 in 2012, as discussed below, in my view, the fundamentals for, and thus likelihood of, a significant increase in reverse mortgage volume beyond 2012 are well entrenched.

The Demographics Are Compelling The Senior Population

As of 2010, there were 40.4 million seniors (aged 65 or older). At that time, this number represented 13.1 percent of the U.S. population. This is 1 in every 8 Americans. Since 2000, the number of U.S. seniors increased by 5.4 million or 15.3 percent, compared with an increase of 8.7 percent for the under-65 population. However, the number of Americans aged 45-64 who will reach 65 over the next two decades increased by 31 percent during this period. Since 1900, the percentage of seniors more than tripled (from 4.1 percent in 1900 to 13.1 percent in 2010). That is an increase by a multiple of approximately 13 (from 3.1 million to 40.4 million). In 2010, the 65-74 age group (20.8 million) was 10 times larger than in 1900. In contrast, the 75-84 group (13.1 million) was 17 times larger and the 85+ group (5.5 million) was 45 times larger.

demographics do not equal destiny, and there are steps that reverse mortgage lenders (and the reverse mortgage industry as a whole) can take, not only to better serve this need, but also to protect themselves from unwanted and unwarranted threats to their professional reputation.

In 2010, there were approximately 57 million persons in the U.S. aged 60 and above, out of a total U.S. population of 310 million (or 18.4 percent). By 2020, that number is expected to increase to 76 million out of 341 million (or 22.2 percent). In 2009, the average life expectancy of a person reaching age 65 was 18.8 years (20.0 years for females and 17.3 years for males). From 1990 to 2007 the death rates for the 65-84 age population decreased. In 2010, approximately 2.6 million persons reached and celebrated their 65th birthday, while in that same year, approximately 1.8 million persons 65 or older passed away, resulting in an annual net increase of 814,406. In summary, seniors are living longer and the number of seniors is increasing.

Homeownership Rates of Seniors In 2009, 23.1 million households were headed by a senior. Eighty percent of these persons were homeowners. In 2009, 48 percent of senior households spent more than one-third of their income on housing costs (42 percent for owners). Furthermore, home equity has been and continues to be a major contributor to the net worth of seniors. In 2009, approximately 65 percent of seniors (or more than 15 million people) owned their homes free and clear. In 2008, at its height, the annual HECM volume was approximately 112,000 loans, or roughly 0.7 percent of those potentially eligible reverse mortgage borrowers (factoring in an assumption that 500,000 seniors already had obtained a reverse mortgage). This does not include seniors who did not own their homes free and clear. In summary, senior homeownership rates are much higher than the general population and many seniors have a significant amount of their net worth tied up in home equity.

Regulatory, Program and Other Headwinds Today, if you are in the reverse mortgage business, you are in the FHA lending business. That means you are either an FHA-approved mortgagee or you work with an FHA-approved entity that sponsors your company. Therefore, you are subject to FHA HECM program requirements and administration. We have heard our share of criticism about HUD, but one must remember that the department is both an insurer and program administrator of HECMs, and as such has created and maintained a viable and important foundation for our industry. As a business partner, HUD has generally attempted to be responsive to industry needs. However, further program maintenance and innovation is needed. From accounting issues to continued funding of HUDapproved reverse mortgage counselors, the need for a hybrid HECM program and limited underwriting rules or guidelines, there is still some work left to be done. HUD cannot do all of this work on its own. It needs input, support, comments and feedback from the reverse mortgage industry. The reverse mortgage industry’s increased dependence on HUD since 2008 is very much tied to broader trends and the downturn in the secondary and structured finance markets of the forward mortgage industry. In fact, for better or worse, the reverse mortgage market is somewhat tied to the forward mortgage market. Since the market downturn in 2008, the federal government has come to dominate the overall mortgage industry (including the reverse mortgage industry). Currently, a robust secondary and structured finance market has yet to return to the forward mortgage market. The return of forward mortgage securitizations is not transpiring quickly. The return of a viable market could be further stymied by regulatory uncertainty, particularly and more directly in the area of risk retention rules for securitizations, and 8

THE

senior p o p ulation

8,000 Almost 8,000 HECM loans were originated in HUD’s fiscal year 2001. HECM loans reached approximately 112,000 in HUD’s fiscal year 2008. HECM loan volume

declined to 73,000 loans for HUD’s fiscal year 2011. Number of seniors 65+ has tripled

