The Reverse Review March 2014 by The Reverse Review

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this issue

INSIDE

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The Results of Our Financial Assessment Survey

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THE EXTREME SUMMIT CAMPAIGN PUSHES FORWARD PG. 18 HOW TO SECURE A HECM LOAN ON A CONDOMINIUM PG. 32 +TEAGUE McGRATH SITS DOWN IN OUR HOT SEAT PG. 16

The Reverse Review March 2014

Are you moving in the right direction?

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WWW.REVERSEVISION.COM | 919.834.0070 | INFO@REVERSEVISION.COM

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The Reverse Review March 2014

From the Editor This is a massive undertaking that will require a lot of time, hard work and creativity. But there are so many committed professionals out there who are undeterred by this fact. They are driven by the product’s promise and will do what it takes to bring it to the mainstream.

consider sharing your ideas with the

In this issue of TRR,

we’ve got a host of content about how reverse professionals can adjust to a new market landscape. Liberty’s Otto Kumbar reveals how you can aid in the Extreme Summit’s public perception campaign; One Reverse Mortgage’s Richard Mandell talks about bracing for the upcoming release of Financial Assessment; and in our feature story this month, we offer insight on what companies can do to remain profitable in this challenging environment. In order to survive, it’s clear that originators will have to learn how to connect with that elusive 98 percent.

Reza Jahangiri

Publisher

Erik Richard

Editor-in-Chief

rest of the space. Reach out to me about how you can be an active participant in this industry’s evolution. With so much happening in this market, it’s more important than ever that industry professionals participate in the conversation about how we can elevate the reverse mortgage product. By putting our heads together and discussing possible solutions, perhaps we can collectively push this product toward the mainstream market. Editor-in-Chief

{ Jessica Guerin }

Want to contribute to the conversation? Contact jessica@reversereview.com.

Creative Director Traci Knight

Copy Editor

Kersten deck

Marketing Director alycia colacion

Printer The Ovid Bell Press Advertising Information phone : 630.207.3882 email : jessica@reversereview.com Subscriptions email : information@reversereview.com Editorial Content email : jessica@reversereview.com © 2013 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

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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

Senior Publisher

t ay ec st onn c

Feedback

Meet the Team

Jessica Guerin

If you’re a dedicated HECM advocate,

A note from jessica guerin

FACEBOOK AND LINKEDIN

Table of Contents 29 | Servicing

TRR 3.14

The Webbed Feet of the Industry How reverse mortgage servicers keep loans on the right track ROBIN RICE

In this issue... 16 teague mcgrath Hot Seat

30 | Legal Subordination Agreements Explained 08 | Movers and Shakers

The latest developments in companies across the reverse space

09 | Industry Update

Headlining stories of the past month Reverse Mortgage Daily

10 | Report

January year-to-date volume for top reverse lenders and HECM endorsement stats through December

18 | Update An Update on the Extreme Summit The campaign selects geographic targets for its sales and marketing efforts. Otto Kumbar

What happens when one property has two lien holders Alexander J. Chaudhry

33 | HMBS HMBS Spreads Tighten as Volume Dips An update of events in the secondary market

21 | Originating

darren stumberger

Are You Ready for More Changes From HUD?

34 | Spotlight

The industry braces itself for Financial Assessment.

23 | Originating The Condo Conundrum

Read about the association’s current initiatives.

Navigating FHA loan requirements for condominium complexes

42 | Last Word

Marty Bell

Mike Jacobus

Finding Success in 2014

15 | Roundup

27 | Marketing

Although program guidelines have changed, there is still room for great opportunity in the HECM space.

Reverse Market Insight

12 | NRMLA News

A collection of recent facts and surveys affecting the reverse market

Social Media Management Two pioneering social media tools that can save your marketing department time and money

Originating

Preparing for Financial Assessment We asked and you answered! Read what your colleagues had to say about their preparedness for Financial Assessment in this recap of our survey results.

Richard Mandell

24 matt marovich

26 megan hafenstein Title Tip

John Smaldone

Seamus McKeon

38 | How to Succeed in a New HECM World

What reverse professionals can do to stay afloat in the wake of product change

Want the online version? reversereview.com/magazine

jessica guerin march 2014 W IE

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INSIDE

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reversereview.com

The Results of Our Financial Assessment Survey

HE REVERSE REV IE W

THE EXTREME SUMMIT CAMPAIGN PUSHES FORWARD PG. 18 HOW TO SECURE A HECM LOAN ON A CONDOMINIUM PG. 32

+TEAGUE McGRATH SITS DOWN IN OUR HOT SEAT PG. 16

W THE RE REVIE VE

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cover WT VIE RE

Staying afloat in the wake of product change

“For the reverse mortgage industry, 2014 got off to a choppy start as the market struggled to adjust to new program guidelines… Industry participants were left to figure out how to make a living with a different type of product.

FEATURE

8 TRR

The Reverse Review March 2014

Contributors

John K. Lunde

Marty Bell

J ohn K . L und e

Ma rty B e ll

te agu e mcgrath

10 | Industry Stats 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. 949.429.0452, rminsight.net

12 | 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.

