The Reverse Review October 2012 by The Reverse Review

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POWER OF ATTORNEY IN A REVERSE TRANSACTION PG. 27 A LOOK AT HUDâ&#x20AC;&#x2122;S NEW HERMIT SYSTEM PG. 35 + JOHN LUNDE SITS DOWN IN OUR HOT SEAt PG. 16

THE

REVERSE october 2012

a sit-down

with

fred thompson

The former senator talks about his hopes for the upcoming election.

review

The Reverse Review October 2012

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CLIENT FOCUS

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TEAMWORK

INNOVATION

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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.

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

reversereview.com

8 TRR

The Reverse Review October 2012

From the Publisher population so they can retire comfortably, and that need defies party lines.

The HECM program is insured by the government, and this insurance enables the private sector to allow seniors to tap into their own home equity in order to age in place. For the past 23 years, this has been accomplished without leaving the tab for us taxpayers to pick up. I cannot think of a better example of the government and the private sector collaborating effectively to provide a valuable tool for an important segment of the population.

A note from reza jahangiri

As November’s presidential election approaches, I have speculated

along with many in the industry what impact the outcome will have on the HECM program. Over the last three years, I have had the chance to visit with more than 100 members of Congress and their staff on Capitol Hill. The thing that has been most revealing to me is the fact that the HECM program genuinely garners bipartisan support. This dynamic is more intuitive than most people suggest. Many tend to get caught up in pointing out the various differences between the two parties, and they fail to acknowledge that both parties actually agree on the basic principles behind the HECM. We need a program to assist the growing senior

So if you are like me and you need things to obsess about at night, I think this election and its potential impact on our industry is one item you can take off the list.

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

Senior Publisher Reza Jahangiri

Publisher

Erik Richard

Editor-in-Chief

Jessica Linn Guerin

Creative Director Traci Knight

Copy Editor

Kersten Wehde

Marketing Director alycia colacion

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

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

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t ay ec st onn c

Feedback

Yes, the Democrats are more focused on the regulatory aspect of the industry and want to make sure there is little room for fraud and abuse. And yes, the Republicans are primarily concerned about preserving the FHA insurance fund. And yes, one can argue that both sides have valid concerns. But at the end of the day, both parties want to provide assistance to seniors and spur growth in the economy, and the HECM is a great example of a program that accomplishes both.

Meet the Team

FACEBOOK, TWITTER, LINKEDIN

Table of Contents 08

TRR 10.12 | Report

In this issue...

The industry’s latest stats and rankings

18 carl rojas

Reverse Market Insight

Originating

| Industry Update

Headlining stories of the past month Reverse Mortgage Daily

| Roundup

| NRMLA news

A collection of recent facts and surveys affecting the reverse market

Read about the association’s current initiatives. marty bell

| The Hot Seat john Lunde

Founding president of Reverse Market Insight

| secondary market The Tightening Trend Continues

How POAs affect a reverse mortgage transaction

A snapshot of the current state of the market

Ralph Rosynek

darren STUMBERGER

40 | spotlight The History of the HECM

| APPRAISING Confused and Misunderstood

Common misconceptions about HUD’s appraisal guidelines

How to best prepare your company for inevitable change

john golden

| Originating Focus on the Basics

david peskin

| originating From Lead to Loan

How lead management software can enhance your bottom line

| underwriting Understanding Power of Attorney

| servicing Not All storms Should Be Feared

28 Haydn J. Richards, Jr. Legal

A detailed timeline of the product’s evolution

| the last word Let’s Get Back to Basics and Clean Up the Debris

37 Megen Lawler Tech

john larose

A look at the advanced features of HUD’s new servicing system james wright

adam jay shulman

| A Sit-down with Fred Thompson

The former senator talks about his hopes for the upcoming election.

Want the online version? reversereview.com/magazine

jessica linn guerin october 2012 W IE

E TH

E REVIEW THE VERS RE R

EV ER

HE REVERSE REV IE W

THE

HISTORY this issue

R SE

EVIE

INSIDE

E RS

OF THE HECM

ER EV

THE

POWER OF ATTORNEY IN A REVERSE TRANSACTION PG. 27 A LOOK AT HUD’S NEW HERMIT SYSTEM PG. 35

+ JOHN LUNDE SITS DOWN IN OUR HOT SEAD PG. 16

W THE RE REVIE VE

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cover WT VIE RE

Fred Thompson talks about the election.

“I don’t believe that either party will want to tamper too much with a financial tool that is benefiting so many people who are simply accessing their own equity in tough economic times, especially one that is not costing the government any significant amount of money.

FEATURE

THE

REVERSE review

OCTOBER 2012

A SIT-DOWN

WITH

FRED THOMPSON

THE FORMER SENATOR TALKS ABOUT HIS HOPES FOR THE UPCOMING ELECTION.

reversereview.com

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The Reverse Review October 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

MArty B e ll

C ar l Rojas

08, 16 | The Industry’s Stats and Rankings, the hot seat 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

14 | 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.

18 | how do we fix the reverse mortgage industry? g Carl Rojas is CFO of Generation Mortgage. He is a graduate of the University of Texas at Austin and Texas Tech, where he earned a degree in accounting and a master’s in information systems. Rojas has more than 20 years of experience in providing financial and accounting leadership. Prior to joining GMC, Rojas served as the controller and chief accounting officer for Barzel Industries.

Dav i d Pe s k i n

ad am Jay SHU LMAN

r alp h r osynek

21 | focus on the basics g David Peskin is an accomplished entrepreneur who has been in the reverse mortgage industry for 18 years. In 1996 he founded Senior Lending Network, the first company to specialize in reverse mortgage lending. Peskin grew SLN into the largest independent reverse mortgage company in the nation, securing 10 percent of the market. Peskin is also a National Reverse Mortgage Lenders Association board member.

24 | from lead to loan g Adam Jay Shulman is a regional manager for Calcon Mutual. He has been in the mortgage business for 11 years, eight of which he spent on the reverse side. Shulman has managed call centers and outside sales reps for Senior Lending Network, Guardian First Financial and Urban Financial Group. He is a graduate of the University of Miami. ashulman@calconmutual.com 516.558.1365

27 | understanding power of attorney 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

hay dn J . R i c ha r ds , JR .

joh n gold e n

jame s w r ight

31 | confused and misunderstood g John Golden is the national quality control manager for Landmark Network, Inc., an appraisal management company that services clients nationwide. Golden, a former certified residential and FHA appraiser, is currently on the HUD 203k consultant roster. He relies on a 13-year background in valuation and inspection in dealing with quality control matters. jgolden@landmarknetwork.com 888.272.1214 ext. 718

35 | not all storms should be feared g James Wright is executive vice president of investor, client and vendor relations at Reverse Mortgage Solutions Inc. (RMS) in Spring, Texas. The company includes an asset management solutions division that specializes in assisting lenders, servicers and investors in disposing of reverse REOs. jwright@rmsnav.com 281.404.7980

Carl Rojas

David Peskin

Adam Jay Shulman

Ralph Rosynek

Haydn J. Richards, Jr.

John Golden

James Wright

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28 | THE NEW COMPLIANCE PARADIGM g Haydn J. Richards, Jr. is senior counsel in Dykema’s Financial Services Regulatory and Compliance practice. Richards advises members of the financial services industry on state and federal regulatory matters. Richards has extensive experience with the SAFE Act, has been deeply involved with the development and testing of the Nationwide Mortgage Licensing System (NMLS), and is a member of the NMLS Industry Development Working Group.

Contributors M e g en law l er

Megen Lawler

Darren Stumberger

37 | LOS Advancements Pave the Way for Growth g Megen Lawler has been in the reverse mortgage industry since 1991 and founded Bay Docs, Inc. in 1994. Prior to Bay Docs, Lawler was an integral part of the development of the Home Equity Reverse Mortgage product origination, servicing and quality control procedures. Bay Docs launched its loan origination system in 2008 to work in conjunction with its reverse mortgage document processing services.

DAr r e n s tu mbe r ge r

joh n lar ose

39 | HMBS SPREADS CONTINUE TO TIGHTEN 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

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.

John LaRose

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?

FirstBank Mortgage Partners Receives DE HECM Approval HUD granted FirstBank Mortgage Partners Direct Endorsement (DE) HECM approval, just as the company approached its one-year anniversary in the reverse market. Now a true closedloan seller, FirstBank plans to continue growing its operation team and sales force.

Mortgage Cadence Releases New Version of prime+ Software Technology provider Mortgage Cadence released prime+ 12.1, an updated version of its Prime Alliance software. The newest version of prime+ offers users 45 new tools and alerts designed to increase efficiency, enhance

Email it to Jessica@reversereview.com.

communication and speed up loan closings. Mortgage Cadence is the leading provider of Enterprise Lending Solutions, which provides data-driven workflow automation tools to mortgage banks, credit unions and servicers.

Open Mortgage Names Joe Morris Senior Vice President of Lending Texas-based lender Open Mortgage announced that Joe Morris will be the new senior vice president of lending, concentrating on the reverse mortgage market. Morris was the COO and founder of Unity Mortgage, which became a major component of Financial Freedom, and was also the founder and CEO of Generation Mortgage Company, now a top three lender. Open Mortgage,

which was named a top 25 HECM lender in April 2012 by RMI, plans to grow its reverse business under Morris’ leadership.

Peggy Whalen Joins Direct Finance Corp. Peggy Whalen has joined Direct Finance Corp. as a senior reverse mortgage advisor. Whalen, who has more than 10 years of experience in the reverse sector, is a certified senior advisor and certified reverse mortgage counselor. Direct Finance Corp. is a licensed forward and reverse mortgage broker in Massachusetts, Rhode Island and New Hampshire.

reversereview.com

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The Reverse Review October 2012

Report August 2012

Top Lenders Report

12345 American Advisors Group

One Reverse Mortgage

Endorsement

547

Lender

418

Genworth Financial Home Equity

Endorsement

388

Endorsements

Lender

Urban Financial Group

Endorsement

338

309

255

AXIA FINANCIAL LLC

THE FIRST NATIONAL BANK

220

OPEN MORTGAGE LLC

REVERSE MORTGAGE USA INC

113

PLAZA HOME MORTGAGE INC

NEW DAY FINANCIAL LLC

NATIONWIDE EQUITIES

CHERRY CREEK MORTGAGE CO INC

SOUTHERN TRUST MORTGAGE LLC

M & T BANK

DAS ACQUISITION CO LLC

GMFS LLC

FIRSTAR BANK

MAVERICK FUNDING

AMERICAN NATIONWIDE MORTGAGE CO

GREENLIGHT FINANCIAL SERVICES

MORTGAGESHOP LLC

ASSOCIATED MORTGAGE BANKERS

MAS ASSOCIATES LLC

SUN WEST MORTGAGE CO INC

UNITED NORTHERN MORTGAGE

NET EQUITY FINANCIAL INC

VAN DYK MORTGAGE CORPORATION

FIRSTBANK

VANGUARD FUNDING LLC

MONEY HOUSE INC

AMERICAN PACIFIC MORTGAGE

ROYAL UNITED MORTGAGE LLC

LIVE WELL FINANCIAL INC

ASPIRE FINANCIAL INC

HARVARD HOME MORTGAGE INC

HIGH TECH LENDING INC

FRANKLIN FIRST FINANCIAL LTD

TOWNEBANK

REVERSE MORTGAGE SOLUTIONS INC

INDUSTRY SUMMARY Retail Endorsement Growth

-24.03%

10,000

Wholesale Endorsement Growth

8,000

-27.83%

6,000 4,000

Total Endorsement Growth

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

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Wholesale *Numbers represent months

