The Reverse Review September 2012 by The Reverse Review

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reactions to the

CFPB

er ev

this issue

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INSIDE

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study

CIS HONORS REP. TOM LATHAM PG. 33 QUALITIES TO LOOK FOR IN AN AMC PG. 29 + ROB AWALT SITS DOWN IN OUr HOT SEAT PG. 14

THE

REVERSE September 2012

review

The Reverse Review September 2012

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

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In these uncertain times, Freedom of Action can determine a company’s survival.

| TRR

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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 September 2012

From the Editor updates to share, send details our way for a chance to see your info in print.) In this issue you’ll also find some great stories about the current HECM landscape. Check out our Spotlight section, where we take a close look at the CFPB’s Reverse Mortgage Report to Congress and discuss the industry’s reaction to the bureau’s findings. In our feature story, we discuss the innovative HECM strategies proposed in recent economic research and talk to financial planners about their evolving opinions of the product.

A note from Jessica linn Guerin

Fall is a season of

change, and we took that idea to heart at The Reverse Review as we set out to create some exciting additions to the magazine. Our team has worked diligently this summer to put together the biggest—and, dare I say, best— issue of TRR to date. This September edition features an unprecedented 52 pages, jam-packed with fresh information and insightful commentary on the current state of the reverse mortgage industry. We’re introducing some new sections too, including a roundup of stats and surveys affecting the market, and a page of the most recent news and initiatives from our friends at NRMLA. Also, don’t miss our Movers & Shakers page, where you can read about developments at various firms across the space. (If you have exciting company

Meet the Team Senior Publisher Reza Jahangiri

Publisher

Erik Richard

Editor-in-Chief

Jessica Linn Guerin

Creative Director Traci Knight

Copy Editor

Kersten Wehde

And finally, this season has brought change my way on a personal level as well, as some of you may have noticed a new addition to my last name. I’m still getting used to a name no one can pronounce—it’s like Karen, but with a G!—though it’s a very welcome adjustment. More changes are on the horizon at TRR, so stay tuned for some announcements later this fall. In the meantime, enjoy this latest issue and, as always, feel free to visit reversereview.com and comment online. We value feedback from our readers! All the best,

Editor-in-Chief { Jessica Linn Guerin }

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

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

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07, 09

TRR 9.12 | report

In this issue...

The industry’s latest stats and rankings

25 Ralph Rosynek

Reverse Market Insight

Underwriting

| roundup

| industry update RS E W THE RE REVIE VE

E RS

STUDY

| originating : my way

INSIDE An industry veteran shares his this issue tips on effective (and compliant) advertising. R SE

EVIE

James Quigley

| legislative : CIS HONORS REP. TOM LATHAM

| Secondary market : TRUE SALE ISSUES REMAIN Issuer concerns about accounting continue to plague the HMBS market.

review

Christopher J. Willis

Appraising

50 | the last word : The Gifts of Faithful Service john larose

Darren Stumberger

| FINANCIAL PLANNING & THE HECM

Why experts are saying the reverse mortgage can solve the retirement income puzzle

Want the online version? reversereview.com/magazine

jessica LINN GUERIN Shelley Giordano

W IE

E TH

E REVIEW THE VERS RE R

EV ER

HE REVERSE REV IE W

REACTIONS TO THE

CFPB STUDY

this issue

INSIDE

CIS HONORS REP. TOM LATHAM PG. 33 QUALITIES TO LOOK FOR IN AN AMC PG. 29 + ROB AWALT SITS DOWN IN OUT HOT SEAT PG. 14

EVIEW THE REVE

RS E

RE V

cover WT VIE RE

The financial planning community takes a second look at the HECM.

Just this year, two independent studies were published by prominent economic researchers, both examining in impressive detail various ways in which home equity could be used. Data was collected, simulations were run and the analyzed results all pointed to one simple fact: The HECM product could be leveraged to help certain retirees attain a livable flow of income.”

September 2012

FEATURE

29 Leah Phinney

Todd Ausherman

H. West Richards

Why the bureau could be the industry’s saving grace

Jim Milano

| Originating : IT’S TIME TO EMBRACE THE CFPB

John Smaldone

THE

A look at the industry’s evolution from past to present

The industry reacts to the bureau’s much-anticipated study on the state of the reverse market.

President of Premier Reverse Closings

| spotlight : reactions to The CFPB Study

EVIE

| The hot seat : rob awalt

R SE

22 | originating : Changes for Originators Bring More Responsibilities

ER EV

marty bell

Legal

The Republican representative from Iowa receives an award for his support of the HECM program.

VERSE Read about the association’s current initiatives.

27 Bill trask

| NRMLA news

CFPB

ER EV

REACTIONS TO THE

The latest developments in companies across the reverse space

EV ER

| MOVERS & SHAKERS

E REVIEW THE VERS RE R

C PG. 29 HOT SEAT PG.12 14

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HE REVERSE REV IE W

Reverse Mortgage Daily

W IE

WT VIE RE

Headlining stories of the past month

RE V

A collection of recent facts and surveys affecting the reverse market

Table of Contents

THE

REVERSE SEPTEMBER 2012

reversereview.com

review

8 TRR

The Reverse Review September 2012

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

John K. Lunde

Marty Bell

J ohn K . L und e

MA rty B e ll

Rob Awalt

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

13 | nrmla news 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 awardwinning documentary film The Boys of Summer and produced 15 Broadway shows (including Ragtime, Fosse and Dirty Rotten Scoundrels) that won 27 Tony Awards.

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

T odd A us her man

Jame s Qu i gle y

Joh n Smaldo ne

16 | IT’S TIME TO EMBRACE THE CFPB g Todd Ausherman is co-founder, COO and general counsel at Legacy Reverse Mortgage in San Diego, Calif. Ausherman is a licensed attorney and a CRMP. Prior to co-founding Legacy in January 2008, Ausherman served as president of a San Diego-based mortgage company. Ausherman has a degree from Loyola University New Orleans and a JD from the University of San Diego.

19 | my way g James Quigley is a reverse mortgage public relations and advertising specialist for St. Louis-based Fidelity Bancorp/Fidelity Mortgage Company. With a background in psychology, his mission for the past six years has been to clearly describe all facets of the HECM in his specialized manner, eliminating the confusion that arises from traditional HECM explanations.

22 | Changes for Originators Bring More Responsibilities g John Smaldone is the executive vice president of Hanover Financial Services, a consulting firm that focuses primarily on the reverse mortgage industry. Smaldone is the founder of Taylor, Bean and Whitaker and is the former senior vice president of TransLand Financial Services’ reverse mortgage divisions. With more than 43 years of mortgage banking experience, and 12 years in the reverse space, Smaldone intends to remain in the reverse mortgage industry taking on long-term consulting assignments. john@hanoverfinancial.com

D enni s g a s s oway

r alp h r os y n e k

B i ll Tr as k

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

25 | LEARNING FROM OUR MISTAKES g Ralph 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

27 | exam prep 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.

Rob Awalt

Todd Ausherman

James Quigley

tpa@legacyreversemortgage.com John Smaldone

Dennis Gassoway

Ralph Rosynek

Bill Trask

| TRR

Report July 2012

Top Lenders Report

One Reverse Mortgage

Urban Financial Group

Endorsement

Genworth Financial Home Equity

12345

401

Lender

298

Generation American Mortgage Co Advisors Group Endorsement

260

252

Endorsement

296

Endorsements

Lender

Endorsements

METLIFE BANK

250

MONEY HOUSE INC

SECURITY ONE LENDING

231

ASPIRE FINANCIAL INC

THE FIRST NATIONAL BANK

219

AXIA FINANCIAL LLC

REVERSE MORTGAGE USA INC

OPEN MORTGAGE LLC

CHERRY CREEK MORTGAGE CO INC

NATIONWIDE EQUITIES CORPORATIO

SUN WEST MORTGAGE CO INC

HIGH TECH LENDING INC

NEW DAY FINANCIAL LLC

GREAT OAK LENDING

GREENLIGHT FINANCIAL SERVICES

AMERICAN PACIFIC MORTGAGE

SENIOR MORTGAGE BANKERS INC

FIRSTAR BANK

NET EQUITY FINANCIAL INC

TOWNEBANK

M & T BANK

UNIVERSAL LENDING CORPORATION

GMFS LLC

VIG MORTGAGE CORP

ASSOCIATED MORTGAGE BANKERS

CHRISTENSEN FINANCIAL INC

ROYAL UNITED MORTGAGE LLC

ATLANTIC BAY MORTGAGE GROUP

PLAZA HOME MORTGAGE INC

WELLS FARGO BANK

REVERSE MORTGAGE SOLUTIONS INC

MORTGAGESHOP LLC

MAVERICK FUNDING CORP

NETWORK FUNDING

MAS ASSOCIATES LLC

VAN DYK MORTGAGE CORPORATION

Trailing Twelve Month Endorsements

INDUSTRY SUMMARY Retail Endorsement Growth

9.05%

10,000

Wholesale Endorsement Growth

8,000

28.32%

6,000 4,000

Total Endorsement Growth

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

Wholesale *Numbers represent months

17.05%

*Figures above reflect change from prior month

Endorsement

RETAIL UNITS CHG%

WHOLESALE UNITS CHG%

TOTAL UNITS CHG%

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%

4,644 -16.83%

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

2,614

4.39%

1,979

5.83%

4,593

5.01%

May

2,587

-1.03%

1,840

-7.02%

4,427

-3.61%

Jun

2,821

9.05%

TOT

35,397

2,361 28.32%

24,520

-5.91%

4.96%

5,182 17.05%

59,917

reversereview.com

8 TRR

The Reverse Review September 2012

Contributors L ea h P hi nne y

Leah Phinney

Darren Stumberger

H. West Richards

29 | Reliable Valuations g Leah Phinney is the director of key accounts at Class Appraisal, Inc. in Troy, Michigan. She was instrumental in the development of the seven AMC core competencies, which include custom-built platforms for lender clients. Class Appraisal has created custom workflow processes that enhance the process for reverse lending clients. Named a top performer by a leading software producer, Class Appraisal has been recognized as the new standard in appraisal management. phinney@classappraisals.com 866.333.8311 ext. 321

J i m M i l a no

Jim Milano

Christoper J. Willis

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

Jessica Linn Guerin

Shelley Giordano

John LaRose

| TRR

DAr r e n s tu mbe r ge r

H. We s t Ri cha rds

31 | TRUE SALE ISSUES REMAIN g Darren Stumberger, managing director at Knight Capital Group, heads Agency MBS trading and is responsible for HMBS/ HREMIC trading, distribution and risk management. Prior to Knight, Stumberger held mortgage trading and finance positions at Goldman Sachs, Morgan Stanley, Merrill Lynch, Standard & Poor’s and KBC Group NV. dstumberger@knight.com

34 | reactions to the cfpb study g H. West Richards, executive director of the Coalition for Independent Seniors, served in the U.S. House of Representatives and held the distinction of serving as the youngest chief of staff in Congress. Richards worked in association with the law firm of Troutman Sanders, LLP and later headed up Business Development for Arthur Andersen Business Consulting in Atlanta.

c h r i s top h e r j. w i lli s

je s s i c a li nn Gu e r i n

34 | reactions to the cfpb study g Christopher J. Willis is a partner at Ballard Spahr LLP and a member of the firm’s Dodd-Frank Task Force and Collection Documentation Task Force. Willis’ practice focuses on consumer financial services and financial institutions law, including counseling clients and defending them in individual and class-action lawsuits. Willis writes and speaks regularly on unfair and deceptive trade practices, the Truth-in-Lending Act and mortgage lending litigation.