1900

3.1 million 4.1 percent of the population

2010

40.4 million or 13.1 percent of the population

Number of seniors 60+ in the U.S. is expected to rise

2010: approximately 57 million people, or 18.4 percent of the population 2020: estimated 76 million people, or 22.2 percent of the population

indirectly (at least for reverse mortgages) by the bureau’s finalization of the Qualified Mortgage definition under the Ability to Pay rule, as mandated under the Dodd-Frank Act. Soon we should have more information on the contours and details of the bureau’s Qualified Mortgage rule. However, the mortgage industry may not have a clear picture of risk retention requirements until 2013. Under those rules, issuers of securitizations could be required to retain 5 percent of the risk of any pool issued (which could be an impediment to all but the largest issuers), unless loans in the pool are Qualified Residential Mortgages. (Pools comprised solely of FHA-insured as well as Ginnie Mae-guaranteed loans will be exempt from the risk retention rules.) The definition of a Qualified Residential Mortgage must be finalized through coordinated rulemaking by several federal agencies (including HUD, the Federal Housing Finance Agency, the Federal Reserve Board and the SEC). These agencies proposed a Risk Retention rule in April 2011, but that rule has yet to be finalized. Due to hyper-technicalities in the Dodd-Frank Act, a Qualified Residential Mortgage as it applies to the Risk Retention rule can be no broader than a Qualified Mortgage in order to comply with the Ability to Repay rule. The bureau is

on the cusp of issuing the Ability to Repay rule, and the whole mortgage industry awaits the issuance of that rule with bated breath. That rule will affect the final definition of “Qualified Residential Mortgage” under the Risk Retention rule and will determine the characteristics of reverse mortgages that are not insured by the FHA but may be securitized, as well as the necessary financial wherewithal of those entities able to do so, for years to come. In summary, while HUD supports and maintains the reverse mortgage industry today, further improvement and honing of the HECM program is needed. And there is a need and desire on the part of the industry to be able to begin private securitizations again. However, depending on ongoing rulemaking related to the Dodd-Frank Act, the ability to undertake private securitizations of reverse mortgages not insured by the FHA may be limited to larger and more financially viable institutions. In addition, the pricing of such private securitizations will have to compete with the “full faith and credit” guarantee provided by Ginnie Mae for FHA-insured, HECM-backed pools. In this regard, ironically, the hypertechnical twists of the Dodd-Frank Act (and required rulemaking) may directly conflict with the majority’s stated policy goal of reducing the government’s role in mortgage lending.

We have heard our share of criticism about HUD, but one must remember that the department is both an insurer and program administrator of HECMs, and as such has created and maintained a viable and important foundation for our industry. As a business partner, HUD has generally attempted to be responsive to industry needs. However, further program maintenance and innovation is needed. From accounting issues to continued funding of HUD-approved reverse mortgage counselors, the need for a hybrid HECM program and limited underwriting rules or guidelines, there is still some work left to be done.

We Need a New Anchor Tenant Shopping mall businesses use marketing strategies that are based on attracting and maintaining so-called “anchor tenants.” With the exit of Bank of America, Wells Fargo, and most recently, MetLife Bank, the reverse mortgage industry is currently in need of larger lenders to step up and take the place of these large bank lenders. That process was well under way since the exits of Bank of America and Wells Fargo. With the recently announced exit of MetLife Bank, that process needs to be adjusted. Of note is that these large bank exits were primarily driven by issues that were not related to the reverse mortgage business. The downturn in the overall mortgage market placed a great deal of pressure on Bank of America, primarily due to its acquisition of Countrywide just prior to the downturn. And, in a more recent side effect of the DoddFrank Act, Snoopy no longer wished to be a bank-holding company. In my view, replacements for these large banks may begin to appear as early as the second quarter of 2012, and they should certainly be in place before the end of 2012.