-25.76% *Figures above reflect change from prior month

Endorsements

GENERATION MORTGAGE COMPANY

Trailing Twelve Month Endorsements

Security One Lending

RETAIL UNITS CHG%

WHOLESALE UNITS CHG%

TOTAL UNITS CHG%

Aug

3,705

10.53%

2,099

-2.78%

5,804

5.32%

Sep

3,612

-2.51%

1,972

-6.05%

5,584

-3.79%

Oct

3,032 -16.06%

1,612 -18.26%

Nov

2,675 -11.77%

1,978

22.7%

4,653

0.19%

Dec

2,676

0.04%

1,891

-4.4%

4,567

-1.85%

Jan

2,949

10.2%

2,212 16.98%

5,161 13.01%

Feb

2,870

-2.68%

2,547 15.14%

5,417

Mar

2,504 -12.75%

1,870 -26.58%

4,374 -19.25%

Apr

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%

2,361 28.32%

5,182 17.05%

Jul

2,143 -24.03%

1,704 -27.83%

3,847 -25.76%

24,065

58,253

TOT

34,188

4,644 -16.83%

4.96%

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 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

7/1/12

Reverse Market Insight - Logo

6/1/12

October 9, 2009

5/1/12

4/1/12

3/1/12

2/1/12

1/1/12

12/1/11

reversereview.com

6/1/12

5/1/12

4/1/12

3/1/12

2/1/12

1/1/12

12/1/11

11/1/11

$1,200.0

11/1/11

$1,400.0 10/1/11

$1,600.0

10/1/11

$1,800.0 9/1/11

Fixed

9/1/11

8/1/11

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10 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

7/1/10

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 October 2012

| TRR

Industry Update

October 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. WAC Acquires RMS for

$120 million, Says Market Poised for “Explosive Growth”

Walter Investment Management Corp. announced its plans to purchase Reverse Mortgage Services for $120 million, a number that reportedly represents about four times RMS’ expected core earnings for 2012. The transaction will be funded using $60 million in cash, $25 million of WAC stock and a $35 million seller MSR note. Following the announcement, Walter execs told investors and analysts that they anticipate “explosive growth” in the reverse mortgage sector in the coming years. Founded in 2007 and based in Spring, Texas, RMS services approximately $12 billion in unpaid principal balances of reverse mortgages. The deal is expected to close in November pending regulatory approval. RMS’ current management team will remain in place. // September 13, 2012

2. Reverse Mortgage Inperson Counseling Bill Passes in California

The California State Senate passed a bill that will require all California-based reverse mortgage counseling to be conducted face-to-face, unless a borrower opts in favor of a session over the phone. The bill is awaiting a signature by Gov. Jerry Brown, who has the option to sign or veto the bill within 12 days of receipt. Barring a veto from the governor, the bill will become law on January 1, 2013. // September 10, 2012

3. House Passes Emergency Fiscal Solvency Act to Protect FHA Insurance Fund

The House of Representatives approved a bill that would implement new rules designed to protect the FHA’s mutual mortgage insurance (MMI) fund. The Fiscal Solvency Act of 2012 states that minimum annual premiums for mortgage insurance will be set and that lenders that have committed fraud will be required to reimburse the FHA for mortgage insurance losses. The bill, which was introduced by Rep. Judy Biggert (R-Ill.) in March, passed 402-7 in a full House. The FHA said it supports the bill coming into law, as it will allow the agency to strengthen its enforcement efforts in order to protect the fund. // September 11, 2012

4. HUD to Release New

Reverse Mortgage “HERMIT” Technology in October

HUD announced its plans to release the long-awaited Home Equity Conversion Mortgage Information Technology (HERMIT) on October 9 after numerous delays. Once the HERMIT platform is implemented, the Insurance Accounting Collection System (IACS) currently in use will be phased out. HUD says the new platform will improve monitoring and tracking capabilities and automate the payment of insurance claims. HERMIT will also serve as HUD’s system of record for collecting mortgage insurance premiums, managing servicing activities and paying insurance claims. // September 14, 2012

5. Obama Administration’s Housing Scorecard Shows Progress for Home Prices

After months of stagnant numbers, the Obama administration’s housing report shows “important progress” for housing

prices in the month of August, the administration said in a statement. The report notes that home equity levels saw a “sharp” increase in the first quarter of 2012, coming in at a level not seen in two years. “Second quarter home prices rose according to all three measures tracked in the scorecard—progress that has not been maintained for at least three consecutive months,” the document states. // September 17, 2012

6. Former Ginnie Mae

President Tapped to Lead NewDay USA

NewDay USA parent company Chrysalis Holdings announced that former GNMA President Joseph Murin will serve as chairman of the company’s board of directors. NewDay, formerly NewDay Financial, is currently among the top 15 reverse mortgage lenders by volume. Murin served as Ginnie Mae president from July 2008 until he resigned in August 2009; he recently served as CEO at National Real Estate Information Services, a funds portfolio owned by Fortress Investment Group. // September 11, 2012

7. Inman News: Reverse

Mortgage Advantages Outweigh HELOC Benefits

While not right for everyone, the reverse mortgage does have some clear advantages over the Home Equity Line of Credit (HELOC) option, writes Jack Guttentag, aka The Mortgage Professor, in a series of articles on reverse products for Inman News. Guttentag specifically focuses on the use of reverse mortgages to supplement income pending the sale of a home, stating, “The HELOC has significant disadvantages that in many cases will shift the balance of advantage to the HECM.” // September 12, 2012 reversereview.com

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The Reverse Review October 2012

| TRR

Roundup Hereâ&#x20AC;&#x2122;s a look AArp info

at the latest

Baby Boomers Are Anxious About Retirement

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

market TRENDS

Home Prices See Biggest Jump in Six Years Nationwide home prices have increased almost 4 percent year over year in July, according to CoreLogic, making it the biggest yearly increase the market has seen since August 2006.

3.8% Increase

THE SENIOR CONSENSUS

Seniors Want to Age in Place A survey conducted by the National Council on Aging, United Healthcare and USA Today polled 2,250 Americans age 60 and older about their outlook and preparedness on aging.

Approximately 90 percent said they want to stay in their homes and age in place.

88% Age: 60-64

90% Age: 65-69

91% Age: 70+

AARP polled 1,852 voters to determine what issues were concerning in this yearâ&#x20AC;&#x2122;s election. Topping the list of economic worries for non-retired baby boomers:

1 Inflation 2 Taxes 3 The opportunity to eventually retire

4 Financial security during retirement

5 The affordability of health care

ORIGINATION DEMOGRAPHICS

Reverse Mortgage Volume Rises in Unexpected Cities While Texas, California and New York lay claim to the highest volumes of reverse origination, several random cities are popping up with surprising amounts of RM growth, according to Reverse Market Insight.

Other unexpected areas of growth:

Metairie, Louisiana

Pensacola, Florida

K an s a s C i t y , Missouri

Rminsight.net

No. 1 in reverse mortgage volume growth year over year

72% Believe they will probably be forced to delay retirement

50% Have little confidence that they will ever be able to retire

65% Knoxville, Tennessee

Have little confidence that they will have the means to live comfortably in retirement aarp.org

Amarillo, Texas reversereview.com

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| 13

The Reverse Review October 2012

NRMLA News

On the Docket

Seniors are deliberate and careful when making decisions about reverse mortgages. They seek advice from trusted advisors and they primarily use the proceeds from their reverse mortgages to age in place, according to a new survey of 501 reverse mortgage borrowers released by NRMLA in early September. The survey was commissioned specifically in response to the CFPB’s Notice and Request for Information published in the Federal Register on July 2, 2012. To obtain evidence-based answers that reflect the real-life experiences of reverse mortgage borrowers, NRMLA retained ORC International of Princeton, New Jersey, one of the oldest, most established consumer research firms in the U.S. and abroad. ORC staff conducted live phone interviews over the course of two weeks in August from a sampling of borrowers with active reverse mortgage accounts. Almost all the borrowers interviewed have loans that began between January 2007 and the present. “The reputation of reverse mortgages is too often based upon personal conjecture, anecdotes and unsubstantiated opinion rather than factual evidence and data,” NRMLA President and CEO Peter Bell said. “The CFPB has been given huge responsibilities and we want them to have the facts about actual borrowers as they consider reverse mortgages and any possible future actions.” On August 31, NRMLA submitted a detailed response to the CFPB Request for Information, utilizing the new data as well as other industry data to answer the questions issued by the bureau. Data from NRMLA’s Consumer Research:

8 88 percent of borrowers rated their overall experience with

reverse mortgages as positive. (This finding is in line with 2007 AARP and 2010 NRMLA data.)

knowledgeable, seeking opinions and guidance from trusted sources including family members, friends, financial planners or advisors, and attorneys or accountants. More than 60 percent of borrowers surveyed sought advice from two or more additional sources.

8 76 percent reviewed the disclosure documents with a

range of advisors that included family members, knowledgeable friends, attorneys, accountants and financial planners. Once again, well over 60 percent reviewed them with two or more additional sources.

8 Respondents used their reverse mortgage proceeds

responsibly to pay off mortgages and other debts (53 percent); create standby cash reserve (49 percent); supplement monthly income (43 percent); modify or repair their homes (41 percent); cover health care expense (22 percent); or provide financial assistance to a family member (14 percent). (Many respondents gave more than one answer.)

“HECM borrowers utilize their funds judiciously and purposefully, and are fairly conservative where they park unused funds,” NRMLA stated in its written response to the CFPB. There is evidence throughout the consumer research that, since October 2010—when HECM program improvements like a new, robust counseling protocol were implemented and the lower-cost HECM Saver was created—borrowers are shopping for their loans more vigorously and making better-informed decisions on lender and product selection. “Overall the data from this survey presents a revealing snapshot of the state of the reverse mortgage borrowing community,” Bell said. “Some of the CFPB’s questions and conclusions, such as the results of the average age of borrowers declining, cannot be properly addressed until we have some more history from which we can compile evidence.”

8 Before closing on their reverse mortgages, in addition to

consulting with lenders and going through mandatory counseling, most borrowers consulted with someone they considered

NRMLA’s full response to the CFPB can be found at nrmlaonline.org.