42 | financial planning & the hecm g Jessica Linn Guerin is the editorin-chief of The Reverse Review. Prior to joining the magazine, Guerin 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. Guerin is a graduate of Boston University’s College of Communications and has a master’s degree in magazine publishing from Northwestern University.

s he l l ey g i or d an o

joh n lar os e

49 | financial planning & the hecm g Shelley Giordano is the director of business development at Security One Lending. She has served as a loan originator and sales leader in her 14-year HECM lending career. Giordano has spoken to audiences at the ABA, on CNN Financial, at the National Association for Home Builders and to numerous financial planning groups. She works with Women in Housing and was a panelist for the White House Conference on Aging in 2005.

50 | the last word 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.

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.

4/1/12

3/1/12

2/1/12

1/1/12

12/1/11

11/1/11

10/1/11

20%

16%

14%

12% $1,000.0

$800.0

$600.0

$400.0

$200.0

$0.0 7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/12

Reverse Market Insight - Logo

5/1/12

October 9, 2009

4/1/12

3/1/12

2/1/12

1/1/12

12/1/11

11/1/11

reversereview.com

5/1/12

4/1/12

3/1/12

2/1/12

1/1/12

12/1/11

11/1/11

10/1/11

$1,200.0

10/1/11

$1,400.0 9/1/11

$1,600.0

9/1/11

$1,800.0 8/1/11

Fixed

8/1/11

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/10 ARM

9/1/11

8/1/11

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

{ FIGURE }

2/1/11

6/1/10

Fixed Rate Percentage

hecm endorsement trends

1/1/11

{ 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 September 2012

Roundup Here’s a look SENIOR STATS

at the latest

Food for thought

n e w s and s t a t s affecting the market.

A study released by the Pew Research Center found that the senior population is surprisingly tech-savvy.

OUT AND ABOUT

Meet us in San Antonio! Our team here at TRR will be attending NRMLA’s Annual Meeting & Expo in Texas next month. The national conference, which attracts hundreds of reverse professionals every year, has an exciting lineup of guest speakers who will discuss important factors affecting the market. Be sure to stop by our booth and say hi!

HEADLINING NEWS

The CFPB releases its much-anticipated study on the reverse market. On June 28 the CFPB released its report to Congress on the state of the industry. While acknowledging that the market is poised for certain growth as boomers age, the study noted that consumer confusion was a serious concern. The results of the yearlong investigation made national headlines. Check out our special Spotlight on page 34 for the industry’s take on the bureau’s report.

MARKET INSIGHT

A look at the ZIP codes where reverse mortgages are most prevalent According to a study released by Reverse Market Insight, the No. 1 reverse mortgage town is located in Utah. The rest of the top ZIP codes are on the East Coast, in the outskirts of major cities, and in Puerto Rico.

TOP ZIP CODES 1. UTAH 84790 Units: 52 2. FLORIDA 32162 Units: 43 3. WASHINGTON, D.C. 20011 Units: 35 4. PENNSYLVANIA 19143 Units: 26 5. WASHINGTON, D.C. 20002 Units: 23

NY PA UT

6. PUERTO RICO 00957 Units: 20 7. PUERTO RICO 00725 Units: 20 8. PUERTO RICO 00926 Units: 19 9. NEW YORK 11434 Units: 18 10. NEW YORK 11203 Units: 18

FL 10

| TRR

The center surveyed 2,200 American adults, and of those who were age 65 and older…

53%

Use the Internet or email

69% 34%

) Own a cell phone

Use social networking sites like Facebook and LinkedIn Of the respondents who use the Internet…

70% 86% 48%

8 Access the Internet daily

@ Use email

@ Access email daily

Pewinternet.org

Industry Update

September Edition

Brought to you by:

an update of this past month’s breaking news

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

headlining news 1. Urban Financial

Continues to Grow Despite Knight Capital’s Loss Although its parent company, Knight Capital, made headlines with a $400 million trading error in August, Urban Financial is seeing record growth. CEO Steve McClellan said the company reached a new high in July with $150 million in loans, a number they are aiming to surpass in the coming months. McClellan said Knight’s loss and the subsequent stock purchase agreement crafted to keep the company solvent had zero impact on Urban, which operates as a separate and independent entity. // August 12, 2012

2. Silvergate Earns Ginnie

Mae HMBS Issuance After “Comparatively Brief” Wait Silvergate Bank received approval from Ginnie Mae to issue HECM-backed mortgage securities. The company, which recently touted the performance of its held-for-sale reverse mortgage portfolio, announced plans to begin issuing in September. The La Jolla, Calif.-based company said the issuance will allow it to further diversify its banking activities. // August 7, 2012

Security One Lending Receives Ginnie Mae HMBS Issuance Security One Lending has received approval by Ginnie Mae to issue HECM-backed mortgage securities. The California-based company has drastically expanded operations in the wake of

MetLife’s exit, hiring more than 130 employees. It announced plans to begin issuing by October 1. // August 2, 2012

CFPB Says Lender Pool May Solve Lack of Counseling Funds In the CFPB’s reverse mortgage report to Congress, the bureau suggests that having lenders pay into a pool accessible to all counseling agencies could solve the lack of counseling funds. The report says the pool could be administered by HUD or by a neutral third party, and that fund would be “disbursed to counseling agencies according to need or client volume.” Last year, only $45 million of the proposed $88 million was set aside for housing counseling, a number too low to address the bureau’s noted concern over consumer confusion in regard to the HECM. // August 6, 2012

5. Mass. Gov. Delays Face-toface Counseling Mandate

Massachusetts Governor Deval Patrick signed a bill to delay a mandate requiring certain borrowers to undergo faceto-face counseling. The mandate was opposed by reverse mortgage lenders who cited a lack of available in-person counselors. It was in effect for only a couple of days and, according to Mass.based Cambridge Credit Counseling, the requirement led to multiple complaints from frustrated borrowers upset over the need to travel for counseling services. Gov. Patrick’s bill will postpone the counseling mandate until August 1, 2014. // August 6, 2012

6. CFPB Will Issue New

Reverse Mortgage Servicing Rules in 2013

The CFPB said it will formulate new reverse mortgage servicing rules once it completes its revision of servicing requirements for the forward market. The agency said the differences in the forward and reverse markets led rulemakers to craft separate requirements for each industry, and that the reverse space can expect to see new rules in early 2013. // August 10, 2012

7.Former HUD Secretary:

Prepare for Boomers to Age in Place

Former HUD Secretary Henry Cisneros appeared in a series of AARP videos to stress the need for more housing options to accommodate the anticipated wave of 70 million baby boomers who will soon enter retirement age. Cisneros said his company, CityView, has conducted research that indicates that most Americans will opt to age in place, with only a small percentage moving into nursing homes before the very end of their lives. // August 1, 2012

AARP Launches Program to Help Seniors Age at Home AARP has created its first housing grant program to assist Americans age 50 and older in sorting through their housing options. The initiative will provide $1 million in grants to select organizations that are working to create solutions to the inadequate housing situation for seniors, mainly through new models of home modification. The grants will be awarded to organizations with a proven record of providing home-repair assistance to senior citizens. // July 26, 2012 reversereview.com

8 TRR

| 11

The Reverse Review September 2012

Movers & Shakers Read about the latest developments in companies across the reverse space.

Hav e a c o mpan y u p dat e y o u w ou ld lik e t o s e e p u b l i s h e d?

Landmark Network Named One of Inc. 500’s Fastest Growing Companies for 2012 The L.A.-based AMC ranked No. 108 out of 7 million companies nationwide, coming in at No. 4 in the category for best real estate companies. Landmark Network currently manages the largest share of appraisals in this space, handling approximately 25 percent of all reverse mortgage appraisals. Reverse Market Insight - Logo PANTONE COLORS

October 9, 2009

3005C

Process Blk C

REVERSE MARKET

Data provider Reverse Market Insight (RMI) has hired Jon McCue to serve as the company’s director of client relations. The new position will require McCue to focus on sales and customer service, an area that founder John Lunde says continues to expand as the company hits its five-year mark. “Historically we’ve worked with the top 10 to 15 lenders by volume,” Lunde said. “But we see a big opportunity for us to bring our sales and marketing analysis tools to more lenders and brokers.”

| TRR

iReverse Home Loans Announces Recent Staff Promotions Bay Docs Releases Updated Loan Origination System Reverse mortgage document and service provider Bay Docs has added processing, underwriting and lender calculator modules to its Reverse Express loan origination system (LOS). The Web-based LOS now offers users the ability to place a lender-configurable reverse mortgage calculator on their websites for easy use. New updates to the LOS include the ability to order credit and flood reports directly within the application and check realtime interest rates between application and closing.

National Council on Aging Launches Home Equity Website The National Council on Aging (NCOA) has launched a user-friendly website designed to educate seniors about tapping into their home equity. The site, homeequityadvisor.org, offers unbiased information to assist middle- and low-income seniors who are looking to use their home equity to obtain a loan, to sell their home or to avoid selling their home and maintain their home equity. The site offers tools to help determine the consequences of utilizing home equity and asses the best financial option for the senior.

Reverse mortgage originator iReverse Home Loans has announced three new hires. Deborah Anastasiou was named manager of the branch in St. James, New York; Adam Hertz was named manager of the company’s new branch in Missoula, Mont.; and Carol Ryan was named manager of the branch in Mattituck, New York. A subsidiary of Hopkins Federal Savings Bank, iReverse Home has originated reverse mortgages nationwide since 2007.

the assistant vice president and regional sales leader for MetLife Home Loans, Cesario has more than 10 years of experience in the reverse mortgage industry.

Nationwide Appraisal & Settlement Network Releases New Mobile Website Nationwide Appraisal & Settlement Network (NASN) has released a mobile website designed for clients and vendors on the go. The new application will allow users to log on directly to the NASN site on their smartphones to update files, access information and contact the NASN team while traveling to and from appointments.

INSIGHT

Reverse Market Insight Hires New Director of Client Relations

Email it to Jessica@reversereview.com.

Mortgage Information Services Joins NRMLA Cleveland, Ohio-based Mortgage Information Services (MIS) has announced its new NRMLA membership. The nationwide company has provided real estate information to the residential mortgage market since 1990, offering title insurance, settlement services and valuations to loan originators and servicing companies.

Mortgage Services III Names David Cesario National Sales and Production Manager Bloomington, Ill.-based Mortgage Services III (MSI) has named David Cesario national sales and production manager of the company’s reverse mortgage division. Formerly

SharperLending Enhances Appraisal Firewall Platform Mortgage technology provider SharperLending improved its Appraisal Firewall platform by connecting with Mercury Network. The integration will allow users to place appraisal orders directly on the platform with any AMC, giving lenders access to a complete list of available appraisers. Appraisal Firewall is a secure, Webbased technology solution designed to help lenders manage the appraisal process.

NRMLA News

On the Docket

are evidence-based, rather than merely speculative. A wide swath of our membership—lenders, loan servicers and industry analysts—is collaborating to compile information with a sense of urgency so we can meet the August 31 deadline.

You may have noticed the report was light on data and dependent upon anecdotal evidence. We feel part of our role in the follow-up is to accumulate the rest of the data to make sure the conclusions

Over the past few years, product innovation has attracted interest from new constituencies such as financial planners, academic researchers and builders. And of course there’s an election on everyone’s mind. So this year’s Annual Meeting & Expo in San Antonio on October 15-17 is called “Reverse Mortgage Roundup.” The name of the event is not just based on its Texas location; it reflects our intent to expand on what is already the largest gathering of reverse professionals each year by corralling other interest groups under one roof. Here’s your chance to hear from and network with your industry colleagues and HUD officials, as well as professionals in related fields who may help you expand your business. To register for the event and find hotel information, please visit nrmlaonline.org.