16 | Hot Seat g Teague McGrath is chief marketing officer at AAG and is responsible for the marketing campaigns featuring Senator Fred Thompson. Before joining AAG, McGrath was VP of marketing for Senior Lending Network (World Alliance Financial), where he refined the “Robert Wagner” brand and lead acquisition cost. McGrath was also a part of the KBC Financial Products Loan Derivatives desk, where he developed loan boarding systems and market/ industry reporting. McGrath spent 12 years at Australia’s No. 1 television network, Channel 9, as an executive producer.

ot t o k umba r

r i c h ar d man d e ll

mi ke jac obus

18 | An Update on the Extreme Summit g Otto Kumbar is the CEO of Liberty Home Equity Solutions. Kumbar, who worked previously as business leader for Liberty, has been in the mortgage industry since 2001, working as Genworth’s managing director for Latin America, CEO of Australia and managing director for mortgage insurance in Europe. Kumbar also worked for General Electric, where he held various positions in GE Plastics, Industrial Systems, Global Exchange Services and GE Mortgage Insurance. Kumbar attended Rensselaer Polytechnic Institute.

21 | Are You Ready for More Changes From HUD? g Richard Mandell is CEO of One Reverse Mortgage, LLC, and is responsible for the day-today operations of the country’s fastest-growing reverse mortgage company.

23 | The Condo Conundrum g Mike Jacobus is the client relations manager for FHA Condo Consulting LLC. FHA Condo Consulting is based in the Pacific Northwest and provides FHA condo approval and recertification services nationally for FHA HRAP condominium project approval. The company completes a review of the developments governing documents, financial statements and other required paperwork in conjunction with HUD guidelines to make a determination regarding the potential for FHA approval. fhacondoconsulting.com

mat t ma r ov i c h

me gan h af e n s te i n

s e amu s mckeo n

24 | Financial Assessment: Then and Now g Matt Marovich is a branch manager for Liberty Home Equity Solutions and one of the top reverse mortgage consultants in the nation. He has been in the finance industry for nine years and has published more than 25 books and articles that cover topics such as social media, environmental sustainability, global poverty, entrepreneurship and management education. Marovich earned a master’s degree from Rutgers University.

26 | Title Tip g Megan Hafenstein is the assistant VP of sales at Premier Reverse Closings (PRC), a national reverse mortgage title and settlement company based in Rocklin, California. Hafenstein manages accounts in 22 states from the company’s headquarters and works closely with operations to ensure that clients’ files are closed accurately. Prior to joining PRC six years ago, Hafenstein worked in the California Legislature after receiving her B.A. in political science from Cal Poly, San Luis Obispo.

27 | Social Media Management g Seamus McKeon is a freelance social media consultant based in Los Angeles. He currently oversees Landmark Network’s social media presence, generating content for the AMC’s corporate blog.

Teague McGrath

Otto Kumbar

Richard Mandell

Mike Jacobus

Matt Marovich

Megan Hafenstein

Seamus McKeon

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Contributors r ob i n r i ce

Robin Rice

29 | The Webbed Feet of the Industry g Robin Rice is the vice president of borrower care at Celink. She is an industry leader known for her warm smile and passionate, professional service for seniors.

Alexander J. Chaudhry

Darren Stumberger

ale x an d e r j. c h au d h ry

d ar r e n s tu mbe r ge r

joh n s maldo ne

30 | Subordination Agreements Explained g Alexander J. Chaudhry is general counsel of FNC Title Services, a multistate title insurance agency. Chaudhry works on areas of real estate law that impact title insurance agencies with a specific focus on issues associated with HECMs. He is responsible for corporate and transactional matters, licensing, and regulatory and litigation concerns. He recently worked with state insurance enforcement officers on cyberthreat issues facing the title insurance industry.

33 | HMBS Spreads Tighten as Volume Dips g Darren Stumberger, managing director at Stifel Nicolaus & Co., heads mortgage trading and is responsible for HMBS/HREMIC, HECM and Jumbo reverse loan trading, distribution and risk management. Prior to Stifel, Stumberger held mortgage trading and finance positions at Goldman Sachs, Morgan Stanley and BofA Merrill Lynch. stumbergerc@stifel.com

42 | Finding Success in 2014 g John Smaldone is the executive vice president of Hanover Financial Services, a consulting firm that focuses primarily on the reverse mortgage industry. Smaldone is the founder of Taylor, Bean and Whitaker and is the former senior vice president of TransLand Financial Servicesâ&#x20AC;&#x2122; reverse mortgage divisions. With more than 43 years of mortgage banking experience, and 12 years in the reverse space, Smaldone intends to remain in the reverse mortgage industry, taking on longterm consulting assignments. john@hanoverfinancial. com

John Smaldone

Be a part of the conversation.

Thereâ&#x20AC;&#x2122;s no such thing as a stupid idea. What do you want us to write about? Tell us! info@reversereview.com

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The Reverse Review March 2014

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?