In the committees Committee work slowed down a bit during the summer due to member vacations and our staff’s focus on the CFPB response. The Servicing Committee continues to identify its challenges with the impending HERMIT 14

| TRR

conversion. A letter has been submitted to HUD and NRMLA staff met with HUD senior staff to discuss the topic. Requested comments are being submitted on the CFPB’s Integrated Disclosure proposed rulemaking and the

HOEPA proposed rulemaking. The State and Local Committee is beginning to focus on working with local members to advocate implementation of the HECM for Purchase in Texas. We anticipate a long process.

NRMLA News

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

NRMLA member

In San Antonio The exciting agenda for Reverse Mortgage Roundup: NRMLA’s 2012 Annual Meeting & Expo is brimming with distinguished speakers and valuable information, including:

Carol Galante // Acting FHA commissioner

Featured Speakers Ted Tozer // President, GNMA

New Members Housing Opportunities of Fort Worth,

Texas A housing counseling and education center

Charles Coulter // Deputy assistant secretary, HUD Michael Stolworthy // Director of Fraud Prevention and Program Integrity, HUD Office of the Inspector General

Texas Tech University in Lubbock, Texas Texas Tech, the home base for financial planning researchers Harold Evensky, Sean Pfeiffer and John Salter, is the first university to join the association.

Fred Thompson // Former U.S. senator Jared Bernstein // Senior fellow at the Center on Budget and Policy Priorities, former chief economist to Vice President Biden

Panel discussions include: HUD Update with Karin Hill and Erica Jessup Life Stages and Segmentation—Two Generations, Both Seniors Compliance in Marketing—What You Can Say and Can’t Say Selling the HECM for Purchase Working with Financial Planners Secondary Market Developments

Roundtables—Share Your Thoughts with Colleagues Loan Originators Roundtable Underwriting Roundtable Counselors Roundtable

Plus: CRMP classes and credits Wholesaler celebration CRMP reception And lots of time for networking You can still register at nrmlaonline.org.

NEWS FROM NRMLA

Reverse Mortgage Lenders Direct Inc. A lead generation company based in Boca Raton, Fla.

Keynote Speaker

In Print

The September/October issue

Both of these stories indirectly

of Reverse Mortgage magazine

address the CFPB conclusion that

contains a number of stories that

the sharp increase in younger

inadvertently address concerns

reverse mortgage borrowers is a

raised in the CFPB Report:

path to a shortage of resources in later life. Like the NRMLA

In “Two Generations—Both

consumer research, these stories

Seniors,” Paul Fiore of American

illustrate a new generation of

Advisors Group examines

young seniors who are good

the differences in values and

and thorough shoppers and

experiences between the WWII

will likely make wise use of this

generation and the boomers that

financial product.

result in a need for two separate sales approaches.

In “A Good FIT,” experienced counseling administrator Sue

In “It’s a No Brainer,” Jim Cory

Hunt of CredAbility shows

of Legacy Reverse explains how a

the effectiveness of the new

loan officer can take advantage of

counseling protocol elements,

the three recent research reports

the Financial Interview Tool and

by distinguished academics that

BenefitsCheckup, again indirectly

show reverse mortgages can be

addressing the validity of the

an effective retirement planning

CFPB Report conclusion that

tool.

counseling is inadequate. reversereview.com

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The Reverse Review October 2012

THE HOT SEAT

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

the hot seat From what he canâ&#x20AC;&#x2122;t go without to his thoughts about the reverse space, we get the personal and professional facts from John Lunde, founding president of Reverse Market Insight, in our monthly edition of The Hot Seat.

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john P E RSO N AL

Reverse Market Insight Founding president

You can’t always be right, but you can always learn something.

Ten years from now my kids will be telling me about things that don’t exist today.

My favorite vacation was the last one I took, for my 10th wedding anniversary at Inn

FUN FACT

Above Tide in Sausalito, California. >

If I were a professional athlete I would be a soccer player for the U.S. National Team.

My celebrity crush is Jessica Alba—she looks like she has a great personality.

If I were a professional athlete I would be a soccer player for the U.S. National Team.

My first car was less expensive than my wife’s wedding ring (but not mine, curiously).

The craziest thing I’ve ever done was quitting my job to start my first company when my wife was seven months pregnant with our first son.

If I could meet anyone, past or present, it would be Alexander Hamilton. I’m really curious about what he would think of our modern banking and currency system.

My favorite movie is The Shawshank Redemption or Gattaca.

My favorite website is urbandictionary.com. If you have an open sense of humor, try looking up “reverse mortgage” for a good indication of why “collective knowledge” is not the future of our society.

I never miss an episode of Breaking Bad, but only if you count watching them on Netflix. (I’ve never seen it on TV.)

When I was younger I wanted to be a fighter pilot, until I became nearsighted.

I can’t go without citrus fruit and avocados.

When I was a kid my main goal was to keep moving closer to the beach.

I’ll never forget landing at the Atlanta airport during Hurricane Rita.

My first job was being as creatively annoying as possible to my older brother and sister.

My favorite time of the day is sunrise, but only if I wake up without an alarm clock (or screaming kids).

I’ve never had a bad day at the beach. >

The worst purchase I’ve ever made was way too many (and too large in size) engagement pictures, but I guess it just means we were really excited to get married. >

My favorite book is Atlas Shrugged by Ayn Rand, but too many people take it too seriously and too many others not seriously enough. I can’t go without citrus fruit and avocados.

P RO F E SSIO N AL >

I am optimistic about the reverse mortgage industry because this is one of the few good options for the many people whose financial needs in retirement will outpace their financial assets.

I am pessimistic about the reverse mortgage industry because we rely entirely too much on the federal government for our way of life.

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The Reverse Review October 2012

DISCUSS

originating How Do We Fix the Reverse Mortgage Industry? C arl R o ja s

es, I said it. Fix it. I know, I know. That implies it is broken, and that is exactly my assertion: The industry is broken and in need of significant change. If this industry is going to have the scale to fund the accessing of trillions of dollars of seniors’ home equity (that’s right, trillions), we’ve got to analyze, assess and remediate the identified shortcomings. Since the HECM was introduced more than 20 years ago, it has remained relatively unchanged. Certainly there have been adjustments and tweaks, but nothing that one could call a dramatic overhaul. If we’re all in it for the long haul, and I assume we are, why not begin the substantive

Going to the source 18

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change that will enable all of us to participate in the meaningful evolution of this industry? Let’s change it into an industry that is a leader in available capital, liquidity, compliance, ethics and reputation.

Liquidity, Liquidity, Liquidity Lack of liquidity will bring this industry to a screeching halt. We need to solve the industry’s back end, the HMBS-servicing liquidity needs, which are driven by Ginnie Mae’s requirement that issuers purchase a loan from the HMBS pool when the loan reaches 98 percent of its maximum claim amount (MCA). This is one of the most overlooked issuer

requirements of Ginnie Mae’s HMBS program. The issuer, who in many cases is also the servicer, is a financier for Ginnie Mae, since it is required to advance the funds for the purchase of the loan from the HMBS pool. Think about that. If one issues $1 billion of Ginnie Mae HMBS, over the ensuing five to six years (the current estimated life of Ginnie Mae HMBS), that same issuer will finance a good portion of the $1 billion series of purchase events for Ginnie Mae. Gulp. Houston, we have a problem. As one continues to issue, the problem only snowballs. The issuer is placed in a position in which it can’t generate enough current earnings to meet and finance its 98

Lack of liquidity will bring this industry to a screeching halt. We need to solve the industry’s back end, the HMBS-servicing liquidity needs, which are driven by Ginnie Mae’s requirement that issuers purchase a loan from the HMBS pool when the loan reaches 98 percent of its maximum claim amount (MCA). This is one of the most overlooked issuer requirements of Ginnie Mae’s HMBS program.

originating

must establish pricing for the debt, or line of credit, for servicing these 98 percent purchase events.

Higher Standards

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spotlight

reversereview.com

secondary market

This article is based on the personal views of Carl Rojas and do not represent the views or opinions of Generation Mortgage Company or its parent company.

tech

Our goal should be 100 percent customer satisfaction. We all know that the CFPB thinks

Enhanced counseling is paramount. The “one size fits all” approach doesn’t work. Rather than replacing the current funding with industry-driven funding, we perhaps supplement the existing counseling program by partnering with counseling agencies and try pilot programs for borrowers who are deemed the riskiest. Once we determine which enhanced counseling experience produces a better outcome, we then apply the best-tested approaches to the greater population. We should be a continually improving industry. In Darwinian terms, it’s survival of the fittest. x

servicing

That’s the first step; in any financial assessment paradigm, there will be borrowers to whom we are able to say “no.” The industry can preserve the lighter credit underwrite for those with the justifiable credit and financial position profile. We have to be able to preserve the differences between the HECM and HELOC, but we have to remember that the HECM is a collateralized loan, and as such it’s in the best interest of the industry to have higher-caliber underwriting. Better underwriting means fewer defaults and foreclosures and helps keep liquidity moving.

appraising

We should embrace financial assessment to stratify potential borrowers, because unfortunately (or maybe fortunately) we need to create a catered experience for the potential borrower. Our industry employs a “one size fits all” approach that assumes all potential borrowers need the same thing and should be treated equally. We know that’s illogical; all borrowers cannot be equal because each their financial positions are unique results of their earnings and retirement planning. I envision an environment where we ensure that each borrower with the demonstrable wherewithal to support a HECM has a successful origination experience and a trouble-free loan.

that our borrowers are confused and that our products are too complex for them to understand. But that simply is not the case. Many of these borrowers fought wars; their generation helped the United States go to the moon. Many responsibly paid their mortgages. If they understand a mortgage, they can understand a reverse mortgage. In our recent borrower survey, when we asked whether the product is too complex and if it’s really hard to make a decision, 79 percent said no. For those borrowers who are house rich and cash poor, we are obligated to improve the experience so they do not fail. We can minimize the foreclosures by utilizing set-asides, escrows and enhanced counseling. For those with more limited resources, it may mean that they do not get approved for a HECM. Either way, we will be clear about what it takes for them to qualify, and for our industry to flourish.

legal

I know that there are many out there reading this and saying to themselves, “That’s right, let’s talk about how to fix the accounting issues related to the sale, delivery and servicing of HMBS bonds. This is something that has to be fixed now.” Actually, it doesn’t. Accounting will not be the end of this industry but the lack of liquidity will. Solving the liquidity needs around these repurchase events is an emerging crisis, and one that can actually kill this industry if it’s not properly addressed. Without a secondary market for HECM, there is no liquidity for HECM. No liquidity for HECM means no HECM. Banks that serve our industry

underwriting

Unintentionally, the issuer acting as financier for GNMA has another negative implication, as the Securities and Exchange Commission “informally” pointed out late last year. The SEC has apparently asserted that because issuers act as a financier for Ginnie Mae (i.e., there really is no true sale), we have too large a remaining role (in the eyes of the SEC) to establish that there has been, in fact, an arm’s-length transaction with no further issuer performance obligations at the time of bond delivery. The manner in which we fix this financing role has multiple implications. If the issuer “fixes” it with its own financing, or financing with a third party, we still haven’t rectified the issues related to accounting. It would be optimal if Ginnie Mae took over this role as it helps rectify one of the larger current impediments to solving the accounting issue.