You might think the punishing summer heat would slow things down in Washington, but the release of the CFPB report June 28 and planning for our Annual Meeting & Expo in October have evaporated that notion. The report included a request for answers to a series of questions about factors influencing consumer decisions and long-term outcomes for borrowers. At NRMLA, we view this as an opportunity for the industry to have a voice in what is yet to come from the bureau. And so, on a weekly basis, we’ve been assembling a large cross section of board members from companies across the country to answer these questions.

In Committees Our Risk and Compliance Committee is finalizing its work on a Model Reverse Mortgage Disclosure with some new directional insights gleaned from the CFPB’s proposed rule in regard to Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z). While this proposed rule specifically excludes reverse mortgages, the committee has gathered valuable insight into the bureau’s thinking on APRs and other items. The Risk and Compliance Committee is also completing a review of the Conference of State Bank Supervisors Reverse Mortgage Examination Guidelines. Our Ethics Committee continues its monthly meetings to review new complaints, act on complaint resolutions and consider new advertising advisories in response to the CFPB report. The Servicing Committee is researching REO sale timeframes to begin efforts to work on appraisal-based claims issues with HUD. NRMLA continues its outreach to HUD’s National Servicing Center.

On the Hill

NRMLA and its political team continued to meet and coordinate with key members of the Senate Appropriations subcommittee to secure HUD-requested funding for counseling and an extension of the suspension of the HECM authorization cap. We are not confident this bill will actually make it to the full Senate, and may result in a Continuing Resolution (CR). We will be working to protect this vital funding for counseling, as well as the cap suspension, if there is a CR. NRMLA executive staff met with key members from both parties of the Senate Banking Committee to discuss reverse mortgages and some of the more technical issues facing the industry.

In the States

CRMP Update NRMLA would like to congratulate the following individuals who recently achieved the status of Certified Reverse Mortgage Professionals:

John KrajsA // AFC Reverse Mortgage, Allentown, Penn.

Mark Anthony Erskine // CS Financial dba Reverse Mortgage Works, Beverly Hills, Calif. Larry Hanover // Security One Lending, Schaumburg, Ill.

The 46 people who have been awarded the designation thus far are prominently listed on our consumer website, reversemortgage.org.

New Members NRMLA would like to welcome the following companies who recently joined the association: HomeTown Mortgage Services, Inc. (Lender) New American Funding (Lender)

Reverse Choice, Turnersville (Lender) Sente Mortgage (Lender)

Immediate Mailing Services, Inc. (Associate)

Our State and Local Committee continues to work on legislation in California and Massachusetts, which call for various requirements on face-to-face counseling. This committee is also coordinating with the Texas Mortgage Bankers Association on submitting language that would allow for HECM for Purchase in that state. reversereview.com 8 TRR | 13

NEWS FROM NRMLA

brought to you BY MARTY BELL : national reverse mortgage lenders association

The Reverse Review September 2012

THE HOT SEAT

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

the hot seat From his favorite movie to his thoughts about the reverse space, we get the personal and professional facts from Rob Awalt, president of Premier Reverse Closings, in our monthly edition of The Hot Seat.

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rob P E RSO N AL

premier reverse closings

If I were a professional athlete I would be a hockey player. They are so chill off the ice, they compete their butts off and they treat their teammates as the

FUN FACT

most important component (hard to find in the “me” world of today). And have

president

you seen the international talent they hang with? >

My first car was an orange Datsun B210 hatchback with a bumblebee painted on it.

If I could meet anyone past or present it would be our 16th president, Abraham Lincoln.

My favorite movie is Inglourious Basterds.

I never miss an episode of Glee. My daughter doesn’t miss it and I don’t miss opportunities to hang out with her.

When I was a kid I lacked direction.

I’ll never forget that success comes through sacrifice!

My favorite time of the day is any time, as long as I’m eating!

My iPod go-to playlist is pretty diverse. This past year’s concerts included: Foo Fighters, Tracy Atkins, U2, Cage the Elephant and Craig Morgan… so I guess it all depends.

My favorite book is Team of Rivals by Doris Kearns Goodwin.

If i were a professional athlete i would be a hockey player.

I never miss an episode of Glee. My daughter doesn’t miss it and I don’t miss opportunities to hang out with her.

P RO F E SSIO N AL >

The biggest challenge in the reverse mortgage industry is bridging the current gap between the truth about the product and the public’s perception. If we can succeed in our efforts to educate, it will provide the velocity needed to make HECMs a regular financial planning tool for seniors.

People should seek a career in the reverse mortgage industry because it is hard not to be a fan of the industry. It has given rise to so many rewarding moments over the years and has provided a living for my family.

If I could change one thing about the reverse mortgage industry it would be its perception! Most opinions about the product are short-sighted and inaccurate.

Reverse mortgage professionals can best support the public image of the product by continuing to be selfless. If we choose to simply do the right thing, it builds momentum and sells itself. >

In shaping appropriate regulation of the reverse mortgage industry, government officials need to understand that it’s important to remove their agenda from the picture and evaluate the product based on its own merit and the needs of seniors.

I would encourage a family member to consider a reverse mortgage because security and peace of mind are a huge part of finding happiness!

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The Reverse Review September 2012

DISCUSS

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It’s Time to Embrace the CFPB Tod d A u s h e rma n

he reverse mortgage industry is heavily regulated—I get it. There is a fear of the unknown, and it’s difficult to get excited about a super-committee with unprecedented, broadly defined power that was created on partisan lines, headed by an appointee who was selected through a process designed to circumvent Congress, all of which is subject to constitutional challenge. That last sentence was a mouthful, but it’s a reality. Another reality? The CFPB is here to stay. While you are free to disagree with the process that created our new regulatory authority, it’s time for us to stop the attitude of resistance and get on board.

Going to the source 16

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The rhetoric began quickly: “The CFPB is out to kill the mortgage industry!” “It is going to destroy small business!” Have we learned nothing from our recent history? Our little corner of the mortgage market has faced a turbulent last couple of years and if you’re reading this, you’re still standing. We survived counseling changes, principal limit “haircuts,” appraisal independence inspired by the Home Valuation Code of Conduct, increased monthly mortgage insurance premiums, detractors calling our program the next subprime, loan originator compensation changes, the departure of the big banks and on and on and on. All of these things were game changers to one degree or

another. We absorbed all of them. In some cases, though we fought them tooth and nail, we saw improvements, opportunities and foundations that would strengthen our fragile industry. Who’s to say this is going to be any different? Be honest—it’s not like we’re doing a perfect job on our own. T&I defaults, anyone? We’re still waiting for some guidance from HUD, any guidance, any day now. But this isn’t a HUD issue; it’s our issue as an industry. We know we need to fix it, and we’ve known we need to fix it for more than a decade. At the current rate, nothing is going to be done until it’s too late. But one thing you can say about what

The CFPB is here to stay. While you are free to disagree with the process that created our new regulatory authority, it’s time for us to stop the attitude of resistance and get on board.

originating we’ve seen from the CFPB thus far is that it gets things done, and quickly. Once the Cordray appointment was made, the agency took off running. It is meeting seemingly impossible deadlines with time to spare. Maybe the CFPB can actually teach us a thing or two.

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I’m not saying the creation of a supercommittee with the level of control that was imparted to the CFPB is necessarily ideal, especially during these times of increased regulations. And I’m certainly not advocating its infallibility or granting credit before it’s due. Time will be the true test of that. But the mentality that the agency

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needs to leave us alone, the mentality that this is going to destroy us, needs to stop. The bureau has already shown the ability to act reasonably, and that is key. Few would argue that the reverse mortgage report it made to Congress was overly harsh. It wasn’t perfect— there were flaws, but overall it was fine. And maybe that’s what’s in store for us. The CFPB and its relationship with our industry may not be perfect, and there are likely to be flaws. But overall, we will be fine. x

negative. I, for one, like the new face of the mortgage industry. I like that it’s difficult to be successful. I like that a lot of the cowboys have left the industry. I like that mortgages are simpler and safer for consumers. And I’d like it to stay that way.

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Anyone who was in the mortgage business prior to 2007 can attest to the mess the industry was in. If you missed that era, ask someone who was there; they’ll be happy to tell you. They’ll probably even have a wry smile on their face as they tell you. It was so bad it was twisted. It was ridiculous. It was corrupt. And I know the arguments: “They are trying to close the barn door after the cows have already escaped.” “These new rules are throwing the baby out with the bath water.” Clever clichés aside (and appreciated), the prior Wild West environment (see?) was not the answer. Safeguarding against future bad apples can hardly be seen as a

I’m not saying the creation of a super-committee with the level of control that was imparted to the CFPB is necessarily ideal... But the mentality that the agency needs to leave us alone, the mentality that this is going to destroy us, needs to stop. The bureau has already shown the ability to act reasonably, and that is key.

secondary market legislative spotlight

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240-864-4844 fnctitle.com

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The Reverse Review

JOIN US AT

September 2012

Reverse Mortgage Roundup

NRMLA’s 2012 Annual Meeting & Expo Hyatt Regency Riverwalk | San Antonio Texas

October 15-17 Follow Tweets on the Annual Meeting at #NRMLATX2012

A comprehensive reverse mortgage program focused on marketing, compliance, counseling, processing/underwriting, regulatory changes and much more. Network with wholesale lenders, technology vendors, title insurers and service providers. Sessions, include: ★ Program updates from HUD officials ★ What can we expect from the CFPB? ★ Impact of the presidential election on your business ★ Marketing to different generational groups 18

For | TRR registration information, visit nrmlaonline.org.

SPECIAL GUESTS: FHA Commissioner Carol Galante (Acting) Deputy Assistant Secretary Charles Coulter Senator Fred Thompson Economist Jared Bernstein Ginnie Mae President Ted Tozer

THE LARGEST SINGLE GATHERING OF REVERSE MORTGAGE PROFESSIONALS EACH AND EVERY YEAR.

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My Way

An industry veteran shares his tips on effective (and compliant) advertising.

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

Jam e s Q u i g l e y originating

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To the ethical mortgage professionals who author such material, it appears well written, straightforward and transparent. But the intended audience of that content is unfamiliar with reverse mortgage complexities and jargon. Explanations that seem to be self-evident to an ad’s author are often not sufficiently comprehensible to its intended readers, which can lead to a decrease in ad response. The fact is that the general public is confused by the reverse mortgage

Ambiguities Among the ubiquitous elements that decrease ad response are those that cause readers to assume that they do not qualify for a reverse mortgage, when many of them could. Implied qualification phrases such as having a “low current mortgage” and/ or “substantial equity” dissuade responses from readers who could qualify even if their mortgage is high and their equity is low. In fact, alleviating the payments on a high 8 reversereview.com

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spotlight

Because we are marketing our product to the senior population, it’s especially important that we are 100 percent clear and up-front in our descriptions of the loan. There are several elements that can be found in reverse mortgage advertising that can create confusion among our target audience.

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In light of the CFPB’s concerns, it’s important that we assess our advertising practices to ensure that we are being as clear as possible about our product. But transparency is not the only key to creating an impactful ad. There are other tips one must consider. I believe there is a specific way to write reverse mortgage ads that can result in a much higher response rate than what is likely garnered by the ads dominating the marketplace today.