Peer Advisors Acquires Celink Peer Advisors has acquired reverse mortgage servicer Celink. The terms of the transaction are not being disclosed. Peer Advisors is led by Jim Mahoney, Jason McNamara and Al Benedetti. Following the acquisition, Mahoney will serve as chairman of Celink, McNamara as CEO and Benedetti as executive vice president of finance. Celink founder and CEO John LaRose will serve as a consultant for the company, based in Lansing, Michigan, and Ryan LaRose will remain Celink’s president and COO. “Celink’s state-ofthe-art platform, coupled with the domain expertise that Ryan and his team possess, is a valuable asset to Celink and a strategic component to our entire industry as we look to maximize service to our clients and improve the borrower’s product experience, safety and satisfaction,” said McNamara.

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Email it to Jessica@reversereview.com.

American Advisors Group Acquires Associated Mortgage Bankers American Advisors Group (AAG) has acquired New York-based Associated Mortgage Bankers (AMB). This acquisition will be the second top 10 reverse lender AAG has rolled up this year, following the recent addition of RMUSA. AAG will retain AMB’s reverse mortgage leadership team, with Kevin Blakeney leading distributed retail and Adam Salti business development initiatives. The transition will take place when all necessary licensing and regulatory approvals are received and will add 85 employees to AAG, bringing the company’s staff total to nearly 800. “We are excited to incorporate one of the strongest distributed retail management teams into our business,” said AAG CEO Reza Jahangiri.

Generation Mortgage Company Executive Nominated for CIO of the Year Award; Company Participates in Industry Conferences Generation Mortgage Company’s CIO Walt Carter has been nominated for the 2014 Georgia CIO of the Year award. The award honors technology executives who have shown excellence in innovation, leadership and community involvement. Cheryl McNally, chief sales officer of Generation Mortgage Company (GMC), will speak at the American Conference Institute’s National Summit on Reverse Mortgage Lending in March. GMC will also participate in NRMLA’s Eastern Regional Conference in New York City in March as a Star Sponsor.

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Industry Update

March Edition

Brought to you by:

an update of this past month’s breaking news

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

headlining news 1.Reverse Mortgage Program

Official Coulter Leaves Role at HUD

Charles Coulter, HUD’s deputy assistant secretary (DAS) of single-family housing, has announced that he will leave his post. As a proponent of the HECM’s need for longevity, Coulter was integral in creating changes for reverse mortgages. Coulter will be succeeded by Kathleen Zadareky, who will step up into the deputy assistant secretary role following Coulter’s departure. Zadareky joined HUD in 2012 and brings 16 years of experience in the mortgage industry. “During his tenure as singlefamily DAS, Charles was instrumental in a number of policy and process changes that have resulted in a $15 billion improvement in the health of the MMI Fund,” said Housing Commissioner Carol Galante in a letter regarding Coulter’s departure. “Under Charles’ leadership, we have made significant progress toward development of a single, authoritative FHA policy guide and improved FHA’s partnership with key stakeholders on everything from policy development to quality control.” // February 19, 2014

2.Private Reverse Mortgage Securitization Pays off, Signaling Stability

The second reverse mortgage securitization in U.S. history has paid off after withstanding the housing downturn and economic crisis, according to a report from New View Advisors. Comprising proprietary “jumbo” reverse mortgages, Structured Asset Securities Corporation

Reverse Mortgage Loan Trust Series 2002RMI, known as SASCO 2002-RM1, is the first securitization trust of such loans to pay off completely. The security closed in 2002 and comprised mainly newly originated Financial Freedom “Cash Account” loans, but also some “very seasoned collateral,” New View writes, noting originations from early lenders American Homestead and Providential Home Mortgage. It issued five bond classes with a total value of $291 million, which was secured by 903 proprietary reverse mortgages. The payoff signals stability for investors in private reverse mortgage securities, New View says. “If properly structured, proprietary reverse mortgage securities provide substantial credit protection with (like their HECM cousins) very stable prepayments.”

quarter of 2013, according to the latest figures from the Mortgage Bankers Association. The data revealed that the delinquency rate has reached its lowest level since early 2008 with just 6.39 percent of loans outstanding. MBA tracks

// February 11, 2014

5.More States Challenge

3.The New York Times

Addresses Reverse Mortgage Misconception With reverse mortgages “expected to gain popularity” as the population ages, The New York Times published an article outlining some of the information borrowers should know before proceeding with the loan. The article combats a widely held misunderstanding about who owns the reverse mortgage borrower’s home, explains the process by which the loan becomes due, and outlines the options heirs have for paying off the loan. Families should be aware of the loan processes and its limitations, the Times concludes. // February 13, 2014

4.Mortgage Delinquencies

Fall to Lowest Level Since 2008

Nearly every state in the nation saw foreclosure inventory drop in the fourth

delinquencies based on loans that are at least one payment past due but are not in the process of foreclosure. MBA also reported specifically on FHA delinquencies, finding on average that they are also declining overall. Historically, past defaults have not been a lending criterion for reverse mortgage borrowers, but HUD has hinted that a forthcoming financial assessment could consider borrower payment history among its criteria for qualifying. // February 20, 2014