Solving the liquidity needs around these repurchase events is an emerging crisis, and one that can actually kill this industry if it’s not properly addressed. Without a secondary market for HECM, there is no liquidity for HECM. No liquidity for HECM means no HECM. originating

percent purchase obligations. What is even more amazing is that for all the hard work that Ginnie Mae does for the mortgage industry and for determining who should be and will be an issuer, this financing role is never fully addressed. The establishment of back-end financing for the 98 percent purchase event is currently not a requirement. This has to be rectified immediately.

The Reverse Review October 2012

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originating

Focus on the Basics

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

originating

underwriting

David P e s k in

legal appraising

Today, most businesses are spending marketing dollars. The key to achieving successful marketing campaigns is to start at the beginning. How well are you tracking the return on your investment? Do you know exactly how many dollars are coming in for every dollar spent on a campaign? Do you know if a campaign lost money? Investing in technology and a tracking tool is critical. Equally important is using the technology to track every salesperson to ensure that they’re managing leads efficiently. 8

reversereview.com

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spotlight

In today’s environment, premiums can definitely be used to grow a

Let’s Start with Marketing

secondary market

What’s surprising is that many companies I’ve seen over the years don’t ask these questions. Many lenders or brokers are encouraged by gains in the current environment and ramp up expenses by hiring salespeople or adding to their middle management. But this idea that “one loan will cover it” is dangerous. There are major expenses associated with each new hire, including overhead, management, marketing and technology resources. All of these factors drive up operating costs, which only grow larger with each person hired. Their business models can only expand with the addition of fixed overhead. Very little of the process is integrated in an efficient way that the cost structure (assuming normal market premiums) would mandate.

business, but I suggest investing in infrastructure and quality support staff to further institutionalize a business. Many firms hire and turn people over quickly, costing the company a substantial amount of time and money. Salespeople can always be hired, but you need to provide an integrated infrastructure that allows them to succeed.

tech

There are three fundamental questions that must be addressed if you are to build a successful future in the reverse mortgage industry. First, how do I maximize the investment in my marketing campaign? Second, how do I lower my operational costs without

hurting my loan quality or exposing the business to legal noncompliance? Lastly, if pricing compression hits again (and it will), can I still run a successful business?

servicing

ince entering the reverse mortgage market in 1994, I have witnessed firsthand many industry changes. There have been significant swings over the last four years—principal limit factor adjustments, falling housing prices, the exits of FNMA and major banks, the arrival of GNMA, pricing consolidation and pricing premiums, just to name a few. My personal experience in the industry is broad: I sold two origination companies, was one of the first investors in RMS and consulted for both large originators and major private equity firms. As such, I’ve had the perspective of both an originator and an investor. A firm can’t always be ready for what’s to come in this industry, but it can prepare for what’s likely to happen.

The Reverse Review October 2012

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originating

Larger firms may have several departments like opening, processing, closing, etc. It’s important to measure each one of these areas, reversereview.com

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spotlight

Set a measurement for cost per closed loan. Everything in your organization should be broken down in metrics and these numbers should be shared with all managers. Set targets and hold weekly meetings to discuss how to meet or improve these cost targets.

secondary market

Remember, no actual cash losses have yet turned up on the books of the newer issuers (these loans are still young), but they will!

In closing, it’s important to spend equal time preparing for the future and growing your business. A well-thought-out business model, run by key performance indicators, and with a low fixed-cost base, can help your company make proper adjustments during most economic changes. Set key performance indicators for each area of your business and ensure your management team understands and believes in your vision, and you will succeed. x

tech

Many firms rely on manual paperwork and redundant systems that don’t provide reporting. Sit and work with your heads of operations to discuss opportunities to improve technology and the quality of loans coming in from sales.

servicing

Lowering Operational Costs

While we’d love pricing on securities to remain constant, I assure you they won’t. It’s likely that rates on swaps will increase and prices on securities will decrease, but there are other variables, too. The GNMA HMBS product is a capital-intensive business and requires heavy margins to ensure GNMA eligibility remains. Liquidity is a major factor and if a large issuer should exit the market, it’s likely that others will increase prices. Issuers as a whole may need to increase margins to maintain capital requirements. Remember, no actual cash losses have yet turned up on the books of the newer issuers (these loans are still young), but they will! Should this happen, loan premiums will decline. Is your business ready for lower loan pricing? Have you modeled out what changes you would need to make at pricing of 104, 105 or 106 on your loans? Would you need to raise origination fees? How quickly can you do that? What’s the new revised target for marketing dollars on a closed loan? It all starts by taking your current income statement and creating scenarios based on volume and pricing. If your business would not make money on realistically priced loans, start planning for that today. Many companies wait, thinking they can address those issues when they come, but by that time it may be too late.

appraising

Say the price per closed loan for marketing is $2,500. If you’re paying $250 per lead, then you must fund 10 percent of all leads. Are you? If not, can you? Can you afford to spend $3,000 per closed loan? You may also look at profit based on a higher UPB and determine if spending $3,000 for a loan over a $150,000 UPB is acceptable. Once you model out your business and run it by the numbers, it becomes a lot easier to manage.

Preparing for Pricing Changes

legal

Another important feature is connecting your CRM to your phone system so you can track call time and lead contact rates. This kind of data will allow better management of your sales team individually. For example, imagine a new loan officer is spending hours on the phone and contacting leads at a high rate, but he has very little conversion. You can then determine that he needs phone training. Or you may have someone with little call time but high conversion on very few leads contacted. You may decide to provide less leads to this person or work with them on organizational skills. Data can provide a lot of information, and proper reporting will allow you to scale your business.

underwriting

Many firms hire and turn people over quickly, costing the company a substantial amount of time and money. Salespeople can always be hired, but you need to provide an integrated infrastructure that allows them to succeed.

set a cost-per-closed-loan target and factor this into a total cost per closed loan. Pay attention to closing ratios by loan officer or client and see where there’s room for improvement. I’ve seen processors closing 40 percent of their pipeline, which means that six of every 10 files they receive are a waste of their time. Imagine improving this to 65 percent. Costs would drop dramatically.

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goi ng to the source

Use technology that has a proper flow and a proper lockdown to guarantee data integrity. In other words, don’t allow fields to be changed by just anyone. Once a loan is in processing, only certain administrators should have access to adjust field dispositions. Have your origination system update your CRM solution as the lead progresses to closing to secure report accuracy. Make sure all of the managers and sales team understand your flow, and use the same dispositions for each turn of events.

The Reverse Review October 2012

originating

From Lead to Loan Ad am jay Sh u lman

ow can you predict your business revenue if you don’t have the proper tools? A lead management system is the No. 1 tool for any mortgage company wanting to maximize its lead-cost investment. With the high price of leads these days, no company can afford to take them for granted. Most of the lenders I have worked with provide loan officers with leads worth hundreds of thousands of dollars on a monthly basis. With an investment like this, there has to be accountability. One way to achieve that accountability is by effectively utilizing a lead management system. Lead management systems allow your sales staff to track all aspects of a lead’s history, which is essential to evaluate company practices. A common mistake is to look only at how many leads were purchased in a given month and compare that figure to the number of fundings. The most important conversion is leads bought versus leads funded. A lead management system will allow you to measure your business at each point in the sales process, enabling you to calculate the percentage of your business that will make it to the next level in the loan process. The leadership team at your company must use the reporting tools available in a lead management system to ensure that the business is running as efficiently as possible. Tracking lead conversion, lead sources, monthly 24

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lead flow and your sales metrics is necessary so that you can forecast your productivity on a micro and a macro level. Tracking negative dispositions is also an essential part of the day-to-day performance of your business. By noting the reasons that a lead has not moved forward, you can learn more about the niche product that we sell. For example, is your appraised value of a property lower than what the borrowers think their home is worth? Are both borrowers of age to qualify for the reverse mortgage? Even the simple “not interested,” “no sales” and “no contact” leads must be clearly dispositioned every time a loan officer touches a lead. If you note each of these negative dispositions properly, you could create a pipeline of future leads that may be qualified in the future. The reporting tool can help you assess other important stats as well. Are certain states more likely to convert? Are you buying leads where home values constantly come in low? Having a history to look back on allows you to target leads that will give you the best opportunity to make the most

profit. I have been lucky to have been surrounded by some of the best loan originators in this industry. All of them use systems that make their businesses run at top efficiency. Once your company makes the initial investment in a lead management system that fits your organization’s needs, you must make sure that your loan originators are taking the necessary steps and using the system properly, or your data could be inconsistent. The key is to show your loan officers how the system can help their business. It really is amazing how easily leads can be lost, and by using a management system properly, leads can be sorted and prioritized to maximize efficiency. With such a system, a loan officer can sit down at the beginning of a day to plan his or her time around a well-organized call list for that specific day. It’s like having a game day playbook to follow. Recycling leads has been a common practice in the reverse mortgage industry for years. On my sales floor, 15 to 20 percent of our monthly originations come from recycled leads. Just because someone has interest in our program in a given month 8

Acco r d i n g to adam A common mistake is to look only at how many leads were purchased in a given month and compare that figure to the number of fundings. The most important conversion is leads bought versus leads funded. A lead management system will allow you to measure your business at each point in the sales process, enabling you to calculate the percentage of your business that will make it to the next level in the loan process.

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A product of Salesforce, Sales Cloud combines marketing and sales initiatives to create a command center for managing and tracking lead campaigns. salesforce.com

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LeadMailBox has user-friendly features including a streamlined lead delivery and management process. This Web-based platform specializes in the mortgage, real estate and loan modification fields. leadmailbox.com

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A popular sales software company, Leads360 offers three different platforms that are specifically designed for mortgage professionals to increase proficiency and enhance profitability. leads360.com

tech

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Valuations

secondary market

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Settlement

spotlight

Title

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legal

A sales organization needs to be constantly growing and changing to be relevant in this industry. What we do today might not work in the future. As the HECM product becomes more mainstream, the competition will only increase. A strong lead management system is one way to help your company stay ahead of the curve. x

FIND THE RIGHT SYSTEM Most lead management software providers allow potential customers to demo their product online. Here are three top lead management software providers. Visit their sites for a personalized demonstration or a free trial to see which software best suits your company’s needs.

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With the new licensing requirements in our industry it can take a tremendous amount of expense and time to bring a new loan officer into the business. With a proper lead management system, you should be able to pinpoint where a new person is having trouble converting leads. When you have a more complete picture of the loan officer’s strengths and weaknesses, you will be better prepared to train them.

As an owner or manager, you always have to be checking under the hood of your business. You need to make sure that all the parts of your operation are running smoothly. Sometimes a bad month can be a symptom of the previous month’s activities. Do you want to wait until it’s too late to recover, or do you want to diagnose the problem early enough to correct a negative trend? A lead management system can help you assess and solve an issue.

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doesn’t mean that they are looking to purchase a reverse mortgage that same month. The shelf life of reverse mortgage leads is long. It’s not uncommon for a lead to convert a year from its original lead date. Sometimes it takes a couple of different loan officers to convince prospects that the reverse mortgage can be a solution to their financial or lifestyle needs. It’s great for you to have a tool that can easily transfer your leads from one loan officer to another and enable you to track them through their lifecycles.