A Cause for Confusion

product, and therefore often wary of it. This resistant mindset of our target demographic must be assuaged by advertising that clearly and soundly describes the ins and outs of our product. Many seniors could benefit greatly from taking out a reverse mortgage but don’t know enough about it to know that it may be a viable option. So how does one achieve the goal of educating the public while selling the product? I recommend you keep in mind the following:

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Among the concerns listed in the study were materials that implied a government affiliation or referred to the program as a government benefit, noted time limits on the loan’s availability, or stated that borrowers can never lose their homes.

What way is that, you ask? My way. Immodestly stated? Perhaps so, but I believe it’s true.

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he CFPB’s recent study on the state of the reverse mortgage industry noted concerns regarding advertising practices. The study states that false or misleading advertising creates confusion among consumers and contributes to misconceptions about the loan.

The Reverse Review September 2012

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originating A c c o r d i n g t o jam es

My Way

After helping a number of confused seniors decipher reverse mortgage explanations, I took on the task of assessing the content of Web and print ads for various reverse mortgage brokers. In revising their ads, I crafted explanations that were easily comprehensible to general public. I made no assumptions regarding what the public may already know. My

When it comes to content, I recommend highlighting the tax advantages afforded by the HECM. With wealthier prospects now showing interest in the product, you might consider including content that outlines the use of the product as a financial planning tool and the tax breaks involved with the loan. Finally, when possible, take out full-page ads that not only grab the attention of the reader, but are large enough to accommodate all of your content in a large font size. The enhanced visibility of the larger ad will offset the expense. And of course, don’t discount the benefit of just a touch of redundancy to drive your message home. x

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spotlight

So, what is this unique way of creating reverse mortgage ads that will result in a much higher response and how did it evolve?

I also suggest that ads avoid claims that may seem too good to be true and that might make a reader think, “They are hiding something.” Instead, I focused on emphasizing the integrity of the product with a brief but straightforward explanation of what some see as potential downsides of a reverse mortgage. Additionally, I avoid any content that can be construed as deceptive, because even the slightest whiff of potential deceit can greatly decrease ad response.

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Misleading phrases and buzz words can come across as disingenuous. Avoid using high-strung action words that might seem false. You may think you are encouraging potential customers to “Act now!” But in reality, you are walking a fine line that may suggest to some that there is a time restriction on the product’s availability.

Moreover, my format avoids the use of contractions such as “aren’t” and “can’t” because I believe they can easily be misread as “can” and “are” by a senior reader, and this is especially the case when the print is small. Instead, I spell out the word and bold and highlight the “not” part of the phrase.

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Generally, it is wise to avoid making statements in your advertising that lead to more questions.

Buzz Words

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Although that seems clear to mortgage professionals, seniors have asked me questions regarding that sentence, including: Does that mean my credit line is also capped 10 percent above its initial amount? Does the initial interest rate include the 1.25 percent mortgage insurance? Once I use a portion of the credit line, is it still considered “unused”? Is there an eventual limit on the increase of my credit line, even if its related interest rate is capped? Is it possible for my credit line to rise far above the value of my home?

The definitions of industry acronyms and other loan-related terms (e.g., net principle limit, maximum claim amount, nonrecourse, margin, arm’s-length sale) are too unfamiliar to be understood by most readers, even when in context. These words, along with acronyms isolated from immediate explanation, are often enigmatic and confusing, and when they must be followed by an asterisk referencing a footnote, they can interrupt continuity and reader concentration. Be wary of using such terminology in your advertisements and check to be sure that your language is clear enough for the layman to grasp.

format replaced all of the confusing elements mentioned above with clear and simple language enhanced by examples that offered clarity.

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Ambiguities can also arise when touting a great advantage of a reverse mortgage with sentences like: “The unused credit line increases at the same rate as the initial interest rate, which is capped at 10 percent above the initial rate.”

Acronyms & Jargon

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Among content factors that breed potential deception are claims that home value appreciation will offset negative amortization. Most consumers know that home values have depreciated in recent years, so these claims appear deceptive and decrease response rates.

Avoid using high-strung action words that might seem false. You may think you are encouraging potential customers to “Act now!” But in reality, you are walking a fine line that may suggest to some that there is a time restriction on the product’s availability.

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mortgage is actually one of the main reasons borrowers today obtain a reverse mortgage. I recently spoke with a married couple who thought they could not qualify for a HECM because their current mortgage exceeds the amount of the projected reverse mortgage loan. Prior to contacting me, they had done a substantial amount of research on the product and despite all they had read, they did not know that after taking out the loan, they would be able to pay off the difference at closing. When I informed them that they could, they were ready to apply. If you are up-front with this information from the start in your ad, you may increase your response rate.

The Reverse Review September 2012

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Changes for Originators Bring More Responsibilities Joh n Smald on e

hen I sat down to write this article, I began to reflect on the time I have spent in the lending industryâ&#x20AC;&#x201D;more than 44 years now, since 1968. In the last 14 years, I have been focused solely on the reverse mortgage market. In the years that I have been in the business, it is hard to believe all of the changes that have taken place. In fact, very little is the same as it was, except maybe the color of money that has changed hands!

The Past We all know that the reverse mortgage industry has changed drastically. Before the 2008 crash, we were stable in our pricing models. Nearly all the companies were pretty much equals in that area. We marketed our product, our companies and ourselves in pretty much the same way as our competitor next door. Seniors were skeptical about the product and it was still an unknown commodity, even though it had been around since 1989. Educating the public and the financial industry was a major challenge we faced. But most of us were up to the challenge and we did our jobs; in fact, many of us did our jobs very well and with pride.

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What separated one originator and company from the other, in my opinion, was how well we knew our product, how well we related to the senior and how hard we worked to service our clients. Those of us who could instill confidence in a senior because of our knowledge and patience usually got the loan. The reverse mortgage industry then did not attract as many originators as it does today. It was different from the forward mortgage world. Our income on a per loan basis was regulated by HUD and based pretty much on the value of the property or FHA claim amount, rather than on the type of product and the interest rate. If we worked hard and did a volume of closings, we made a very respectable income. This is very different from today.

Into the Present and on to the Future The past is gone and here we are, September 2012! Since the 2008 crash we have seen major changes in regulations, products types and pricingâ&#x20AC;&#x201D;not to mention changes in how we do business in general. We now have the fixed-rate standard product, the ARM standard, the fixed saver, the ARM saver and the home purchase program. We had varied

programs back then as well (the HECM, proprietary jumbo loans and even the FNMA reverse mortgage called the Home Keeper). They were priced differently as well but not like loans are today. After the big crash of 2008, the country faced many challenges. Foreclosures were at their highest levels in the history of the U.S. The stock market plunged, record bankruptcies came out of the woodwork, lending almost came to a halt. We were in the greatest economic collapse since the Great Depression. Lending started to go through a complete overhaul, especially in regard to underwriting and its governing guidelines. We saw the government coming in to bail out banks, auto dealers, Wall Street firms and you name it. What we saw was panicked decision-making at the government levelâ&#x20AC;&#x201D;in fact, we still see that today! The reverse mortgage industry has always been set apart from the traditional or forward mortgage market in both business styles and in regulation. I believe that because of this vast separation we were a more consumer-friendly industry. Interest rates were controlled, borrower fees were controlled and

originating even what we could or could not say was controlled by HUD. In my opinion, the senior was more protected then than they are today.

* Read the alerts that are issued by your company and investors. The alerts notify you of their policy changes and those that are occurring and affecting the industry.

* Go to seminars being conducted by your competitor—learn from them! See how they present their format and what they have to offer the senior community. Knowing what you are up against can give you an edge!

spotlight

Remember this: The more you understand the anatomy of our product and how it will benefit your senior client, the more valuable you are going to be to the entire reverse mortgage industry. x

With home values on the decline, there’s been an undeniable increase in insurance and property tax defaults. In order to help mitigate this situation, a reverse mortgage servicer should consider issuing a “homeowner letter” before a pending property tax due date to remind the customer of his or her responsibility to pay property taxes. The servicer should also consider issuing a letter after the due date if the taxes remain unpaid at the collector level. With wellconstructed, respectful and clear content, a letter campaign can elicit positive responses from homeowners who may be unaware of their tax obligations and create a relationship of mutual trust between the servicer and borrower.

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These are just a few areas to think seriously about. Whatever shape the industry takes in the future, one thing is certain: Knowledge will make you a better originator. It will give you the edge you need to compete in today’s and tomorrow’s market environment. So educate yourself any way you can. Do it for your senior client, your employer and yourself. The changes in the industry are going to be rough, but they will be the toughest on our seniors. You can make the difference. You can be the one to intelligently guide your client through the difficulties they will be facing.

Dennis Gassoway

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environment requires one to be continually in tune to all the changes taking place. This

all the parts pertaining to the reverse mortgage. Read every HUD mortgagee letter that comes out pertaining to the reverse mortgage industry. Have a scrapbook designated for them.

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* Being well educated in today’s

* Get familiar with HUD’s manual and

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As a veteran of this industry, here is what I recommend reverse mortgage professionals consider DOING TO HELP THEMSELVES ADVANCE AND STAY ON PACE WITH THINGS TO COME:

many industry publications and news sources as they can. Most all of them are free to you!

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What do the past, the present and the possible future mean to all of us in the reverse mortgage industry? It means that originators today need to handle things differently than before. They need to be prepared, stay focused and be very well educated in order to survive!

* Originators need to subscribe to as g

Finally, we saw the passage of the SAFE Act, a national licensing act for the mortgage industry that is still causing a ripple effect throughout the lending space.

At the same time, new bills were being introduced in Washington—the Financial Regulatory Reform Bill (Dodd-Frank), for one. The passage of this bill brought panic to the entire financial industry, which feared the consequences of potential overregulation. It also gave rise to the CFPB. We then had to prepare for more changes and additional regulations.

any training courses given by their lenders or varied industry organizations.

Live pricing put a reverse mortgage pretty much on the same playing field with a forward mortgage, mostly affecting the fixed-rate loan. We did not see the effects of this for some time. The industry was unfamiliar with this new secondary market tool; it took awhile to figure it out. Originators, especially those who had no forward mortgage lending experience, had a difficult time adapting.

* Originators need to take advantage of originating

Then FNMA stepped in after the crash and introduced “live pricing” to the reverse mortgage industry. I personally feel this was the beginning of a nightmare that would plague the industry for many years to come.

especially includes underwriting changes. Yes, underwriting changes! Read, read and read underwriting manuals, and learn all you can from your underwriters. Underwriters are the most knowledgeable people in our industry, and knowledge is power!

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

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The Reverse Review September 2012

Your direct path to growth in the

Reverse Mortgage market.

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Assess

Underwriting

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

Learning From Our Mistakes Ral p h R o s y n e k

* How does the recent CFPB

HECM Report impact your ability to originate?

* Are there any required regulatory

policy, procedure or guideline implementations or changes coming up in the next 60 days?

* In your ongoing sales and

marketing training, is there a focus on improving interview skills and techniques?

* If you use checklists or a matrix

to assist you in the origination or processing of the loan, does it need to be updated?

* Have you reviewed and

implemented all of your investors’ change requirements over the summer?

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* Are you aware of current investor criteria for addressing tax and insurance delinquency issues?

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While your full attention may have been fragmented in the past few months, our friends at the CFPB, state regulators, HUD and the consumer groups have been working on creating more interesting opportunities for our industry.

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Speaking of asking the right questions, I have always commented that the month of August is both a very happy and very sad month for many— from a child’s disappointment over the appearance of “back to school” commercials to a parent’s anticipation of those ringing school bells. So my question is: Are you ready to get back to work? Summer is over, and for many that means it’s time to hunker down.

changes in your state regulation with regard to increased borrower awareness and disclosure?