Dodd-Frank Constitutionality

More states are joining an attempt to reverse the dismissal of a lawsuit challenging the constitutionality of the Dodd-Frank Act and its creation of the CFPB. The State National Bank of Big Spring, Texas, is the original party to file a complaint in June 2012 challenging the Department of the Treasury, the CFPB and others regarding the constitutionality of actions taken under the Dodd-Frank Wall Street Reform and Consumer Protection Act—including the appointment of the CFPB’s director. A district court dismissed the suit in August 2013, but the 11 states that joined the initial lawsuit are now asking the U.S. Court of Appeals for the D.C. Circuit to reverse that decision. These states include South Carolina, Oklahoma, Alabama, Georgia, Michigan, Kansas, Montana, Nebraska, Texas, Ohio and West Virginia. // February 12, 2014

reversereview.com

8 TRR

The Reverse Review March 2014

Report January 2014

Top Lenders Report

12345 S1L / RMS

Endorsement

954

American Advisors Group

One Reverse Mortgage

Urban Financial Group

Generation Mortgage Company

Endorsement

734

Lender

Endorsements

351

226

Endorsements

209

SUN AMERICAN MORTGAGE

LIBERTY HOME EQUITY SOLUTIONS INC

201

MAS ASSOCIATES LLC

ASSOCIATED MORTGAGE BANKERS INC

121

VANGUARD FUNDING LLC

REVERSE MORTGAGE USA INC

107

EVOLVE BANK & TRUST

HIGH TECH LENDING INC

MCM HOLDINGS INC

SUN WEST MORTGAGE CO INC

FRANKLIN FIRST FINANCIAL LTD

OPEN MORTGAGE LLC

GUARANTEED RATE INC

PLAZA HOME MORTGAGE INC

DAS ACQUISITION CO LLC

M & T BANK

AMERICAN NATIONWIDE MORTGAGE CO

CHERRY CREEK MORTGAGE CO INC

VALUE FINANCIAL MORTGAGE

NATIONSTAR MORTGAGE LLC

VAN DYK MORTGAGE CORPORATION

NATIONWIDE EQUITIES CORPORATION

TOP FLITE FINANCIAL INC

TOWNEBANK

VIP MORTGAGE INC

UNITED NORTHERN MORTGAGE BANK

BANK OF ENGLAND

MAVERICK FUNDING CORP

CHRISTENSEN FINANCIAL INC

CIRCLE MORTGAGE CORPORATION

FAIRWAY INDEPENDENT MORTGAGE CO

AMERICAN PACIFIC MORTGAGE

NET EQUITY FINANCIAL INC

FIRSTAR BANK

PEOPLES BANK

MONEY HOUSE INC

MORTGAGESHOP LLC

LIVE WELL FINANCIAL INC

UNITED SOUTHWEST MORTGAGE CO

MORTGAGE SERVICES III LLC

SUCCESS MORTGAGE PARTNERS INC

LEADER ONE FINANCIAL CORP

FIRSTBANK

ATLANTIC BAY MORTGAGE GROUP LLC

ADVISORS MORTGAGE GROUP LLC

SOUTHERN TRUST MORTGAGE LLC

ASPIRE FINANCIAL INC

DOLLAR BANK FSB

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Lender

PROFICIO MORTGAGE VENTURES LLC

GMFS LLC 36

470

Reverse Market Insight - Logo PANTONE COLORS

October 9, 2009

Brought to you by:

REVERSE MARKET INSIGHT

%%%%% Looking for more statistics? Go to rminsight.net for all of the industry’s latest stats and rankings.