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The Reverse Review October 2012

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learn

Underwriting

Understanding Power of Attorney Ralp h R o s y n e k

Generally, there are three kinds of POA documents:

* Durable: The attorney-in-fact is

granted the full power to act, and in the case of a reverse mortgage transaction, to encumber the property. The “durability” is an unrestricted ability to act from execution through incapacity.

* General: The attorney-in-fact is

granted similar wide-ranging powers, but the POA document is only effective as long as the borrower is competent.

* Specific: The attorney-in-fact is

granted powers only for a specific task or action and does not have the ongoing ability to act on the borrower’s behalf. It is only effective as long as the borrower is competent.

* Conformity: The POA document

must conform to ALL state statutes to allow the attorney-in-fact to act. Be aware that state rules vary, necessitating a complete review by several participants in the loan process. A critical review is required by the title company underwriter, who will determine if the document will legally allow the property to be encumbered in the state where it is located. Generally, a faulted document negates all parts of the transaction.

POA may not be used to represent the borrower for counseling purposes, regardless of his mental capacity. The same would apply for application execution purposes. In some cases, the lender may require all parties to be counseled as an additional safeguard. Only a Durable POA would allow for an attorney-in-fact to represent the borrower, and in this case the attorney-in-fact would be required to attend counseling. Generally, many lenders also stipulate that if the borrower is competent, he should attend counseling and, at minimum, execute the Counseling Certificate, 1009 and other disclosure documents. Incompetent borrowers may not execute the Counseling Certificate or the application documents.

spotlight

Areas of concern when reviewing a POA document include:

* Counseling: A General or Specific

secondary market

Unfortunately, there are times when the execution of a POA is unable to be supported by a credible verification of competency. Although family members sometimes step in and suggest a POA when the individual is showing signs of incompetence, the timing could prove problematic. It could be argued that at that point in time, the individual has already lost the ability to make a rational decision in his best interest. Improper timing of POA execution results in additional expenses and frustration, which could interrupt or delay the family’s ability to provide for their loved one.

and physically capable of signing, but chooses to have an attorney-in-fact execute documents on his or her behalf.

tech

The key to the successful use of a POA document in a lending transaction is based upon the lender’s confidence that the document presented was executed at a time when the individual had the requisite capacity to execute it, and that requisite capacity can be verified by a medical attestation of competency at the time of execution.

* The borrower is mentally competent

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When a POA specifies the individual’s preference to obtain a HECM loan, it can help families approach the transition with ease, knowing that they are doing what their loved one intended.

* The borrower is mentally competent,

* Closing: Generally, all three types

of POA documents may be used to execute closing documents (although this may vary by lender), provided the POA document complies with all state requirements and allows for both legal-note enforcement and the subject property to be encumbered as determined by both the title company and lender underwriters. x

I am neither an attorney nor a physician. For a more detailed analysis and opinion of POA purposes and uses, you should engage one of these professionals as this information is for discussion purposes only. reversereview.com

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appraising

but physically incapable of signing.

incompetent.

reviews the document to determine the borrower’s mental competency and if an attorney-in-fact is needed based upon conditions present. The underwriter will require the borrower’s mental capacity to be verified by a physician in order to arrive at a decision as to how the POA document can be used in the loan transaction. Clearly, the underwriter is not acting as an attorney or physician, but rather as a “safeguard” for both the borrower and lender’s interests.

legal

A POA is a legal document whereby one individual authorizes another individual to act on his behalf. Executed at a time when the individual is still capable of communicating their needs and desires, a POA remains in effect until revoked by the individual.

* The borrower is mentally

* Competency: The loan underwriter

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In a reverse mortgage transaction, the most common uses of a POA would be in situations where:

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ecently, I have noticed an increase in various types of information resources offering strategies for older Americans who want to age in place. Many of these strategies suggest that seniors consider executing a durable Power of Attorney (POA) document.

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The Reverse Review October 2012

adapt

Legal mandate to safeguard the interests of consumers. As a result, the bureau’s supervision priorities are aligned differently than federal banking authorities or state regulatory agencies. That does not mean, however, that the consumer protection focus of the CFPB will not bleed over so that other governmental entities increase their focus in these areas.

The New Compliance Paradigm Hay d n J . R ic h a r ds , J r .

ith the advent of the CFPB and increased coordination between banking, regulatory and enforcement agencies, financial institutions and non-depository institutions alike must revisit their approach to compliance. Conducting business in the post-financial crisis era is fraught with challenges, and institutions that do not respond will eventually face peril.

Countless companies in a variety of industries are now subject to oversight by the CFPB. In the mortgage industry, the bureau has the authority to investigate companies to ensure compliance with federal law; it does not have authority to determine state law compliance. Notwithstanding its examination authority, the CFPB is a consumerprotection vehicle—no other governmental authority has an exclusive

The CFPB aims to be different. It is unequivocally proconsumer and its employees take pride in the fact that it is not a traditional governmental agency. The agency now considers financial products through a different lens, one that does not exclusively evaluate whether a product is legal or compliant. Instead, the bureau considers whether products may be in the consumer’s best interest. Does this approach mean that the validity of entire products could be called into question by the CFPB? Absolutely. More fundamentally, however, it means that institutions will need to educate the bureau about the value of their offerings and, most importantly, ensure that their products provide a

The CFPB aims to be different. It is unequivocally pro-consumer and its employees take pride in the fact that it is not a traditional governmental agency. The agency now considers financial products through a different lens, one that does not exclusively evaluate whether a product is legal or compliant. Instead, the bureau considers whether products may be in the consumer’s best interest. 28

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“value add” to consumers and that such benefit is commensurate with the compensation earned by the company. To the extent that companies cannot justify the worthiness of their products, it is not unreasonable to believe that the CFPB would act against those companies. CFPB action could result in significant monetary penalties, as evidenced by its recent settlement with Capital One. The comprehensive and rapid embrace of technology by regulatory agencies, including the CFPB, will only serve to increase the burden on regulated entities. State regulatory agencies, through the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators, secured technology very early so that the agencies could perform loanlevel data analysis. More recently, the CFPB similarly secured such technology so that it may evaluate mortgage loan compliance on a loan-level basis. Historically, examiners have not made use of cutting-edge technology in order to conduct examinations or facilitate reviews of companies. The actions of the CFPB and the state regulatory agencies suggest that the past practices of examiners are just that—the ways of the past. In addition, the CSBS is rapidly culling data

legal

appraising

Without a doubt, industry members are experiencing unparalleled challenges in the current regulatory environment. Those challenges must be met headon now, lest agencies such as the CFPB respond with force in the future. x

legal servicing

The expanded use of technology by examiners, combined with cooperation amongst regulatory agencies, means regulated institutions must respond. What type of response is appropriate? First, play offense. Consider revisiting your existing compliance department. Is that department constantly

competition. What are your industry colleagues doing to meet their obligations? Are the approaches of your competitors similar to your approach? Do they have more robust compliance programs? Do they offer more or fewer products and do those products present more or less risk than those offered by your company? How does your company stack up when compared to its competitors?

underwriting

Of further note, governmental agencies across the spectrum are increasingly cooperating. For example, in early September 2012, a new complaint portal was announced whereby various governmental agencies, including various attorneys general, the CFPB, state regulatory agencies and federal agencies, will be

defending itself, responding to examination requests and compliance challenges, or is there time to go on offense, allowing for comprehensive reviews of existing business practices and an ongoing discussion about the direction of the company. This may mean redeployment of existing resources or, more likely, adding additional resources. Investment in your company’s infrastructure now will pay dividends in the future. Second, have business legal and compliance cooperate to identify areas of risk. After identifying those areas, implement plans to minimize that risk. Consider wholesale training of employees to ensure that a culture of risk minimization is accepted and embraced, particularly by sales professionals. Third, scout the

originating

able to access consumer complaints. Evidencing additional cooperation, multistate regulatory examinations performed on non-depository institutions have been scheduled in coordination with examinations by the CFPB. Such scheduling not only places an incredible burden on examined institutions, but cooperation between the examiners can only maximize the effectiveness of the examinations.

from Mortgage Call Reports that are submitted by nondepository institutions so that it can provide comprehensive data to regulatory agencies regarding the types of activities that are occurring in the industry. Such data will allow regulatory agencies to see changes in product trends and offerings, as well as identify those institutions that potentially conduct activities that pose more risk to consumers.

tech

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Send us your company’s press releases or email us news of your latest venture, and we’ll consider printing it in the next issue.

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The Reverse Review October 2012

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appraising

Confused and Misunderstood Joh n G o l d e n

originating

appraising

secondary market spotlight

Another widespread misconception noted among loan officers is that HUD has a predetermined limit with regard to the distance of comparable sales from the subject property. This issue regularly presents itself in cases including manufactured homes that may also be situated on acreage parcels. HUDâ&#x20AC;&#x2122;s 4150.2 guidance is that sales or resales from within the subject subdivision or project are preferred,

so long as the builder/developer is not in control of the transactions. Furthermore, in rural areas it is not uncommon for these comparables to be located a considerable distance from the subject. With properly detailed commentary related to the need to use such distant comparables, this is an acceptable practice. There is no maximumdistance limit imposed upon the appraiser for comparable sales. That does not mean, however, that a lender cannot put forth specific guidelines regarding the proximity of comparables. But it should be noted that these would be guidelines related to loan eligibility for that particular lender, and not limitations placed upon the appraiser in the analysis of the subjectâ&#x20AC;&#x2122;s market, 8

tech

utilizing sales that are older, so long as the appraiser provides a detailed explanation as to why an older sale was cited. Only closed/settled sales may be listed in the first three slots for comparable positions on the report, and these comparables must have transferred within 12 months of the effective date of the report.

servicing

going to the source

legal

A great deal of misinterpretation is noted on the part of many loan officers as it relates to HUD requirements surrounding comparable sales listed in the report, specifically the date of sale and proximity to the subject property. Many times I receive complaints or requests for a refund of appraisal fees due to the fact that a report included comparables that were greater than 6 months old and located more than one mile from the subject property, and as such, the report is considered not to be HUD credible. HUD 4150.2 guidance states that comparables that have transferred within the past six months are preferred, but that does not prohibit an appraiser from

underwriting

s the quality control manager for a national appraisal management company, I am directly involved with a large volume of escalated appraisal matters that are placed upon my desk for mediation and resolution. In most cases, these matters involve either a loan officer who is dissatisfied with the results of an appraisal report, or an appraiser who is confused or upset about a request for specific underwriting revisions. I have noticed that the root of many of these disputes is a misunderstanding or a lack of knowledge in relation to specific HUD requirements with regard to the appraiser, the appraisal process or the appraisal report on FHA or reverse loan files.

HUD 4150.2 guidance states that comparables that have transferred within the past six months are preferred, but that does not prohibit an appraiser from utilizing sales that are older, so long as the appraiser provides a detailed explanation as to why an older sale was cited.