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Back to School and Back to Work

* Have there been any substantive

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Unfortunately, recovering from the problem by undertaking the action described above does not resolve

Ultimately, the situation leaves one to ponder what could have been done differently. Did we interview the borrowers completely and ask the right questions? Could we have been more thorough? When cases like this arise (and they will, no matter how diligent you are), take time to ask these questions and review how things could be done differently. This will help you improve your process and ensure that you learn from the mistake.

If you need to play catch up, here are 10 things I suggest you look at a little more closely:

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Consider a situation in which a female applicant signed the original document for her and her husband. The field-executed application did not indicate that the wife was signing as POA for the husband on the signature lines. The first counseling session was done by phone and identified the wife as POA for the husband on the counseling certificate. The case number was pulled based upon the counseling certificate, which included the POA information. All services for the loan were ordered and charges incurred on behalf of the borrowers. Subsequently, the borrowers were contacted for a copy of the POA document, only to find the husband was competent but unable to speak. The borrowers were immediately sent back for a face-to-face counseling session. The loan processor noted the extra work involved. “Then we executed another application with the husband signing for himself,” he said. “If I just used the new application and counseling cert, it would seem like we pulled a case number, credit report and appraisal prior to counseling.”

the fact that what occurred was completely noncompliant. Correcting the situation by completing additional documentation, including letters of explanation, will help clear up the issue, but the fact remains that services were ordered before the borrowers were counseled, and additional fees will apply. Because a case number stays with with the property for the duration of the loan, the noncompliant issue cannot be fixed by simply ordering a new case number.

originating

hen a situation arises in the underwriting process as a result of inaccurate information or error, recovering from the mistake can be a very painful process for all parties. First the underwriter must assess the damage caused and thoroughly examine if any required checkpoints were overlooked. And then he must own up to it. Oftentimes, we stress and scramble to undo the damage, when those involved may be better served by simply owning up to it and moving on.

* Have you or your company

developed a review and improvement checklist for origination and processing errors that have occurred in the past 90 days?

* Have you made your reservations

and completed your registration for the NRMLA annual conference in San Antonio?

* Have you identified any new

sources, strategies and efficiencies to kick your pipeline back into gear for the fall? x reversereview.com

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The Reverse Review September 2012

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Legal

Following these suggestions won’t solve all of your examination woes, but they will help you do all that you can to resolve any matters raised in regulatory examinations. x reversereview.com

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spotlight

Assuming you’ve provided the information the examiner requested and treated them well while on-site, you will have a good foundation for resolving issues in the report. There is a twist, though: Many times the examiner passes their work papers on to a supervisor who prepares the report.

When you respond, the examiner will only see what you’ve included in the report. Address each issue in detail and provide sufficient additional documentation to demonstrate to the examiner that they can consider the issue resolved. Finally, make a professional presentation. Sharplooking cars sell faster for a reason—the exterior sends a message of confidence about the inside.

legislative

On the exit interview, before an examiner ever drafts a report, three things can happen. First, an examiner might mention a deficiency that you can clear up right then and it never makes it to the report. Second, an examiner may have deficiencies that you cannot clear up during the exit interview. Those will

First, note the due date of the report so you can respond on time and request a time extension if necessary. Next, carefully read each deficiency noted in the report. Are the conclusions correct? You may have to dig back into specific loan files to answer this question. Is it possible that you have a document that will solve the deficiency, but which wasn’t passed on to the examiner?

secondary market

with, warehouse facilities and a host of others will want to see copies of recent reports.

appraising

hen I was in grade school, we received report cards four times a year. It was always a scary event. Bad or good, I had to show my report card to my dad, who would dole out quarters, nickels and dimes to my brother and me based upon our grades in each subject. Getting a Report of Examination from HUD seems like an adult version of report card time, but with significantly higher stakes; HUD, other lenders you do business

legal

Bill T ras k

underwriting

Exam Prep

Assuming you’ve provided the information the examiner requested and treated them well while onsite, you will have a good foundation for resolving issues in the report. There is a twist, though: Many times the examiner passes their work papers on to a supervisor who prepares the report.

If you can’t demonstrate that an examiner’s conclusions about a particular issue are incorrect, or that you have additional information that will resolve the matter, then you need to turn your attention to corrective action. It might be a policy change or new procedures for an existing policy, or even training for employees so they properly follow adopted procedures. Whatever the case, carefully spell out what action you’ve taken and why that will prevent similar deficiencies from occurring in the future. Remember, the exercise of examination is about more than just making the government happy. It’s just as much about doing compliant, fair and highquality business.

originating

become the substantive portions of the report. Third, you could have a deficiency so egregious or pervasive that it will make its way to the enforcement division of the agency as soon as the examiner returns to the office. I can’t help you with the third possibility—you need to circle the wagons and bring in the hired guns: outside counsel.

The Reverse Review September 2012

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value

appraising

Reliable Valuations Leah P h i n n e y

Make sure your valuation partner is offering this data-driven product. There are several product types varying in breadth and depth, whose quality is directly related to data backing it. Be sure to ask questions about the data source fueling these reports. Does it draw from a source that has collected comprehensive national MLS data? Does the confidence score and accuracy of the report vary depending on the market? Make sure these products enhance your process and empower you with useful information. High-quality AVMs and analytics provide lenders with a quick and relatively inexpensive valuation to obtain annual market trending data for the loans they continue to service. Make sure the AMC handling your appraisal is enhancing risk mitigation by engaging appraisers that are familiar with the reverse mortgage product and is writing the appraisal with the intended use in mind. x reversereview.com

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spotlight

After state regulations started restricting the use of Broker Price Opinions as a

Automated Valuation Models (AVMs) and Analytics

legislative

Appraiser Price Opinion

valuation tool on REO properties, many AMCs began offering appraiserauthored alternatives. These products range in their scope of work, from desktop analysis to exterior inspections performed by a certified appraiser, and they are performed before or after the loan has been funded. (To be clear, we do not advise using an Appraiser Price Opinion or Automated Valuation Model in attempt to determine a prevalue. These products are supplemental only and a full inspection is required to adequately determine value.)

secondary market

Be sure to ascertain how an AMC selects its appraisers, inquiring about the companyâ&#x20AC;&#x2122;s minimum qualifications and hiring processes. Industry best practices dictate that AMCs develop metrics for performance to create a preferred panel, identifying a potential field of only the highest-quality professionals. The profiles of the appraisers on a preferred panel would include appraisers who have been certified and approved by the FHA for at least three years, have no complaints or state sanctions, and have track records of quality work.

appraising

More than 90 percent of todayâ&#x20AC;&#x2122;s reverse mortgage originations are insured by FHA. It is critical that the AMC you engage with is fully compliant with FHA regulations for appraisal independence and appraiser competency and meets industry process requirements.

legal

Traditional FHA 1004 Valuations

according to leah

underwriting

With more than 20 million eligible reverse mortgage customers who own their homes outright, lenders have great opportunities today to grow and diversify their reverse mortgage portfolios. To manage risks, and to ensure that both accurate and timely valuations are obtained, lenders must work with a reliable appraisal partner. When considering a relationship with an AMC, be sure you have access to the following:

originating

etermining property conditions and current market value quickly and economically with innovative and compliant valuation solutions is critical for reverse mortgage lenders.

The Reverse Review September 2012

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HMBS

secondary market

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

According to darren heading into the ever tumultuous fall season, performance in the HMBS arena continues to originations will begin to uptick given the fact that some of the origination landscape has been

originating

be strong. We are hopeful that

shifting, there are rumors of new GNMA Issuers are coming aboard and ramping up.

underwriting

new entrants to the market, and

legal

Dar re n S t u m b er g er

So, heading into the ever tumultuous fall season, performance in the HMBS arena continues to be strong. We are hopeful that originations will begin to uptick given the fact that some of the origination landscape has been shifting, there are rumors of new entrants to the market, and new GNMA Issuers are coming aboard and ramping up (Silvergate Bank, Security One Lending, One Reverse, Genworth, LiveWell Financial). There will be next steps with the CFPB and originators are currently crafting responses to its recent report to Congress. Still, there is really only one news item here and it’s called true sale. x reversereview.com

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spotlight

Spreads have gotten tighter after a technical widening in early summer. Fixed-rate spreads are 105 to swaps for August settle bonds, with floaters trading at a high 60s to low 70s discount margin for premium paper. There’s a scarcity of paper dynamic occurring in the market, which will continue to benefit originators and keep spreads contained. We’d need a macroeconomic/FHA program event to happen for spreads to push materially wider from here (end of 2010, etc.). In July, there was $681 million of GNMA HMBS issued, with Reverse Mortgage Solutions and Urban Financial comprising 66 percent of that. Additionally, more than $500 million of H-REMICs was issued and sold to investors. Bank of America Merrill led the pack with a $166 million in transactions, followed by Knight Capital Group at $153

million, and RBS and Barclays at $103 million and $87 million respectively. Prepayment speeds for 2010 and 2011 fixed-rate vintages came in at roughly 50 percent of the HECM prepayment curve. The 98 percent maximum claim buyouts will continue to register a higher percentage of the cash-flows for the 2008 and 2009 vintages going forward.

legislative

I would guess that the holders of the 2006 and 2007 vintage non-agency HECM deals, with their bonds trading at 70 cents on the dollar, won’t be the first to jump back in, even if there were a revival of these issues. The buyer base of these non-agency issues is very different than the buyer base of GNMA Reverse MBS. With yields where they are in non-agency residential MBS, interest rates for newly originated HECMs would have to be raised a great deal for bondholders to

achieve similar yields. This would greatly impact upfront proceeds to the borrower, and would cause the origination market to contract upward of 50-75 percent. Bottom line: The accounting issue needs to be fixed.

secondary market

he one constant in the reverse MBS arena since I entered the market in 2006 is change. There haven’t been many dull moments! The main issue continues to be the concern that GNMA issuers are not receiving “true sale” upon the origination and sale of securitized HECMs. Obviously, you cannot have a viable, sustainable securitization program without achieving a true-sale accounting and one hopes these matters get resolved in D.C. sooner rather than later. There is no private market solution to fall back on as the non-agency securitization market is still in a coma.

appraising

True Sale Issues Remain

The Reverse Review September 2012

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SERVE

legislative

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

originating underwriting legal appraising

CIS members (from left) Reza Jahangiri, Dan Harder, Erik Richard, H. West Richards and Carl Rojas with Rep. Latham. Photo by Mariel Calhoun

A farmer and small-business owner, Tom Latham is a nine-term represented the people of Iowa since 1995. He is the dean of Iowa’s delegation in the House of Representatives, serves on the House Appropriations Committee and is chairman of the Appropriations Subcommittee on Transportation, Housing and Urban Development.

“This award commemorates Representative Latham’s support of reverse mortgages for the financial independence of seniors, including constituents in Iowa and around the country,” said CIS Executive Director H. West Richards. “The congressman has demonstrated leadership for the industry and has helped to afford many seniors financial freedom through the use of reverse mortgages by supporting the HECM program within FHA.”