3005C

Process Blk C

Report HECM Endorsement Stats Through December 2013 INDUSTRY SUMMARY

Trailing Twelve Month Endorsements

RETAIL UNITS

Retail Endorsement Growth

6,000

-5.12%

Wholesale Endorsement Growth

4,000

-16.5%

2,000

Total Endorsement Growth

-9.86%

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

*Figures above reflect change from prior month

Wholesale *Numbers represent months

CHG%

Jan

3,033

34.8%

Feb

2,818

-7.09%

Mar

3,318 17.74%

Apr

3,145

WHOLESALE UNITS

CHG%

UNITS

CHG%

5,184 32.72%

2,151 29.89% 2,017

TOTAL

4,835

-6.23%

-6.73%

5,812 20.21%

2,494 23.65%

-5.21%

2,568

2.97%

5,713

-1.7%

May 2,823 -10.24%

2,498

-2.73%

5,321

-6.86%

Jun

3,002

6.34%

2,335

-6.53%

5,337

0.3%

Jul

3,232

7.66%

2,511

7.54%

5,743

7.61%

Aug 3,125

-3.31%

2,248 -10.47%

5,373

-6.44%

Sep 2,735 -12.48%

1,782 -20.73%

4,517 -15.93%

Oct

2,510

-8.23%

Nov

2,734

8.92%

1,951 16.41%

4,685 11.92%

Dec

2,594

-5.12%

1,629 -16.5%

4,223

TOT

1,676

35,069

4,186

-5.95%

25,860

-7.33% -9.86%

60,929

{ FIGURE } 70%

Fixed Rate Percentage

60% 50% 40% 30% 20% 12/1/13

11/1/13

10/1/13

9/1/13

7/1/13 6/1/13

8/1/13

6/1/13 5/1/13

5/1/13

4/1/13

3/1/13

2/1/13

10/1/12 10/1/12

1/1/13

9/1/12

8/1/12

7/1/12

6/1/12

5/1/12

4/1/12

Fixed

ARM

$1,200.0 $1000.0 $800.0 $600.0 $400.0 $200.0

11/1/13

10/1/13

9/1/13

8/1/13

7/1/13

4/1/13

3/1/13

2/1/13

1/1/13

12/1/12

11/1/12

8/1/12

7/1/12

6/1/12

5/1/12

4/1/12

3/1/12

2/1/12

1/1/12

$0 12/1/11

in the millions

initial principal limits

hecm endorsement

9/1/12

{ FIGURE }

3/1/12

2/1/12

1/1/12

10% 12/1/11

hecm endorsement trends

reversereview.com

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The Reverse Review March 2014

NRMLA News

HUD Officials Provide Updates on FA and NonBorrowing Spouses At a meeting for the executive committee of NRMLA’s Board of Directors, Deputy Assistant Secretary Charles Coulter reported that HUD intends to issue a Mortgagee Letter clarifying the nonborrowing spouse issue, soon to be followed by another Mortgagee Letter on the implementation of Financial Assessment.

In the Press: December Trends Positively

appears in USA Today would have 1.7 million potential impressions since that is the paper’s daily circulation.

Press coverage of the reverse mortgage industry and the HECM program continued to trend extremely positively throughout the country in December. For the month, we found a total of 24 stories, 21 of which were positive.

In the past few months, more positive stories have been appearing in the more popular outlets, boosting the ratio of positive to negative impressions:

As part of the Extreme Summit effort, NRMLA has been tracking press coverage of reverse mortgages throughout the United States. Since we began daily tracking in August, the total ratio of positive to negative stories is 85-to-30, but in the first two months of 2013, following announcement of the first set of program changes, that ratio has been 49-to-8. In addition to story count, we calculate potential impressions (i.e., how many consumers view the media coverage) based on the circulation of newspapers and magazines, television ratings and website visitors. For example, a story that 12

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( Positive to negative impressions in December: 4,519,162-to-220,704 ( Total positive to negative impressions from August through December: 21,126,166-to-4,872,297 ( Ratio of positive to negative impressions August through December: 4.33:1 (Up from 3.57:1 as of November 30) December’s positive impressions were bolstered by Amy Hoak’s story on the Wall Street Journal’s MarketWatch site (“Reverse Mortgages Growing in Popularity,” Dec. 17), which was picked up by many other publications and sites.

The first ML will essentially require that in the case of a non-borrowing spouse, the age of the younger member of the couple will be utilized to determine the appropriate PLF. HUD will be modifying the PLF tables to cover ages below 62 for this purpose. The second ML on Financial Assessment is expected to call for implementation 90 days after the issuance. HUD is modifying the originally proposed FA requirements based on comments from NRMLA and others.

There was very little coverage in the larger markets this month, except for one positive entry in the Dallas Morning News (272,860 impressions). Another positive piece appeared in the Deseret News (151,422 impressions) in Utah. The one negative piece in the 100,000-plus impression area was a piece titled “Don’t Get Ripped Off by Common Mortgage Scams” by Marion Franke on the yourhoustonnews.com site. Among her five scams, Franke included a paragraph on straw buying and stealing of reverse mortgage proceeds. All of these numbers preceded the publication of Jerry Wagner’s “6% Rule Piece” in the December issue of the Journal of Financial Planning, as well as the new research from Evensky and Salter out of Texas Tech. We expect both of these will soon generate some additional good press, and this should quickly be followed by announcement of Financial Assessment.

Federal Appropriations Bill Extends HECM Cap In January, both houses of Congress passed a $1.1 trillion appropriations bill that keeps the federal government running, authorizes FHA to keep insuring HECMs through September 30 and extends the suspension of the loan volume cap. As originally enacted in 1987, the HECM statute contained a volume cap of 2,500 loans. The cap was increased incrementally over time until it reached 275,000 loans in 2006. Since that time, the cap has not increased but has been temporarily suspended numerous times when Congress passes a new continuing resolution.

NRMLA News

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

Hill Promoted; McClune Replaces Her

Ginnie Mae SVP to Address NRMLA New York Conference

that Karin Hill, who accompanied him

senior vice president of the Office of Capital Markets at

to the meeting, has been promoted from director of the office of single-family program development to senior advisor in the office of the deputy assistant secretary for singlefamily housing. Hill will continue to be the primary point person for HECM policy issues and will also have more direct interaction with the deputy assistant secretary, as well as some broader responsibilities in other areas. Patricia McClune will replace Hill in her current position. On behalf of the NRMLA membership, we congratulate Karin Hill on her promotion and thank her for her thoughtful leadership and dedication to the HECM program.

NRMLA is honored to announce that John F. Getchis,

Ginnie Mae, will be a featured speaker at our unique 2-in1 conference—an Eastern Regional Meeting & Investor

Forum at the Intercontinental Time Square in New York on March 18 and 19.