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The Reverse Review October 2012

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appraising

I recommend reviewing HUD 4150.2 guidelines, available at hud.org. They are useful tools that can be relied upon to bridge the gap between appraisers and loan officers. x

appraising

Many appraisers are confused about comparable sales. I often see reports with closed/settled comparable sales listed in the first three positions that transferred more than one year prior to the effective date of the appraisal report. HUD 4150.2 guidance states

that any comparable sales older than 1 year must be located in position 4 or higher on the report, and may be utilized as “additional sales.” I advise appraisers to place appropriate weight on these comparables in the reconciliation of sales data and derivation of value by the Sales Comparison Approach based upon their applicability to the subject property, regardless of their position in the appraisal report.

legal

list of these required repairs and provide an estimated cost to cure (or fix) these items. Cosmetic or other deficiencies that do not fit into these categories should be mentioned and factored into the overall condition rating for the property, but there should not be any requirement for their repair included in the basis of the report.

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Many appraisers are confused or misinformed about deferred items or deficiencies that require repair. HUD 4150.2 guidance states that required repairs must be limited to those that impact the three S’s: safety, security and soundness. The health and safety of the property’s occupants must be ensured, the overall security of the property must be upheld, and the structural integrity of the property must be maintained. If any condition exists that affects the property in any of these areas, the appraisal report must be based upon the hypothetical condition that these items will be corrected. Furthermore, the appraiser is to provide the lender with a detailed

according to john

originating

selection of appropriate comparables or processing of the appraisal report. In some cases, comparable sales that meet the specific guidelines of the lender are just not available. However, this does not mean the appraiser is unable to appraise the subject property or produce a HUD-credible report.

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The Reverse Review October 2012

Your direct path to growth in the

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s s s

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RMsnAv.com

advance

servicing Not All STORMs Should Be Feared

3 Automated claim processing To really appreciate the benefits, one must truly understand how the changes will enhance a servicer’s ability to update and stay in sync with HERMIT (and therefore with HUD).

3 Online document submission 3T he ability to record property charges and corporate advances

3 Automated loan termination in HUD systems, resulting in the cancellation of the monthly MIP draft 3 Auto approval of claims and the ability to review a claim’s status 3 Increase in servicer’s cash flow, based on the quick claim process As stated before, there may be no perfect time to implement a new system, but then again, can we afford to wait? This servicer says no. x reversereview.com 8 TRR | 35

spotlight

3 Servicer request monitoring

3 Auto validation of calculations online, which will reduce errors in claim submissions

secondary market

3 B2G interface (business to government)

3 Auto population of the claim form with the required information and transactions

tech

The benefits of HERMIT are many, but a few stand out:

The new claim process will provide the following:

servicing

As one of the leading servicers and subservicers in the reverse space, RMS welcomes the release of the new HERMIT system. While the unveiling of a new system can bring anxiety to any seasoned servicer (I mean, what servicer is ever 100 percent ready to switch to a new system?), the benefits of HERMIT far outweigh the time and effort required to train and prepare for the implementation.

As the saying goes, the best has been saved for last: HERMIT streamlines the document submission and request process, eliminating the need for servicers to mail paper copies.

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In October 2012, the new HERMIT system is set to replace HUD’s Insurance Accounting Collection System, better known as IACS. IACS has served the industry for more than 20 years, and since then, technology and industry requirements have changed. The new HERMIT system will allow HUD and industry participants to step into the 21st century of reverse mortgage servicing.

The ability to record both property charges and corporate advances as separate transactions and the ability to account for negative NPL are also vast improvements. All of these options will improve the servicer’s ability to sync records with HUD’s system, whereas today certain transactions are not recordable in IACS.

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STORM within the reverse mortgage industry has been brewing for almost three years, and while this storm has grown in intensity, it will bring a change not for the worse, but for the better. The storm in this case is not coming from the Atlantic or the Gulf of Mexico, but from HUD in Washington, D.C., and by STORM I mean HUD’s acronym for Servicing Technology on Reverse Mortgages. This storm’s name is HERMIT (Home Equity Reverse Mortgage Information Technology).

Second, we all know how much time and effort is spent following up on a request via phone or email. Countless hours are wasted by servicers and HUD looking up the status of a request or a claim. With HERMIT, a servicer can access in real time the current status of a request or claim. The ability for real-time updates from a servicer’s desktop spells productivity gains that can be allocated elsewhere.

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First, let’s look at the B2G interface and what it means. The B2G process will allow the syncing of small or large transaction volumes between a servicer and HERMIT. The ability to automatically sync the information will reduce key-punch and balancing errors, which will mitigate the risk involved when a servicer assigns a loan to HUD. This is a vast improvement from today’s process, which requires manually entering all transactions into IACS.

originating

Ja m e s W righ t

3 The ability to recognize negative Net Principal Limit (NPL)

The Reverse Review October 2012

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evolve

tech

Want to see more stories like this? Visit reversereview.com. According to megen Technology will play a key role in determining best lending practices, and platforms that service these needs. Technology is key to expanding the reverse mortgage market.

originating

tech providers will continue to design

underwriting

LOS Advancements Pave the Way for Growth

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Mege n L aw l e r

Investors can also benefit from this new LOS technology by syncing their systems with a lender’s origination platform, which removes the need for double entry and reduces errors. This technology provides better methods to bundle portfolios and work with the secondary market. Systems that are feature-rich continue to stay ahead of the game and provide the best solutions for the user.

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spotlight

Although the reverse mortgage market has continued to evolve, there has yet to be a truly standardized technology for loan origination systems. What works for one lender does not necessarily work for another. What one compliance department requires doesn’t match the needs of another. Technology will play a key role in determining best lending practices, and tech providers will continue to design platforms that service these needs. Technology is key to expanding the reverse mortgage market. Advanced tools will inevitably streamline production, which will reduce costs and ultimately benefit the senior consumer. x

secondary market

The ability to link to third-party vendors directly from your origination system has also been a smart improvement. Lenders interested in investigating systems should certainly look into these features. The ability to get closing costs by linking with a settlement company saves valuable time, which would be wasted if one had to research various fees that differ state by state. Other beneficial LOS advancements include functions that allow the user to obtain a credit report

directly within the system and to order an appraisal by simply pressing a button.

tech

The technology options for the reverse market grew slowly but steadily. Previously, lenders and brokers could only find automated systems offered by the investors that would buy and service their loans. Today, there are a host of options designed by technology providers from which lenders and brokers can choose. With the development of this competitive tech market, lenders can select the loan origination system (LOS) that works best for them and exponentially improve their bottom line.

Every facet of the industry has benefited from LOS improvements. Lenders can offer potential applicants a package listing the program’s benefits and can automatically email this information with a list of local counselors. Processing and underwriting departments can increase their productivity through the enhanced features designed specifically to make their work more organized and streamlined. Closers can order documents with the click of a button and have packages securely retrieved. And lastly, management can rest assured that loan documents are protected, as the ability to integrate the LOS with attorney firms greatly enhances the security of a document package.

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have worked in the reverse mortgage industry for more than 20 years, and I’ve seen firsthand the affect that technology has had on improving the reverse mortgage market. When I first started Bay Docs, lenders would fax data required to complete closing packages. We would then send the packages back via overnight courier, praying that the weather patterns from one end of the country to the next would allow for a timely delivery. This grueling process greatly reduced a lender’s ability to grow his business. Clearly, there was a cry for technology, and that cry was heard.

To Move Forward, Work In Reverse

The Reverse Review October 2012

Join a winning team in a growing industry

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W-030612

HMBS

secondary market

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

originating

The Tightening Trend Continues Da rre n S t u m b er g er

Bank of America Merrill Lynch bringing $132 million and $89 million in transactions respectively. I expect originations to continue to uptick into the fall and the deal calendar to remain robust as new structures come to market by the dealer community. I also expect some of the newly minted HMBS issuers to come to market with their initial HMBS securitizations.

legal appraising servicing

Speeds

According to darren

K I expect originations to continue to uptick

deal calendar to remain robust as new structures come to market by the dealer community. I also expect some of the newly minted HMBS issuers to come to market with their initial HMBS securitizations.

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spotlight

into the fall and the

I mentioned earlier in the year that there would be more monetary accommodation from the Fed in the fall, and today the Fed announced QE3, which will support the mortgage basis and HMBS spreads in the near term. However, as the election and fiscal cliff draw closer, one can expect treasuries to rally given the uncertainty that may cap mortgage outperformance but keep premiums elevated. x

secondary market

Prepayment speeds on both fixed-rate and floating-rate HMBS have continued to be slower than the HECM Prepayment Curve (HPC). We are beginning to observe a slight uptick in the speeds of the 2009 vintage, primarily due to 98 percent buyouts. The buyout-adjusted speeds on this paper are amazingly slow, creating a neat cash flow profile that is attractive to investors. Barring any changes to the HECM program (interest rate floor change, principal limit factor adjustment, etc.), we expect bonds within the HMBS universe to continue paying slow in the months ahead.

tech

Investor appetite has remained strong and balanced across fixed and floating HMBS and HECM Real Estate Mortgage Investment Conduit classes. Volumes have recently picked up with August HMBS issuance at $700 million. Urban Financial Group led the pack with 32 percent of the market share and Reverse Mortgage Solutions trailed at 28 percent. There were only two Collateralized Mortgage Obligations done in August with Knight Capital Group and

underwriting

uch like the strong performances seen in the mortgage and securitized product markets, HECM MBS spreads have continued to tighten, with fixedrate HMBS tightening dramatically into higher prices as we move into mid-September. New Issue, fixed-rate HMBS have retraced a good amount of the early summer widening and are back to high 80s for corporate settle swaps. Parpriced floaters have grinded tighter to the high 40s/low 50s discount margin context with interest-only spreads trading very well.

The Reverse Review October 2012

spotlight article A look at the evolution of the program from then to now

History HECM The

ctob edit er ion

of the

A Detailed

Timeline

of the Product’s Evolution

In the HECM business, it’s not uncommon to hear people talk about change. You have surely heard—and probably even read within this publication’s pages—that “change is the only constant” in the reverse mortgage industry. Well, we decided to take a look back at all that change and review the ups and downs that the industry has endured since the HECM product was first established

as part of a pilot program in the 1980s. Since then, we’ve witnessed the rapid growth of Ginnie Mae HMBS and ridden a rollercoaster of origination volume. We’ve seen the program expand to include innovative products like the Saver and HECM for Purchase, redefining the possibilities for seniors who want to benefit

from their hard-earned home equity. We’ve seen our counseling practices improve and consumer awareness increase. We’ve read Mortgagee Letter after Mortgagee Letter as HUD has continually modified the rules of the game. We’ve waved farewell to big bank lenders and congratulated smaller companies as they reach record volumes. Finally, we’ve watched anxiously as

the CFPB gained regulatory power, setting out to improve consumer protections. If our past is any indication of what’s to come, we can expect the changes to keep on rolling as the HECM program evolves in order to remain relevant so that we can continue to provide a valuable financial service to senior homeowners.