Why do you think the HECM is a valuable program for America’s seniors? The HECM program allows seniors to unlock their own resources, which in turn can help them stay in their homes. We know you are a proponent of HECM counseling. Can you share your thoughts on why you think it remains an important piece of the HECM? As part of the process, HECM counseling plays a significant role. Because seniors need and deserve to understand all of the facts before they go forward with a HECM instrument, I want to make sure that HUD is properly monitoring the counseling program to determine where the needs are for further improvements. x reversereview.com

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spotlight

republican who has

TRR Talks With Tom

legislative

everse mortgage advocacy group the Coalition for Independent Seniors (CIS) honored Rep. Tom Latham (R-Iowa) for his continued contributions to the HECM program. CIS board members met June 27 on Capitol Hill to present the congressman with the 2012 Friend of CIS award.

secondary market

CIS Honors Rep. Tom Latham

The Reverse Review September 2012

spotlight article s

er eptemb

The bureau releases a massive study on the state of the reverse mortgage industry.

editi

“Because reverse mortgages can help older homeowners ease the strain of retirement, this product can be beneficial if seniors choose it based on a solid understanding of how it works.” – CFPB Director Richard Cordray

Indeed, the report cites evidence to suggest that the market is “poised to grow in reach and impact” as the baby boomer generation continues to age. While noting that the current market is rather small, with only about 2 to 3 percent of eligible homeowners utilizing the product, the study acknowledges that this is bound to change: “Reverse mortgages have the potential to become a much more prominent part of the financial landscape in the coming decades.” This is good news for the industry, and a strong incentive for the CFPB to get to work on addressing issues that may hinder the program’s effectiveness. Released one month ahead of schedule, the study was commissioned as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It set out to create a comprehensive guide on the reverse market and assess consumer protection concerns, and did so by offering an extremely detailed history of the program and its evolution, as well as a thorough analysis of the various products currently on the market.

THE CFPB

REPORTS TO CONGRESS The CFPB released a detailed report to Congress in June on the state of the reverse mortgage industry with conclusions that made national headlines. Media outlets ran sensational stories about the report, printing alarming headlines that decried the program for confusing the elderly. But in reality, the 231-page report said so much more about the HECM product other than the simple claim that its complexities can be confusing. Much of it was insightful, and some of it was even positive. As NRMLA President Peter Bell said, “The bark was less than the bite—the headlines generated from the report are far more upsetting than the actual report.” 34

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What it did not do, however, and what drew the ire of many in the reverse space, was talk to actual consumers. Rather than reaching out to those who have actually used the product, the bureau relied on anecdotal evidence to make assertions about the program. It spoke to 15 different companies in various sectors of the industry and examined consumer submissions to the CFPB and complaints made to the FTC. Not once did it seek feedback from the seniors who are purportedly confused by the product. Acknowledging that consumer feedback was lacking, the bureau issued a Request for Information to gather input from the public about the product. The request specifically asked for information on the factors most important to consumers when considering a reverse mortgage, the longer-term outcomes for borrowers and how borrowers use loan proceeds. Submissions were due August 31, and the results are expected to impact the bureau’s proposed legislation. Until then, industry will have to sit tight and hope that actual consumer feedback challenges some of the assumptions made in the report.

spotlight article

Generation Asks Borrowers To Weigh In In response to the bureau’s report, Generation Mortgage reached out to its borrowers to determine exactly how accurate the agency’s assertions are.

94.7%

response count no = 20

2009 Median home equity for baby boomer households was $108,000 in 2009.

740,000

LOANS HAVE BEEN originated under the HECM program.

appraising

response count yes = 358

5.3%

homeowners.

legal

yes

The baby boomer generation

includes 32 million

underwriting

In the process of obtaining a reverse mortgage, did the lender do a good job of educating you about the reverse mortgage product and answer any and all questions prior to your decision to obtain a reverse mortgage?

FROM THE REPORT originating

The company polled 3,796 borrowers, asking questions about their product knowledge and experiences both before and after obtaining a reverse mortgage. As of press time, about 10 percent of those surveyed had responded. The company intends to release the survey’s full results later this fall, but early reponses indicate that, contrary to the bureau’s findings, most of GMC’s borrowers do understand the complexities of the product. 8

STATS

The typical reverse mortgage borrower is... a single female in her 70s.

In FY2011, nearly half of reverse mortgage borrowers were under age 70.

legislative

In FY2011, 73 percent of reverse mortgage borrowers took all or almost all of their available funds upfront at closing.

spotlight

Did the lender do a good job in educating you about the product?

secondary market

yes

9.4 %

Released one month ahead of schedule, the study was commissioned as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It set out to create a comprehensive guide on the reverse market and assess consumer protection concerns.

of borrowers are at risk

of foreclosure due to taxes and insurance default as of February 2012. The HECM for Purchase is on the rise: 1.8 percent of all HECMs FY2010, 2.3 percent in FY2011.

reversereview.com

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The Reverse Review September 2012

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spotlight article

THE INDUSTRY REACTS Jim Milano Weiner Brodsky Sidman Kider

More Study Needed

Look Ma, No Mortgage Payments

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spotlight

reversereview.com

legislative

Counseling has undergone significant improvements over the past several years, but adequate funding for counseling and quality control remain issues. However, there are resources available for counselors to help explain reverse mortgage programs. Indeed, the updated FHA HECM counseling guidelines recognize and require that counselors use reverse mortgage printouts to show the calculation of the funds available to the senior, payment 8

secondary market

The same could be said of the bureau’s concerns regarding lump-sum draws. But it’s worth noting that the bureau did issue an official request for more data on the matter of fixed-rate, full-draw reverse mortgages. Hopefully, the bureau will consider that data so that anecdotal statements are not accepted as fact.

Counseling

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The study notes that reverse mortgage borrowers are getting younger, and having used the equity in their homes, the borrowers will have no home equity from which to draw as they age. This assertion ignores that fact that a borrower may be using a reverse mortgage to pay off, in whole or in part, a forward mortgage. Replacing a forward mortgage with a reverse mortgage removes the monthly mortgage payment obligation. The report also does not go into any detail about recent financial planning literature that suggests that it is sometimes better to tap into home equity earlier in retirement than initially depleting other retirement assets. One can only hope that these oversights or omissions in the report will be corrected in the future in a document billed as “an authoritative resource on reverse mortgage products, consumers, and markets ...”

legal

If reverse mortgages are difficult to understand, one would think that the general TILA disclosures, including either Important Terms disclosures or closed-end Truth-in-Lending disclosures (that, quite frankly, do not work well with reverses mortgages), along with the TALC, the GFE and HUD-1, are at least partly to blame. Revised, uniform and simplified disclosures for reverse mortgages cannot come soon enough. However, in the bureau’s proposed TILA-RESPA Integrated Disclosure Rule, published by the bureau on July 9, 2012, it is clear that revised and simplified reverse mortgage disclosures are not on the immediate horizon. Quite the contrary. In the proposed TILA-RESPA Integrated Disclosure Rule, the bureau

If the bureau wants reverse mortgages to be more understandable, part of that solution can come from more simplified and streamlined reverse mortgage disclosures.

The study states that deceptive or poor advertising has been a problem in the industry. However, in addition to several new regulations, including amendments to the advertising rules under TILA and the FTC MAPs rule, there has been a push in the reverse mortgage industry for a number of years to educate industry members (particularly through NRMLA Ethics Advisories) not only about the ills of poor advertising, but also about monitoring business partners and being cautious in conducting business with those who engage in such practices. The report states that the concerns over crossselling have subsided, and I also believe that the problems the industry might have had with faulty advertising 8 to ten years ago have substantially subsided and have been significantly reduced. The report does not give the industry enough credit for its self-policing efforts on this front. The claims of faulty reverse mortgage advertising were contained in, among other places, a prior GAO report on reverse mortgages. One would hope that, after a number of years, the “half-life” of the report of alleged past faulty advertising would decrease, and government agencies and consumer advocates would stop using past reports of faulty advertising as assertions of fact on the current state of affairs in the reverse mortgage industry.

underwriting

Comments about the HECM’s complexity remind me of a story I heard about Elizabeth Warren in her early days as “special advisor” to the CFPB. During an initial outreach meeting with representatives from the mortgage industry, an industry representative reportedly presented her with a stack of loan disclosures and asked, “Why is this stack of papers so large and why do lenders require all of this?” Perhaps, after more clearly understanding the history of disclosure requirements, Ms. Warren had an epiphany and made it an early goal of the bureau to simplify mortgage disclosures. And this “simplification” is in fact mandated by the Dodd-Frank Act, not only for forward mortgages, but also for reverse. Perhaps Ms. Warren’s thoughts echoed the famous words of the ’70s comic strip character Pogo: “We have met the enemy, and he is us.”

Self-Help and Self-Policing

originating

“We have met the enemy, and he is us.”

said that until it can finalize a “Know Before You Owe” combined TILA-RESPA disclosure for forward mortgages, reverse mortgage lenders will be required to use the current (and soon to be antiquated) TILA and RESPA disclosures, including the GFE and HUD-1.

Jim Milano h. West Richards CHRISTOPHER J. WILLIS

The Reverse Review September 2012

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spotlight article

Overall, the study is very broad and well done. It’s detailed in some areas but lacking depth in others. The media response to the study appears more negative than the study itself. One positive but lesser-mentioned aspect of the study is the assertion that the reverse mortgage industry is currently very small but poised to grow.

A Well-intended Hypothesis The CFPB study did a rather impressive job of presenting the history of the reverse mortgage, but it neglected to include the necessary analytics and therefore I think it is rather incomplete. The study itself was extremely well written and organized. It was a well-intended effort that was very effective in identifying areas that need research, but it was published with the implication that all the facts are within, when indeed they are not.

spotlight

CIS

legislative

H. West Richards

This article is based on the personal views of Jim Milano and does not represent the views or opinions of the law firm of Weiner Brodsky Sidman Kider PC, or its clients. x

While there was some reference to dated, third-party studies on the industry, there was no current survey or polling of consumers associated with this study. I believe that what the CFPB has purported to be a finding is more of an untested hypothesis that calls for actual statistical support. Given the important charter of the CFPB and its vital role in examining various industries in the financial services arena, I am disappointed that they did not take a more robust scientific approach in this first important effort in evaluating the reverse mortgage industry. In regard to the agency’s noted concerns about deceptive marketing practices, the industry suspects that only a very 8 reversereview.com

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secondary market

Regarding reverse mortgage rulemaking, in several areas of the study, the bureau alludes to the 2010 Mortgage Proposal issued by the Federal Reserve Board in September 2010 prior to TILA, Reg. Z and the other federal consumer laws transferring to the bureau. In the 2010 Mortgage Proposal, the Board proposed new reverse mortgage disclosures, more rules for reverse mortgage advertising, additional requirements around counseling, rules on offering other financial services products with reverse

appraising

The Past is Prologue

When one looks at the bureau’s work in other areas (such as Ability to Repay and Qualified Mortgage rulemaking for forward mortgages) along with the bureau’s expressed concern in the study with the prevalence of the fulldraw feature, its effects on government benefits, the younger age of senior borrowers and seniors’ ability to sustain themselves in their homes after receiving a reverse mortgage (including the ability to pay taxes and insurance), it is not difficult to imagine that, once further reverse mortgage market and product information is collected, the bureau will propose rules to address these concerns. The industry’s past and ongoing work in self-policing advertising and other practices—as well as thought leadership and processes placed around model disclosures, additional but limited underwriting and suggestions for further improvements in the quality and funding for counseling—should be taken into serious consideration by the bureau, and should be the foundation and starting point of future discussions among all reverse mortgage stakeholders, including the bureau, industry, HUD, counselors and consumer advocates.

legal

One step the industry can take is to respond to some of the findings of the study with additional and more detailed information. Importantly, while the report makes reference to numerous past studies conducted by others (such as the AARP), the study did not involve any direct interviews or surveys of consumers by the bureau. One of the next steps the bureau should take is to review additional information prior to engaging in any proposed rulemaking regarding reverse mortgages.

mortgages, and a request for comments on whether a suitability standard should be created for reverse mortgages.

underwriting

As the bureau considers new or revised disclosures for reverse mortgages, it should review what is available to counselors and seniors today in the industry, and indicate with specificity what more, if anything, is needed in order to make it easier for counselors to explain various reverse mortgages to seniors.