Short-to-Close No More: Property Values Should Continue to Recover in the Near and Long Term Another current headwind to increased HECM production has been the challenge that some HECM applicants face with short-to-close situations. In some instances, the current amount of a senior’s outstanding forward mortgage lien is greater than the value of the property (i.e., the property is underwater). It is not possible for such a senior to obtain a HECM unless their current forward mortgage lender is willing to take a short payoff. However, there are indications that some forward mortgage servicers are willing to accept short payoffs or accept a principal reduction through a loan

modification. Furthermore, a more recent and strong trend of investors purchasing REO properties in bulk, and renting them out, should have the effect of stabilizing neighborhoods and home prices (especially in locations such as Southern California, Las Vegas, Nevada, Arizona and Florida). These trends, and the overall continued recovery of the housing market, should substantially reduce the number of seniors facing a short-to-close scenario, and thus become another driver of increased reverse mortgage production over the next few years.

Red Ink Rising: Federal Budget Deficits and the Cost of Long-term Health Care for Seniors The U.S. federal government will continue to face budget and deficit challenges over the next 10 years and beyond. In 2011, the budget deficit was projected to be more than $1 trillion, and the federal debt had reached $15 trillion. Based on projections, federal budget deficits will continue for the next 10 years at a minimum of $700 billion per year, potentially reaching as high as $1 trillion a year. That will add an additional $7 trillion-$10 trillion to the current $15 trillion national debt. These trends are not sustainable over the medium or long term. The four primary drivers of budget deficits are defense spending, entitlements (such as Medicare, Medicaid and Social Security), interest on the federal debt and so-called “tax expenditures” (i.e., tax breaks under our complex tax code). Entitlements and interest on the debt are not discretionary. Defense spending and tax expenditures are discretionary. In order to correct this unsustainable trajectory and ensure that the United States does not become a super-sized version of Greece, all areas of the federal budget will need to be reviewed and adjusted. Very difficult choices will have to made, including cuts to defense spending (such as ending undeclared “foreign wars” and high-priced weapons procurement programs), elimination of tax expenditures (including items such as the home mortgage interest deduction),

and “welfare” reform (i.e., a leveling off or even reduction in benefits for Medicare, Medicaid and Social Security). The interest on the debt will not be reduced until the debt is reduced, and that will not occur for the next 10 years. As outlined above, the federal debt could nearly double over the next decade. Add to these federal budgetary strains the distinct likelihood that health care costs will continue to rise and the public benefits used to assist seniors in paying for health care could become severely strained, the net result being a reduction in federal health care provisions and a need for alternative sources for payment. One source of funding may be seniors’ available home equity. In my view, the availability and utilization of seniors’ available home equity as a source for long-term health care funding will increasingly become a larger part of the public policy budget debates.

Retirement Planning As seniors move into the transitional “retirement red zone,” that period in one’s late 50s when one starts to take stock of their retirement profile and planning, some seniors will discover a shortfall or retirement funding gap created by merely relying on a combination of Social Security and retirement savings. Home equity, to the extent it exists, will have to be considered. Indeed, the welldocumented publications of the Sacks brothers and Professor Salter prove and make clear that home equity must be considered in retirement planning and financing seniors’ longevity.

New (or Underutilized) Products and Initiatives In 2008, Congress amended the HECM statute to provide for the HECM for Purchase program. Then, in 2010, HUD created the HECM Saver program.

In my view, these programs have not been sufficiently marketed and are underutilized. Additional HECM production appears to be there for the taking. Furthermore, we continue to see persistent interest in conventional reverse mortgages and other equity release programs. As described above, one of the main impediments to the introduction or reintroduction of these types of programs is the lack of a secondary market. In the shorter term, one would expect consumer need and investor demand to create a whole loan market in this area, and once the risk retention rules are clarified, I expect to see the reintroduction of some conventional reverse mortgage securitizations.

Conclusion Notwithstanding recent, short-term and intermittent headwinds, everything works out in the end. If things do not appear to be working out, then it is not yet the end. The demographics of the growth and trend lines of the senior population, their profiles, needs and related metrics, are compelling. Seniors are living longer, health care costs continue to rise, and many seniors own their homes free and clear but have a significant amount of net worth tied up in their homes. Despite a downturn in the overall mortgage market, and other challenges facing the reverse mortgage industry, I believe that the industry is poised to grow exponentially over the next five to 10 years. This article is based on the personal views of Jim Milano and do not represent the views or opinions of the law firm of Weiner Brodsky Sidman Kider PC, or its clients. x