In his current role, Getchis, who served previously as COO at Ally Securities, is responsible for overseeing

the performance and execution of Ginnie Mae’s multiclass securities program, which allows the private sector to

combine and restructure cash flows from Ginnie Mae MBS into securities that meet unique investor needs.

Join us at New HECM, New York: Educating

Consumers & Investors, the one occasion each year

when Wall Street, Washington and the reverse mortgage

community come together to discuss presenting the “new

HECM” to aging Americans and their children, as well as to

NEWS FROM NRMLA

Coulter informed the executive committee

investors and traders.

27,257 unique consumers visited NRMLA’s consumer site, Consumer Approximately reversemortgage.org, in January, compared to 21,601 visitors in December. Site Traffic One of the popular features of the website is the “Find a Lender” locator, which use to find reverse mortgage lenders close to them. There is also a Jumps 25 consumers special section that summarizes the HECM program changes announced by FHA last which will be updated when the Mortgagee Letter on Financial Assessment Percent September, is published later this month.

NRMLA member

Twelve Members Achieve CRMP Status NRMLA congratulates the following individuals for achieving the status of Certified Reverse Mortgage Professional (CRMP), bringing the current total to 81:

• Harlon Accola, Moneywise Mortgage Marshfield, Wisconsin

• Robert Charles Jayne, Vanguard Funding LLC Garden City, New York

•M ark Clark, North American Savings Bank Kansas City, Missouri

• Brett Kirkpatrick, Harbor Mortgage Solutions Braintree, Massachusetts

•E llen Connors, Direct Finance Corporation Hanover, Massachusetts

• Robert Mills, Greenleaf Financial LLC Portland, Oregon

• J aime Girard, Reverse Mortgage Funding Melville, New York

• Lisa Nass, Gershman Mortgage Clayton, Missouri

Mortgage, Inc. Scottsdale, Arizona • Karen Rayfield, Southern Trust Mortgage Virginia Beach, Virginia • Donnell Seacrease, Liberty Home Equity Solutions Sacramento, California • Philip Stevenson, PSI Financial Services, LLC Miami, Florida

• Tim Nelson, V.I.P. reversereview.com

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The Reverse Review March 2014

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Roundup

Here is a look at the latest

{

this month

news and stats

affecting the market.

Get up-to-date retirement facts, home price stats, senior trends and HECM market developments in The Reverse Review’s monthly Roundup.

HECM Stat s

H o m e E q u it y

January sees strong reverse mortgage endorsement volume. HECM endorsement volume rose 19.8 percent in January to its highest level since last August, according to Reverse Market Insight. Volume that month reached 5,061 loans, with the Pacific/Hawaii and New England regions showing the biggest monthly increases at 27 percent and 59 percent respectively. However, compared with January 2013, HECM volume was down by 2.5 percent, with only three of 10 regions showing gains year over year: Pacific/Hawaii, San Diego and Las Vegas.

Senior home equity reaches highest level since the recession.

R e ti r e m e n t Fa c t s

Seniors underestimate the cost of long-term care.

A survey of affluent baby boomers by Nationwide Financial revealed that on average, participants expect the cost of long-term care to reach about $36,220 per year, a drastically lower figure than the $78,920 estimate given in 2012. According to Nationwide, this estimate is way off base, as the cost of nursing home care alone is expected to reach $265,000 per year in 2030. of Americans over age 65 will need long-term care during their lifetime.

70%

-U.S. Department of Health and Human Services

SEN I OR D ATA

Americans are living longer than ever before. A study by the Center for Retirement Research at Boston College shows how the average life expectancy for Americans over the age of 65 has increased significantly in the last seven decades for both men and women, with increases apparent in just the past three years.

Men

women

M a r k e t Upd at e

The housing market sees a strong close to 2013. Home prices nationwide rose 11 percent in December year over year, according to data from CoreLogic. The uptick, which is the strongest annual jump in price since 2005, represents the 22nd consecutive monthly yearover-year increase in national home prices.

States with the highest home price gains as of December 2013: •

Nevada 23.9%

•

California 19.7%

•

Michigan 14%

•

Oregon 13.7%

•

Georgia 12.8%

life e x p e c ta n cy at a g e 6 5

In the third quarter of 2013, the NRMLA/ RiskSpan Reverse Mortgage Market Index (RMMI) has reached its highest level since the third quarter of 2008, rising for the sixth consecutive quarter. In the past two years, the aggregate home equity belonging to Americans age 62 and older grew 12.5 percent to $3.34 trillion.

78 1940

1950

1960

1970

1980

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2000

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The Reverse Review March 2014

the

THE

REVERSE

hot

review

seat

march 2014

Teague

From his first job and his most memorable moment to his thoughts about the reverse mortgage industry, we get the personal and professional facts from AAG

Chief Marketing Officer 16

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Teague McGrath, chief marketing officer of AAG, in this monthâ&#x20AC;&#x2122;s edition of The Hot Seat.

P E R SO N A L >

The best lesson I’ve ever learned was adapt to life. It’ll be easier that way.

You can’t always be right. It has taken me a long time to figure that out.

Ten years from now, I will be watching

Professional

my kids graduate.