My Take On It

originating

plan options and comparisons of available products. Using software, counselors are able to show seniors how variations in different reverse mortgage products may affect the client’s equity, loan amortization and projected loan balances, and loan costs. These reverse mortgage loan printouts can include features such as illustrations of future remaining credit line projections based on credit line draws specified by the client; a comparison of estimated loan details at closing; projected loan comparisons at various future times, including projected figures for total cash received and cash remaining; total cost expressed in terms of total dollars and a total annual average rate; and amortization projections for selected products with year-by-year details. Particularly helpful are the models, charts and graphs provided to lenders and seniors by software companies such as ReverseVision.

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The Reverse Review September 2012

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reversereview.com

spotlight article small portion of reverse professionals have actually engaged in such activity over the years. It would be interesting to see what the true percentages are from, say, 1990 to 2010. Regardless, it remains the industry’s responsibility to make an effort to weed out bad actors as best as possible and to support prohibitions by the CFPB on deceptive marketing practices.

The CFPB Needs Our Help One notable concern cited in the study is the fact that younger borrowers are taking reverse mortgages earlier than before and in lump sum. It regards this statistic as a criticism of the industry without acknowledging that financial challenges are a fact of life for many senior Americans, and many lack the resources to cover major and even everyday expenses, let alone have funds to set aside for the future. Reverse mortgages do not create this problem, or even exacerbate it. Rather, they provide a mechanism for seniors to use their home equity as a resource, rather than relying on government programs or their children. Absent reverse mortgages, the senior citizens who may have trouble in the future with their expenses will simply have those same problems years earlier, because they would be unable to utilize their home equity as a resource. Reverse mortgages solve an actual, immediate problem for seniors, and the study’s claim that this is risky relates only to a potential, hypothetical future problem.

underwriting legal

This finding that consumers do not understand the product is of limited utility since the CFPB did not conduct research by actually interviewing or soliciting feedback from reverse mortgage borrowers. Without empirical evidence, it is impossible to conclude whether or not consumers in general understand their products or not.

secondary market

Concerns regarding the need for increased counseling funds are well received. The reverse mortgage industry should support any efforts to equip counselors with more or easier-to-use information about reverse mortgages. I believe that the industry would welcome the opportunity to work with the CFPB to develop such materials.

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Moving forward, I think the industry needs to provide concrete, data-based information to the CFPB to illustrate how reverse mortgages work—successfully—for many consumers, and to illustrate the important financial needs that can only be met through reverse mortgages. The bureau should undertake a second phase of its study that involves examining this feedback to determine whether the findings in this study remain valid after such a review. It should also engage with the industry to discuss disclosures to borrowers and the provision of information provided to counselors. x

legislative

The study suggests that the bureau has serious concerns about the product and the manner in which it is being marketed and provided to consumers. If these concerns are not addressed in a proactive way by the industry, we can expect the CFPB to begin taking action, either through rulemaking or enforcement. The industry must actively engage with the CFPB and help resolve its concerns, or it will lose the opportunity to influence the process and will run the risk of the bureau taking actions that may have very harmful consequences for both the industry and consumers.

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The CFPB needs to recognize that this report, while providing a good framework, still requires more work to legitimately be a fully comprehensive study. The bureau needs to obtain information from actual reverse mortgage borrowers and publish actual findings so that all the various institutions within the industry can focus on the areas that need improvement. We need the CFPB to be armed with the best information attainable so they can make informed decisions. The agency must appreciate the responsibility associated with the far-reaching impacts of its policy on the consumer, the industry and the nation. And in turn, we need to recognize our responsibility to assist the CFPB in this discovery effort wherever required. x

Ballard Spahr

originating

The CFPB study asserts that new product innovations available to the consumer are confusing. Let’s introduce some perspective into this claim. The FHA introduced the HECM Saver product in October 2010, while the HECM Standard (fixed and variable) has been around for quite some time. Since 2010, there have been no new reverse mortgage products entering the marketplace. There are two versions of each of the two products on the market (HECM Standard fixed, HECM Standard variable, HECM Saver fixed, HECM Saver variable). In today’s general marketplace, where consumers are accustomed to selecting from a plethora of options for any given product, reverse mortgages are hardly a standout with four product choices. That said, it is true that there are some tradeoffs associated in the decision-making lexicon. There are also nuances that exist between HECM products and these are important for the consumer to understand. Anything we can do as an industry to better equip our counselors to effectively educate consumers would certainly be productive.

CHRISTOPHER J. WILLIS

The Reverse Review September 2012

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The

By Jessica Linn Guerin

Home Equity Conversion Mortgage has been around since 1989, but its original application was intended to be somewhat one-dimensional: a singular financial product designed to help seniors age in place. But now, as the product has evolved to include options like the Saver, new ideas are surfacing about how a retiree can tap into home equity as part of a strategic financial plan. Just this year, prominent economic researchers published two independent studies, both examining in impressive detail various ways in which home equity could be used. Data was collected, simulations were run and the analyzed results all pointed to one simple fact: The HECM product could be leveraged to help certain retirees attain a livable flow of income. For most financial planners, many of whom have long been wary about the product, this concept is a novel one. Traditionally, the planning community has viewed the HECM as a last-resort option for desperate retirees. It was considered an expensive option and not a feasible one for more affluent clientele. Now, these studies, published by the respected Journal of Financial Planning, are touting new and strategic ways to use home equity. They both suggest that planners reconsider a HECM for their clients, as retirees could benefit from employing the product to access tax-free income in a down market when cash flow is weak. The research piqued the interested of the press as The Wall Street Journal, CBS News and others picked up on the buzz. The reverse mortgage industry was notably enthused (Finally! Financial planners are taking note!), but now many are left wondering what, exactly, they can do with this information. What are these studies really suggesting, and how can professionals in the reverse space use

this information to enhance their business? The Saver The single most important factor in this new acceptance from the financial planning community is the HECM Saver. Introduced by the FHA in October 2010, the Saver was designed to address concerns about the HECM’s high upfront closing costs. Homeowners utilizing the Saver option can’t borrow as much money as they could with the Standard (10 to 18 percent less, in fact), but in turn, they encounter significantly lower upfront closing costs. With the Saver, homeowners only need to pay an upfront premium of 0.01 percent of their property’s value, compared with the Standard’s required 2 percent. By lowering the cost associated with a reverse mortgage, the introduction of the Saver eliminated the point of contention that prevented many financial planners from considering the product in the past. It also made the strategic uses discussed in recent research a viable option. The Sacks Brothers In February 2012, the Journal of Financial Planning published a groundbreaking article by brothers Barry and Stephen Sacks that examined how a reverse mortgage could be utilized to free up liquidity when the market is down. The Sackses were inspired by the fact that, although more than 50 percent of retirees get a portion of their income from Social Security, a sizable number 8

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rely on securities portfolios to generate most of their income, usually in the form of a 401(k) or IRA. “I was interested in the quantitative aspects of how to use these 401(k)s to achieve optimal results,” said Barry, a San Francisco-based real estate tax attorney with a Ph.D. in physics. “The object of the game was to make a securities portfolio last longer.” Barry said he originally played around with different annuity models before “a light bulb went off in my head—there’s this home equity option!” The results of his initial numerical simulations were “so striking” that Barry enlisted his brother Stephen, a Ph.D. and professor emeritus in economics at the University of Connecticut, and together they conducted a lengthy study to examine how a reverse mortgage credit line could be leveraged to maintain what they call “cash flow survival.” The goal was to utilize the liquidity afforded by a reverse mortgage to avoid withdrawing from a stock portfolio when the market is down, keeping the portfolio intact and thereby increasing its potential to grow.

the

The Sacks study examined three strategies: a conventional, passive strategy that taps into the equity only when all other resources were exhausted; an active strategy in which the credit line is drawn upon after other investments have underperformed; and another active strategy in which the credit line is drawn upon first before other investments are tapped.

was to

goal

UTILIZE the liquidity afforded

by a reverse mortgage to

AVOID

WITHDRAWING

m arket keeping the portfolio

down,

from a stock portfolio when the

intact and thereby

increasing its potentialto

grow.

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The results indicated that a portfolio’s survivability substantially increased when the active strategies were employed. The models revealed that in a 30-year period, a retiree’s residual net worth was about twice as likely to be greater when the active strategies were used. The results led the Sackses to conclude that in certain situations, a senior homeowner is best served by taking out a reverse mortgage early on in retirement and keeping the line of credit to draw upon when a portfolio lags. Evensky & Salter Not long after the Sacks article was released, retirement expert Harold Evensky and Dr. John Salter of Texas Tech went public with their own, yearlong study on the topic. First published in Financial Advisor magazine and recently picked up by the Journal of Financial Planning, the study also examined how seniors can tap into home equity to increase the survivability of their portfolios. According to Evensky, a nationally recognized expert on the topic, the goal was to tackle the issue of wealth distribution in retirement. “It’s a major issue in planning today,” Evensky said. “How do you manage with constant withdrawals in a volatile universe?”

According to Evensky, he and Salter solved the puzzle. The answer? The HECM Saver. Although Evensky admitted that he was originally reluctant to consider the HECM (“Like most practitioners, I considered them only appropriate as a last-ditch effort”), his opinions of the product changed when he learned about the low costs associated with the Saver. “The cost of setting it up is really quite modest,” Evensky said. He and Salter used the Saver in simulations to analyze how a reverse mortgage line of credit could be leveraged to prevent an investor from liquidating a portfolio at the wrong time, when the markets are down and the investment would be a loss. “When you distribute money when a portfolio is down,” added Salter, “you’re stealing from the future.” And so the duo determined that with the line-ofcredit option, one could employ an “insurance-type strategy” in which the equity is tapped to provide supplementary income only when needed. When the markets bounce back and the portfolio recovers, the reverse mortgage is paid off. But in some cases, it won’t even be needed. “Our research suggests that a large percentage of investors would never even tap into it,” Evensky said, adding that if they do, the simulations indicate that most investors will have the ability to repay the loan fairly quickly. “We asked ourselves, ‘Does this make our clients more likely to meet their retirement goals?’ And the answer turned out to be yes,” Salter said. “Through all the combinations, the strategy was successful. We simulated thousands and thousands of different possible scenarios.” The researchers determined that using a HECM was an extremely viable financial strategy, and they recommend practitioners establish the Saver for qualified clients as a standby reserve. “It’s a very powerful risk management tool,” said Evensky. “It is key to managing market volatility.” Boston College’s Retirement Research An April study released by Boston College’s Center for Retirement Research further solidified the idea that financial advisors need to embrace the HECM. The study analyzed the percentage of income an individual needs to replace once he retires. The results, which included data on savings and investment strategies, suggested that 74 percent of retirees would fall short of their income needs at 62—an alarming statistic, to say the least. The study set out to analyze ways in which this bleak situation could be improved. First, it examined

the possibilities of asset allocation, looking at what would happen if an individual invested 100 percent of his portfolio in “riskless” stocks, earning 65 percent a year after inflation. There is, of course, no such thing as riskless stocks, but the idea was to present a best-case scenario. Even with this perfect investment, the study concluded that 44 percent of retirees would still fall short of income. The point is that asset allocation by itself—even at its most perfect—isn’t enough to turn things around. The study determined that the traditional focus on asset allocation is misplaced. “Financial planners often tout asset allocation to boost retirement preparedness,” the brief states. “Even for households with substantial financial assets, asset allocation is less important than one would expect.” Instead, the study concluded, people are left with few options if they want to maintain a livable income in retirement: work longer, cut spending and consider a reverse mortgage. That’s right—the study concluded that tapping into home equity was a powerful tool in assisting a retiree in achieving his income goal. It found that a reverse mortgage delays the age in which a retiree would run out of funds more than any other mechanism. “Given the relative unimportance of asset allocations,” its conclusion read, “financial advisors will be of greater help to their clients if they focus on a broad array of tools— including working longer, cutting spending and taking out a reverse mortgage.”

going to the source

The researchers determined that using a HECM was an extremely viable financial strategy, and they recommend practitioners establish the Saver for qualified clients as a standby reserve.