1975 Academics continue to research the concept’s feasibility. A paper by Jack Guttentag of The Wharton School discusses consumer demand: “The reverse mortgage is badly needed; it is also very different from, and more

complex than, any existing financial instrument. It constitutes a challenge of the first magnitude to the imagination of the government, and to the ingenuity and adaptability of the private financial system.”

the ing nn begi

1961

The first reverse mortgage is issued by a savings and loan company for the widow of a football coach in Portland, Maine.

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1969 The reverse mortgage concept begins to take root at a congressional hearing before the Senate Committee on Aging. UCLA professor Yung-Ping Chen testifies: “I think an actuarial mortgage plan in the form of a housing annuity can serve two purposes: First, to enable older homeowners to realize the fruits of savings in the form of home equity; and second, to enable those homeowners, who wish to remain in their homes either for physical convenience or for sentimental attachment, to do as they wish.” Intrigued, the committee chairman responds, “Well, that is interesting.”

spotlight article 1987

Congress passes a reverse mortgage pilot program called the Home Equity Conversion Mortgage Demonstration.

1994 Four thousand loans are originated in this fiscal year alone, and the program’s total reaches 7,991. The median age for borrowers is 76 years old.

1988

President Reagan signs the act into law, authorizing FHA to insure reverse mortgages through the HECM Demonstration. HUD selects 50 lenders by lottery to participate, allowing each to originate only 50 loans.

secondary market

1992 HUD submits a favorable evaluation of the demonstration to Congress, saying that HECM volume has “increased rapidly” as participants become more familiar with the product. The report calls the program a “useful mechanism” and notes that borrowers “appear to value the flexibility designed into the program” through various payment options. The number of qualified lenders and counselors grows: 52 lenders are now originating in 38 states. reversereview.com

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spotlight

In this early phase, the median borrower only takes about 30 percent of authorized loan proceeds in the first year. This number will begin to creep up as the program evolves.

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1990 As the program approaches its oneyear anniversary, the number of HECM loans closed totals 157. HUD submits an interim report to Congress, saying the potential demand is substantial and the program is growing steadily. The volume cap is raised from 2,500 to 25,000 loans through fiscal year 1995.

servicing

a look at HECM history

Fannie Mae says it will purchase FHA-insured HECMs.

appraising

American Homestead unveils the Century Plan, establishing the first mortgage of its kind that kept the loan in place until the borrower vacates the residence, laying the groundwork for governmentinsured reverse mortgages. The New York Times covers the new product, noting widespread consumer interest: “Reverse mortgages have been so long in coming that many people hear about them even before they are available in their areas… American Homestead said the company receives 200 to 300 letters a day.”

The first FHA-insured reverse mortgage is closed on Oct. 19 by the James B. Nutter & Company of Kansas City, Missouri.

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1984

1989

Congress makes TALC disclosures applicable to reverse mortgages, requiring lenders to provide total annual loan costs at the start of the application process, enabling borrowers to shop products and compare prices.

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FHA holds AARP-conducted counseling training sessions to tackle education concerns.

originating

1983 Senator John Heinz issues a proposal suggesting further investigation of “the relatively new and promising idea” of home equity conversion. “Today’s hearing is the first congressional hearing concerning this issue,” Heinz testified. “I hope that today we can move toward a definition of the remaining steps necessary to truly unlock the value of home equity for the millions of older Americans who can appropriately benefit from its promise.” The Senate approves the proposal, which requests FHA insurance of reverse mortgages.

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The Reverse Review October 2012

spotlight article 1995

HUD submits an evaluation report to Congress, stating that new loans are closing at a rate of 300 to 400 per month as the program sees early success. The study notes that, with median closing costs totaling $4,465, the expense is a concerning stumbling block for potential borrowers. Also noted is a concern over the limited access to capital as Fannie Mae is the sole purchaser. The report deems the mortgage insurance premium to be adequate, asserting that the value of premiums collected surpasses the value of insurance claim losses.

1998

The HECM program becomes official! The HUD Appropriations Act makes the pilot permanent and increases the number of allowable outstanding loans to 150,000. Congress awards funds for counseling, consumer education and outreach. Safeguards are put in place for borrowers to ensure the full disclosure of fees and prevent unnecessary charges. HUD is tasked with finding alternative ways to educate borrowers.

1996

The cap on insurable loans is raised to 30,000 through fiscal year 1996 and then to 50,000 through fiscal year 2000. The loan is modified to allow properties of up to four residences if the mortgager occupies one unit.

1997

The number of HECM lenders peaks at 195, but then begins to decline in the next two years as lenders complain that the origination fee prevents profitability. The median borrower age drops to 72.

NRMLA is founded to represent lender interest.

the industry evolves 42

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1999 More than 38,000 reverse mortgages have been insured at this point. An AARP survey indicates that 51 percent of consumers age 45 and older have heard of a reverse mortgage. The industry grows as the number of HECM servicers increases from one to four firms. Financial Freedom purchases Transamerica and develops its Cash Account product, creating what will be the most widely originated proprietary HECM product. Lehman Brothers introduces the first private-label reverse mortgage securitization, and the majority of loans for the pool are originated by Financial Freedom.

spotlight article

2007

2000 A Mortgagee Letter is released, announcing an increase in origination fees to either $2,000 or 2 percent of the MCA. HUD says it hopes the ability to generate higher revenue will encourage more lenders to participate.

The first Ginnie Mae security is issued. FHA says monthly adjustable rates can be calculated using the one-month Libor. Proprietary reverse volume peaks at 2,599 loans for a total of approximately $2.6 billion in loans.

The first HECM refinances are made. In the next three years, refinance loans will constitute between 3 and 7 percent of all HECMs originated.

A nationwide poll indicates that 72 percent of baby boomers have heard of a reverse mortgage.

servicing

2001 HUD and AARP partner to train and test counselors and establish consistent HECM counseling procedures and policies.

appraising

An AARP poll says 93 percent of borrowers surveyed reported a good experience with their loans.

legal

Volume grows steadily as originations reach 50,000 per year. AARP estimates the potential market is about 13.2 million households.

At this time, 87 percent of borrowers are choosing a line of credit, with only 13 percent choosing a monthly disbursement plan. The median borrower takes out 82 percent of available funds within the first year.

underwriting

2005 The volume cap is raised again from 150,000 to 250,000 loans.

originating

HUD releases another evaluation of the program, noting loan volume is growing, borrowers are reporting high levels of satisfaction and premium collections are expected to exceed insurance claims.

tech

2006

Wall Street investors enter the secondary market. As investors begin issuing private-label HECM securities, they give rise to a competitive interest rate environment. An AARP study says the advent of HMBS “suggests that lower prices and better products are likely to appear within the next few years.” The cap is raised again to 275,000 loans and a national loan limit of $417,000 is established.

spotlight

Volume continues to increase, totaling 84,000 loans this year. AARP conducts its first national survey of reverse mortgage borrowers and concludes that most borrowers take out a loan to “improve their quality of life and/or plan for emergencies.” In the coming years, surveys will indicate a drastic change in borrower motivation.

8 reversereview.com

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secondary market

2004 FHA implements rules for HECM refinancing, allowing for a special option in which the borrower is required to pay only the upfront MIP and the difference between the original appraised value and the new appraised value or FHA loan limit.

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The Reverse Review October 2012

Opportunity is knocking.

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spotlight article

2008 Annual origination volume exceeds a record 100,000 loans, prompting HUD to deem 2008 a “turning point” in HECM history. The surge is timely, as the first baby boomers turn 62 this year. The SAFE Act requires states to adopt uniform procedures for licensing and registering HECM loan originators.

FHA says Ginnie Mae’s new fixed-rate product could be structured as a closed-end loan.

HUD implements the FIT tool to assist counselors in determining borrower eligibility. A new study reveals that most HECM borrowers use the loan to alleviate debt, a noted change from earlier surveys. FHA increases the ongoing MIP from 0.5 percent to 1.25 percent per year and lowers the interest rate floor for the first time in HECM history from 5.5 to 5 percent. Loan volume declines 30 percent. Generation Mortgage Company launches the Generation Plus, a jumbo market loan with a $6 million limit and a fixed-rate, lumpsum requirement. It is the only proprietary loan on the market.

appraising

The housing bubble bursts.

Ginnie Mae sees a record year with nearly $11 billion in HMBS.

legal

The median borrower is now taking 88 percent of loan proceeds within the first year, a 6 percent jump from the previous year.

The Coalition of Independent Seniors (CIS) is formed to advocate for seniors looking to access their home equity.

underwriting

HECM insurance shifts from the General Insurance Fund to the Mutual Mortgage Insurance Fund (MMI).

The HECM Saver is introduced!

originating

The Housing Economic Recovery Act of 2008 places limits on origination fees, establishes rules specifically prohibiting cross-selling and sets forth guidelines to promote counseling independence.

2010

the end

servicing

2009

The HECM for Purchase is created. By the end of this year, 130 Dodd-Frank transfers regulatory authority of the HECM program to the CFPB on July 21. Several months later, Richard Cordray is appointed director of the CFPB in a recess appointment that draws controversy.

Congress increases the HECM loan limit to $625,500.

Fannie Mae’s market share falls to just 10 percent as Ginnie Mae’s volume skyrockets—it jumps from $1.36 billion in 2008 to $8.54 billion in one year’s time. The number of HECM loans peaks at 115,000. HECM refinances also peak, constituting 8.5 percent of all HECMs. FHA lowers the principal limits for HECMs by 10 percent, reducing borrower proceeds.

Leading lenders Wells Fargo, Bank of America and MetLife exit the reverse space. Live Well Financial earns HMBS issuance, joining a short list that is beginning to grow as Silvergate Bank and Security One Lending follow suit. Meanwhile, Ginnie Mae tightens issuer requirements, increasing net worth requirements from $1 million to $5 million, effectively limiting the number of lenders that can issue. RMS is purchased by Walter Investment Management Corp. (WAC) for $120 million. WAC execs say they anticipate “explosive” growth in the sector in the coming years. The CFPB issues a report to Congress on the state of the HECM program. The study states that further research is needed because “reverse mortgages have the potential to become a much more prominent part of the financial landscape in the coming decades.” reversereview.com

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spotlight

Libor becomes the most popular rate option.

EXIT

secondary market

The fixed-rate, lump-sum loan becomes the dominant product with more than 60 percent of market share. The monthly adjustable

tech

2012

Purchase transactions were completed as the program begins to catch on.

The Reverse Review October 2012

a sit-down

with

fred thompson

The former senator talks about his hopes for the upcoming election. By Jessica Linn Guerin

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a former senator,

a political pundit and a reverse mortgage spokesman, Fred Thompson has a lot of opinions about the upcoming election. The one-time presidential candidate doesn’t back down when it comes to talking about what needs to be done in Washington, and he’ll tell anyone who will listen that Mitt Romney is the better man for the job. An outspoken Republican, Thompson pops up regularly in the news and on TV to comment on the political climate, most recently appearing as a commentator for the Republican National Convention on Fox News’ On the Record with Greta Van Susteren.