Something nobody knows about me is

mortgage industry is overcoming the consumer perception.

that I’m Australian—not Irish, South African or English. (And not Swedish, as one

person guessed at a NRMLA conference.) >

My celebrity crush is Megan Fox. (Please

part of a complete retirement plan. >

I think nerves got the better of me! (Please

If I had three wishes they would be

can best support the public image of reverse mortgages by marketing the product in a responsible way. >

advisors can learn about reverse

If I could meet anyone, past or present,

mortgages is that they can provide real

it would be my father; he died too early.

portfolio longevity and downside protection. >

financial professionals. >

Every morning I check that everything is I can’t go without coffee and kids.

I’ll never forget my kids’ births.

My first job was scrubbing barnacles off boat hulls with a scuba tank strapped to my back. My parents taught me how to buy cigarettes and booze at a very early age (so

The biggest benefit reverse mortgages offer to seniors is the ability to live where they choose with the dignity and respect

where it’s supposed to be. >

Industry growth is dependent upon

I can’t go without coffee and kids.

consumer acceptance and educating other

My favorite website is Reverse Mortgage Daily, of course!

The most important thing financial

the AAG team would say I still am.

apologize for my childhood!

Reverse mortgage professionals

that’s important.

I’d ask him to help me with my kids and I’d

People should avoid a career in reverse

family. I know that’s only two, but that’s all When I was a kid, I was an idiot. I am sure

not Irish, South African or English. (And not Swedish, as one person guessed at a NRMLA conference.)

conference hangovers.

health and happiness for my friends and

Something nobody knows about me is that I’m Australian—

mortgage industry because of NRMLA

be assured it was only No. 1.) >

Ten years from now, the reverse mortgage industry will be thriving and

My most embarrassing moment was having to relieve myself on a football field.

The greatest setback for our industry was the departure of big banks.

don’t hold this against me!) >

The biggest challenge in the reverse

they deserve. >

The most important thing seniors should understand about reverse mortgages is they are SAFE!

I would encourage a family member to consider a reverse mortgage because it can help you do the things you want to when you finally have the time to do them.

they didn’t have to leave the house). >

My favorite time of day is sunrise. The day’s potential is what makes life interesting.

My iPod go-to is Coldplay Radio.

My first job was scrubbing barnacles off boat hulls with a scuba tank strapped to my back. reversereview.com

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The Reverse Review March 2014

news

update An Update on the Extreme Summit

the Extreme Summit is a multiyear, multimillion-dollar educational effort to help more seniors understand the benefits of a reverse mortgage.

Ott o Ku m ba r

s the industry continues to shrink, the need to fight against the trend and help more seniors has never been greater. The Extreme Summit is designed to help you through three significant programs in 2014. This article will concentrate on the first initiative: Geotargeting, a fancy name for focusing on the best areas of opportunity. Through geo-targeting, you can maximize the efficiency of your sales and marketing spend while growing penetration through the concentrated efforts of many. You should consider targeting some of your sales and marketing efforts in the identified geographies. The geo-targeting effort runs from March through August of 2014. Marty Bell, SVP of marketing and communications at NRMLA, is already working on the second initiative: 3:1 Positive Impressions, an educational effort designed to shift press coverage toward the facts. As we expected, this has been largely effective with three positive articles for every negative one. Over time, this will serve as an important foundation for changing the perception of the product from a product of last resort to an essential part of everyone’s retirement planning. The third initiative, Rewrapping the Product, will consist of launching local TV ads, local media and outreach events to help educate seniors on the planning benefits of a reverse mortgage. Rewrapping the Product will pilot in three major U.S. cities in late spring. All three initiatives are designed to be complementary in scope and will be monitored for success. Geo-Targeting Some industry participants noticed that “critical mass” in a community matters to the understanding of reverse mortgages. John Lunde from Reverse Market Insight was able to prove this mathematically. The next best place to write a new reverse mortgage is where reverse mortgages already have a high penetration. It’s logical: Where there are more seniors already happy with the product, they’re more likely to support a neighbor looking into it.

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Lunde then ran the model forward to see if he could identify the best 2014 opportunities. His list was then vetted through some additional screens, such as house price appreciation, to identify the best target markets.

As a result of the study, Lunde commented, “We’ve noticed in our work that several factors tend to increase reverse mortgage volume in an area: home price increases, more existing borrowers as a percentage of eligible households (penetration), more loans originated in the recent past, and higher/lower home price areas. We did a rigorous study of these trends and how they interact with each other to create a projection model for loans and maximum claim amount (MCA) volumes. We looked all the way back to 1989 to study these patterns, and the list presented [below] uses volume through 2013 to project 2014 results.” For the purposes of this effort, we’ve limited this list to the top 20 opportunities. Please contact RMI if you’re interested in how your favorite market ranks. Call to Action This is a fully decentralized effort. Do as much or as little as you want. Some industry participants will simply accelerate the campaigns and lead sources that already work for them. If your firm is an expert on mail, consider concentrating your efforts in that area. Focus on what you do best. Other firms will take the opportunity to experiment with new outreach programs with lots of local attention. For example, seminars may be more productive for a firm in one community than they would be in a different community. Remember that the model specifically accounted for higher home values in increasing House Price Appreciation (HPA) markets. Your focus should be on your most productive targets. If you’d like more information, please contact one of the firms sponsoring the 2014 Extreme Summit pilot programs: AAG, Generation Mortgage Company, Liberty Home Equity Solutions, OneReverse, RMS/Security One Lending and Urban Financial of America. They may have additional ideas or suggestions for your efforts. x

update

THE EXTREME SUMMIT’S GEOGRAPHIC TARGETS Metropolitan Area

Santa Ana-Anaheim-Irvine, CA

Projected 2014 Maximum Claim Amount (MCA)