“It’s a very powerful risk management tool,” said Evensky. “It is key to managing market volatility.”

The Financial Planning Community Reacts The recent buzz surrounding the use of HECMs has captured the attention of CFPs, leading many to reassess their opinions about the product. Michael Kitces, a highly accredited financial planner and renowned industry expert, said he has seen a recent change in attitude among his colleagues. “A few dynamics have been shifting lately,” Kitces said. “Part of that is the low-interest-rate environment and part of it is a general growing awareness of reverse mortgage programs and how they work, and the creation of the Saver. The lower cost has done a lot to improve the product in the minds of planners.” He said the recent studies have helped break down the planning community’s notion that utilizing a reverse mortgage will detract from an individual’s net worth. He acknowledged that for more affluent individuals—who constitute the majority of a planner’s clientele—a reverse mortgage can work in all the ways outlined in the research. “If you want 8

74% Retirees who would fall short of their income needs at 62

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Planners should consider a reverse mortgage. - boston college center for retirement research as stated by

“Given the relative unimportance of asset allocations,” its conclusion read, “financial advisors will be of greater help to their clients if they focus on a broad array of tools—including working longer, cutting spending and taking out a reverse mortgage.”

to make it work, you have to start early,” he said. “You borrow to slow the degradation of a portfolio and glide into the leverage of the reverse mortgage.” Kitces said that despite the research, the number of planners out there implementing HECMs is still miniscule. “I’m trying to push the conversation out there,” said Kitces, who writes a blog for financial planners called Nerd’s Eye View and regularly travels the country speaking to various financial associations and CFP groups. In his highly circulated Kitces Report, he has discussed the complexities of reverse mortgages in depth. Although Kitces said he’s noticed an uptick in conversation recently regarding the HECM, he doesn’t predict an immediate change in thinking. “It’s a trend that will catch on, but it will be very slow,” he said. “I don’t think you’ll see a tidal-wave shift anytime soon.” Like Kitces, Rob Hoxton, a CFP and president of HFI Wealth Management in West Virginia, said newly proposed uses for the HECM have intriguing possibilities, but investors might be slow to come around to the idea. He admits that part of the battle is altering a client’s mindset. “So many folks have worked their whole lives to pay their house off, and we’re talking to them about re-mortgaging it,” he said. “That requires a shift in the way they think. You have to help them understand that unless the home is a legacy asset, one that has a strong emotional tie they want to pass on to the next generation, they should

leverage that asset. It’s a paradigm shift, really.” Hoxton said less than 10 percent of his clients have actually utilized a HECM, but acknowledges that a large percentage would likely benefit from it. “My guess is that demand for this type of product will increase, and then it may create a more competitive environment with greater transparency and lower fees,” he said. “The concept is a fantastic one.” Melissa Sotudeh, a CFP with Warner Financial, said she has also noticed an increase in conversation surrounding the HECM. “It’s coming up more often,” Sotudeh said. “People are taking a second look at the product, and part of that is because we are becoming more aware of the different uses. Like the HECM for Purchase—I had no idea that was possible, but when it came on my radar, I thought, ‘Wow, that could really work well.’” Sotudeh thinks most planners would be eager to learn more about the product. “I tend to read anything that comes on my radar about reverse mortgages to make sure that I understand them completely,” she said. “From our perspective, as fiduciaries, the more we know about what’s available, the better we can do. If we understand the products out there, it adds value to the advice we give.”

to show interest, but they’re a harder bunch to get through to,” Barry said. “They still have a residual negative view about reverse mortgages, which in my opinion is unwarranted.” But Barry said he does believe that eventually they will get on board. “I think it will be slow and fitful,” he said, “but in five or 10 years, they will likely come around.” Harold Evensky agreed. “They absolutely will,” he said. “For one, the research is very credible. It’s an immensely high-quality academic research paper. I would tell them to look at the research. I don’t think they’ll be able to disagree with the research.” But Evensky did predict that some advisors will have an initial knee-jerk reaction, automatically dismissing the product before really listening to its possibilities. “Practitioners are reluctant to tell people to take on debt,” he said. “They just need to understand. It’s not a last resort—it’s a strategy! The expectation is that the investor would not maintain the debt.” Although he said the product is bound to pick up steam, he admitted that the going might be tough. “It will be an uphill education process,” he said. “No question about it.” John Salter, who admitted that his own view of the product has changed “180 degrees” since last year, also said that educating the advisors would be challenging, but also essential. “We need to continue the march to educate financial planners, get them to open up their ears and listen,” Salter said. “Help us educate them on the product and keep the conversation going, that’s the biggest thing.” 8

Barry Sacks also said that more and more CFPs are taking a second look at HECMs, and like Kitces and Hoxton, he predicts that acceptance will come slowly. “Financial planners have begun

“Even for households with substantial financial assets, asset allocation is less important than one would expect.”

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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

Connecting with

Financial Planners

By Shelley Giordano Director of business development, Security One Lending

Many of us in the reverse industry are not accustomed to thinking of the HECM program in concert with wealth preservation. The research published this year, however, may just usher in a new era.

Our industry is at the threshold of an exciting new beginning as we engage with the baby boomer generation. Thinking about the HECM program from a new perspective will allow us to serve this demographic in a profoundly innovative way.

Buying low and selling high is a concept all of us can grasp. The Sacks and Texas Tech studies underscore how important it is to manage the sequence of portfolio returns to protect the forced sell off of assets in a bear market. Periodic draws from the portfolio early in the retirement years in a bear market can be devastating to cash flow survival.

So how does our sales force begin to interact with the financial planning community? The first step is to make the shift ourselves to the wealthpreservation mindset. We must be convinced that our program deserves thoughtful consideration from the planning community. Today, advisors are trusted to provide stable retirement outcomes with a 30-year (or more) time horizon. We can partner with advisors to help achieve this goal.

With the advent of the HECM Saver, we now have a program that appeals to financial advisors. Lower cost, a non-cancellable line of credit, a line of credit that grows independent of home values, and no pre-payment penalty are all attributes financial advisors will appreciate.

shelley Giordano

Never before has our industry had evidence that the HECM program could play such an important role in mainstream financial planning. But does this mean that we have to become financial planning experts in order to engage financial professionals? Not really. We are the experts in how to unleash home equity safely in retirement years and we donâ&#x20AC;&#x2122;t need to pose as experts beyond this. These new studies prove that we do have a powerful message to deliver to financial planners. It might even be argued that we have an obligation to get the conversation started on how home equity can be deployed to buffer the risk of depleting assets when they are undervalued, especially early in retirement. Remember, when portfolios cycle up and down, there is no real loss until the assets are actually sold. Home equity can stand in for withdrawals from retirement accounts during cycles in which assets are undervalued. Retirees everywhere may be given the option to weave home equity into their distribution of assets to ensure a greater chance of cash flow survival.

Reading the studies several times will convince you that advisors are ill-served if we do not evangelize the message that early intervention with home equity may radically alter the retirement outcome. By relying on home equity in coordination with portfolio withdrawals, many retirees may be able to justify a more robust withdrawal rate. More money not only stabilizes the plan, it creates a more stimulating retirement. And we all know that is the boomer goal! Once convinced that these studies legitimize interaction with advisors, go to where the advisors are. Join your local FPA, for example. Sign on to the membership committee and work shoulder to shoulder with chapter members. Rather than pretend to be an expert in financial planning, start conversations with the advisors you meet. Find out what their concerns are. Learn from them what their clients are up against. Gain an understanding of how a new source of money could alter the typical retirement outcome for their clients. When the time is ripe, your audience will appreciate what you bring to the equation. You will no longer be the afterthought, the person who is called when all options are exhausted and the client has to take out a reverse mortgage. Instead, you will be elevated to a partner whose program is accessed early in the distribution phase to protect and enhance portfolio wealth. Is there a new dawn for home equity specialists? Yes, if we make it happen. x reversereview.com

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reward

last word

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

The Gifts of Faithful Service Joh n L aR o s e

he reverse mortgage landscape has been radically altered this past year. In the midst of various company exits and entrances, one facet of the reverse mortgage experience has remained constant and critical: Every loan requires specialized servicing. Every great reverse mortgage servicer’s business will stand on a foundation with these supports:

* Reverse mortgages are taken for unique reasons and many borrowers have celebrated this loan product as a life-saving solution.

* Borrower confidence comes from being serviced

by a team led by ethics and totally committed to borrower satisfaction and safety.

Two servicing stories from the Celink borrower care department demonstrate the powerful impact of personal reverse mortgage servicing. We’ll call our first borrower Smith. When Smith lost his wife he became depressed and developed a hoarding disorder, not an uncommon response to grief. The living space in Smith’s home had been reduced to paths between the kitchen, bath and bedroom, and to the front door to retrieve mail. He dragged his feet on making the required repairs for his reverse mortgage—not because he was unwilling, but because he simply didn’t know how or where to begin. One of our associates took him under her wing and issued this challenge: “I will clean my garage and send you pictures of its progress if you’ll commit to working on your kitchen.” As they finished work on these rooms, she challenged him with another room. After three subsequent inspections and many conversations, Celink received a “100% Complete” repair inspection report. We sent a “Congratulations!” card to Smith, signed by the entire repair administration department.

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according to john Two servicing stories from the Celink borrower care department demonstrate the powerful impact of personal reverse mortgage servicing.

Smith said, “My reverse mortgage and a friendly, concerned borrower care associate changed my life.” He is grateful for an uncluttered home and the reverse mortgage that prompted some major life changes. On a final note, the primary associate on his loan suggested he seek out counseling services or a support group. He took her up on both suggestions and was diagnosed with severe depression. He received treatment, and now he’s dating again. This second story is about someone I’ll refer to as Jones. Jones would call us every time he sent a request for funds just to make sure we received it. Over time he came to know our associates’ voices and names, and he was known by his number and voice as well. Our associate asked him if he was having some fun with all his money and he replied, “I am dying. I have smoked all my life and now I am paying for it. The reason I got this reverse mortgage is because I wanted to stay in my home and I didn’t want my family members to watch me suffer. The money is used for medication and caregivers.” The last time he spoke with us, he said he would be sending a request for money to pay for his funeral. The next call we received was from his brother, who called to notify us that Jones had passed. Jones’ brother told our associate that he spoke very highly of his reverse mortgage and all the concern we had shown. Before Jones died, he connected with one of our associates who smoked, and begged her to quit. She did, so a reverse mortgage empowered a borrower in his suffering, and very well may have saved our associate’s life. These are challenging times for our nation and our industry. It’s always tempting to commoditize the reverse mortgage product, or a servicer’s function, but to do so would be a dismissal of their many tangible and lifegiving qualities. x

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