“I think there’s an unprecedented number of concerned Americans out there who are going to be interested in a change. That will bode well for Romney/Ryan.”

Voted one of the top 20 conservatives to follow on Twitter, Thompson regularly tweets his political musings, offering humorous oneliners that take direct aim at the Democratic Party. (“Obama campaign asking people to hold yard sales and donate the proceeds to them. Might work better if fewer yards were in foreclosure.”) For Thompson, it’s all in good fun. “I’ve always believed that it’s better to laugh than cry, and with some of the things that happen around here, you have to do one or the other,” Thompson said, adding, “As long as we’ve got Joe Biden around, there will always be something to tweet about.” Despite his staunch support for the Romney/ Ryan ticket, Thompson predicts that the election will be extremely close. Still, he adds, “I think there’s an unprecedented number of concerned Americans out there who are going to be interested in a change. That will bode well for Romney/Ryan.”

Born Freddie Dalton Thompson in Sheffield, Alabama, in 1942, Thompson grew up discussing local politics at the kitchen table with his father. He majored in political science at Memphis State University before moving on to Vanderbilt University’s School of Law. Upon graduation, Thompson worked as a campaign manager in Middle, Tennessee, for Howard Baker’s Senate re-election campaign. In 1973 he got his first big break when he was assigned, through Baker, to the Senate Watergate Committee. As chief minority counsel, Thompson is credited for leading the line of questioning that led to the discovery of the Nixon tapes. In 1975, he wrote a memoir about his experience watching the Watergate scandal unfold. Thompson entered the U.S. Senate in 1994, winning Tennessee’s seat in a special election to replace Al Gore. He was re-elected and served eight years in the Senate before leaving on his own accord. “I placed term limits on myself,” he said. “And I thought I was through.” But Thompson had a change of heart, announcing his bid for the presidency on The Tonight Show in the fall of ’07. “I was concerned about the direction of the country,” he said. “It was the ultimate opportunity to do something about it.” Thompson’s affable, easygoing manner and familiar presence had some convinced he might come out on top, but when he showed signs of slipping in key primaries he withdrew 8

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his bid after just five months. Looking back on his failed bid, Thompson said he has no regrets and even admits he may be better off. “From a personal standpoint, I’m probably happier now than I would have been had I been more successful. There’s a lot of personal tradeoffs in something like that.” Despite his packed schedule, Thompson still finds time to act. His credits include more than 18 feature films, with Cape Fear and The Hunt for

very broad powers, which makes me nervous, but our goals should be the same,” he said. “I’ve looked at some of the things that have come out of their shop already and it looks like they have a realistic understanding of the nature of the product and its value to the people.” Although Thompson insisted that his ’08 bid “will indeed be my last political campaign,” he remains an avid Capitol Hill spectator and is following the upcoming election closely.

probably anyone in Washington and he’s willing to talk truthfully about it,” Thompson said. “The only thing we should all be able to agree on is that our current path is unsustainable, and Ryan sets out in detail the path we need to follow.” Thompson said that aside from addressing the economic situation, he’d like to see the next administration step up its efforts abroad. “In these difficult economic times, we cannot forget about our national security. It

“In these difficult economic times, we cannot forget about our national security. It concerns me when I hear proposals for the radical reduction of our military,” he said. “A weaker United States will make for a more dangerous world.” Red October among the most notable, and a longtime gig as the Manhattan district attorney on Law & Order. “I have a couple of things in the can that haven’t come out yet,” he said, adding that one is a film starring Ethan Hawke. “I don’t go too long without doing something.” Thompson is also a spokesman for American Advisors Group and stars in national commercials promoting the benefits of the HECM. A strong proponent of the program, Thompson’s connection to the product is more than just professional—he came to know more about its nuances on a personal level when he helped his mother obtain a reverse mortgage. Thompson said going through the loan process with her really solidified his belief in the product. “Until you’re looking at it for yourself or for a loved one, it’s hard to completely appreciate the thoroughness of it,” he said. “The fact is we have a growing elderly population, and this is a tool for people to use what they have worked for and built up.” Thompson said that with more people entering retirement every day, the future of the HECM is promising. He also added that the CFPB’s effect on the program remains to be seen, although he is hopeful the bureau will yield its power wisely. “There’s a new regulatory sheriff in town with 48

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He said the challenge in Washington right now is “speaking truthfully about some of our country’s needs and problems, and still protecting oneself from the demagoguery that follows from speaking the truth. Most people think that the electorate just wants to hear what’s in it for them, and not what’s best for the country. I am more optimistic than that,” he said. “Delivering bad news is a difficult thing to do in politics, but we have to understand where we are before we can decide what to do to make things better.” According to Thompson, fixing the flailing economy is first and foremost on the agenda. “We are in the process of bankrupting ourselves as a nation,” he said. “We need to get control of federal spending and resist the temptation to continue to raise taxes to solve the problem. The problem can only be solved by growth in economy, which will produce more tax revenue than raising taxes. This is relevant to the jobs issue also,” Thompson continues. “If you have a growing economy, you’re going to have more jobs, and you’re going to have a smaller deficit if you reduce spending.” Thompson said the GOP is better equipped to clean up the deficit with Paul Ryan on its side. “He knows more about the United States budget than

concerns me when I hear proposals for the radical reduction of our military,” he said. “A weaker United States will make for a more dangerous world.” While he hopes that the GOP will prevail in this election, he doesn’t predict tidal waves of change in D.C. “I don’t see a major change in the composition of Congress taking place. Republicans will probably retain the majority in the House. They may take the Senate but it will be close either way, with no filibuster-proof majority.” Asked how the election might impact the HECM program, Thompson said he doesn’t predict much change on that end either. “I don’t believe that either party will want to tamper too much with a financial tool that is benefiting so many people who are simply accessing their own equity in tough economic times, especially one that is not costing the government any significant amount of money,” he said. Whoever wins the election will have some serious issues to address, Thompson said. “Steps are going to have to be taken in order to save Social Security and Medicare, for example. Tax reform should also be high on their list,” he said. “The next administration is going to have to address the unsustainable fiscal mess we are in.” x

T R R Ta l k s to F r e d

How Might the Election Impact the HECM? Q :: Do you think support for the program could waver?

While many g Republicans may

not want the HECM program to be 100 percent government-backed, they do recognize that the program is one of the best public/private solutions out there when it comes to addressing America’s eminent aging crisis.

A :: There’s a general push and pull between both parties when it comes to government support for the HECM program. But at the end of the day, I think both sides can agree that this is a product that not only helps bridge a gap for senior citizens, but also helps stimulate the economy. It allows the government to facilitate the private sector so that it can provide reverse mortgages for seniors who need them. It is important to note that Republicans instinctively support programs that help people help themselves, and the HECM program fits right into that model. While many Republicans may not want the HECM program to be 100 percent government-backed, they do recognize that the program is one of the best public/private solutions out there when it comes to addressing America’s eminent aging crisis. When Republicans understand that the HECM is essentially a private-enterprise solution, albeit a government-backed one, and that it is a vital financial tool in our nation’s arsenal to address a large public policy challenge, they tend to support it. Politicians on both sides of the aisle recognize that with more than 10,000 Americans turning 65 every day, our country needs more solutions to help seniors, not fewer.

Q :: Since it was granted oversight of the program, the CFPB has left many concerned about overregulation. Do you see this as a potential problem? A :: There’s always a risk of stifling the market with over-regulation. We need a healthy, thriving market because it gives rise to competition and generates more options for the consumer. Ultimately, a much larger HECM industry could reduce the degree to which the government needs to support the program. As a result of the financial crisis, the pendulum has predictably swung a bit too far in terms of regulation, in my opinion. If you effectively reform Fannie and Freddie incrementally with proper controls in place, you won’t need to over-regulate. It is possible to protect the consumer and the markets at the same time. I hope the next administration finds this balance. Q :: How might the election impact counseling funds? A :: Counseling is essential in certain subsets of the lending market, and I think both parties should agree that funding must be maintained. It is imperative that our seniors receive the counseling they need for this product and that they understand all aspects of a reverse mortgage before entering into a loan.

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guide

last word

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

Let’s Get Back to Basics and Clean Up the Debris Joh n L aR o s e

yan and our team at Celink are heading into the home stretch of fiscal year 2012. I am joyful at the thought of bringing a most trying year to a close and reveling in the stories of grandchildren as they prepare for a new school year. They’re shopping for clothes and supplies and anxious about what the next year will hold. When I ask if they’re ready to get back to the three R’s (reading, ‘riting and ‘rithmetic), they look at me as if I’m from another planet. “Poppy, what are you talking about?” This elicits peals of laughter from their parents, along with, “Dad, no one talks about the three R’s anymore!”

I’m not from another planet, but I am from another time in educational history. The three R’s were the basics: those foundational skills children needed early on to successfully navigate more complicated and challenging tasks in later coursework. This got me thinking, the mortgage business has its own rudimentary requirements for success. I would call them the three C’s of the mortgage business, those basic, foundational conditions to successful mortgage transactions:

3 Credit // A strong credit report, an acceptable FICO score 3 Capacity // A borrower’s ability to make payments 3 Collateral // The quality of the property Perhaps more now than ever, these elements take on additional importance for the reverse mortgage industry. If our industry is to survive and thrive in these trying times, the three C’s should be supported by another set of principles, ones that guide our actions as professionals serving an important sector of our community:

3 Clear conscience // We exist to serve others, not ourselves. 3 Confidence // We represent a great product in an industry committed to ethics. 50

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3 Courage // The strength of our convictions makes us willing and able to face the uncertainty of the times and whatever challenges may come our way. Our industry landscape has been forever altered by the massive storm on the forward side. The tsunami that ravaged the northeast coast of Japan in March 2011 generated 5 million tons of debris. More than a year passed before this debris began arriving on North American shores and it continues unabated today. The figurative tsunami of the housing market collapse happened years ago. The reverse mortgage industry experienced its initial aftershocks and this past year the “debris” generated by this forward-side mortgage crisis began landing on reverse mortgage shores. The concerns over anything that has the word “mortgage” in it have generated an incredible amount of misconceptions and misunderstandings about our product and industry. This is a mess we didn’t create, but we are compelled to address it. We can’t ignore the debris or pass it off as someone else’s job. For those of us who have staked our professional lives in the origination and servicing of reverse mortgages, the product and the process are straightforward, and they have always been about providing responsible borrowers with a means of accessing a financial resource of their own making. Throughout its 20-plus years as a HUD-insured product, heartwarming success stories have always buoyed our spirits, and NRMLA’s members and its Ethics Committee continue to work diligently to address, weed out and eradicate altogether those who threaten the borrower, or the reverse mortgage product, through chicanery or unethical behavior. I am confident that by getting back to basics, by making the commitment to keeping the three C’s in place for each and every new reverse mortgage transaction—and by supporting those efforts with a clear conscience, confidence and courage—our industry will emerge from the storms and challenges of the past few years stronger, better and cleaner than ever. x

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