2013 MCA

Sr. Households

2013 Loans

Projected 2014 MCA per Household

Pre-2014 Penetration Rate

$456,502,839

$586,395,415

185,817

1,103

$2,457

3.51%

$472,378,655

$442,968,300

240,303

1,153

$1,966

4.08%

Los Angeles-Long Beach-Glendale, CA

$912,223,303

$1,067,454,057

514,366

2,408

$1,773

4.69%

New York-White Plains-Wayne, NY-NJ

$800,422,160

$896,585,000

465,648

2,066

$1,719

3.09%

Virginia Beach-Norfolk-Newport News, VA-NC

$226,299,492

$223,672,130

131,896

936

$1,716

6.67%

San Francisco-San Mateo-Redwood City, CA

$204,808,351

$206,832,500

120,072

350

$1,706

2.59%

San Diego-Carlsbad-San Marcos, CA

$325,702,259

$502,046,410

195,951

1,138

$1,662

4.27%

San Jose-Sunnyvale-Santa Clara, CA

$173,451,764

$202,137,000

105,572

362

$1,643

2.63%

Oxnard-Thousand Oaks-Ventura, CA

$92,188,189

$136,751,787

63,129

294

$1,460

3.77%

San Luis Obispo-Paso Robles, CA

$31,349,413

$38,864,100

22,268

$1,408

4.11%

Oakland-Fremont-Hayward, CA

$219,063,950

$317,911,451

169,069

672

$1,296

3.48%

$389,426,728

$310,212,907

310,234

1,741

$1,255

3.32%

$23,512,681

$39,832,000

19,297

$1,218

2.55%

Washington-Arlington-Alexandria, DC-VA-MD-WV

$314,839,628

$713,265,695

272,989

1,703

$1,153

3.79%

Missoula, MT

$24,487,252

$20,672,000

22,384

$1,094

2.87%

Napa, CA

$8,599,562

$18,287,500

7,943

$1,083

3.19%

Santa Rosa-Petaluma, CA

$49,572,741

$84,323,996

46,126

189

$1,075

3.24%

$72,643,205

$104,255,121

67,723

370

$1,073

5.38%

New Orleans-Metairie-Kenner, LA

$116,195,219

$106,338,100

108,402

614

$1,072

3.02%

Grand Junction, CO

$18,939,022

$15,016,300

17,683

$1,071

4.19%

Nassau-Suffolk, NY

servicing

marketing

Salt Lake City, UT

originating

Santa Cruz-Watsonville, CA

update

Philadelphia, PA

legal

In today’s complex regulatory maze, knowledgeable and trustworthy vendors are crucial to your success. Not sure which direction to take or where to go?

hmbs spotlight

WE CAN LEAD THE WAY!

Title - Settlement - Valuations

800.877.7557 ext 1222 www.mtginfo.com reversereview.com

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The Reverse Review March 2014

DocuVault

Secure, Easy and Compliant Document Delivery We ensure compliance with ECOA requirements by providing a technology solution delivering both Landmark and non Landmark appraisals, AVMâ&#x20AC;&#x2122;s, Desk Reviews, Field Reviews, and valuable borrower education resources. DocuVault offers secure electronic or hard copy delivery via USPS priority mail with an added integration with the US Postal Service allowing for real time delivery updates with every appraisal.

Secure4Request, manage, and track document delivery through our secure portal.

Compliant4PDF document tracks when notice was sent to the borrower and when they accessed and/or downloaded their documents.

Borrower Education4Tools to help borrowers understand their appraisal and other valuation related documents.

Call toDay to request a demo of DocuVault. 20

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888.272.1214 4landmarknetwork.com

EVOLVE

originating

update originating

marketing

Are You Ready for More Changes From HUD?

Financial Assessment is not a new mortgage industry standard. In fact, the Federal Housing

Changing Perception It’s our job to educate not only clients, but also financial advisors, about the changes and highlight them as positive improvements. We need to clarify that the new policies are in the clients’ best interests, designed to help them succeed financially with the reverse mortgage loan. Changes in the overall perception of the program are already starting to take root. Recently, the Journal of Financial Planning

referred to the reverse mortgage program as a “comprehensive approach to personal financial management for retirees” instead of calling it a “last resort” option. While this is a small victory for our industry, I’m sure that we’ll start to see more people changing their preconceived perceptions of the program.

spotlight

While some may see this as a downside of the reverse mortgage program, we need to ensure clients understand that this is an upside that will benefit

Administration has been performing financial assessments on its loans for more than 20 years. The reverse mortgage program is just catching up to include this requirement for potential clients.

hmbs

Positive Change

them in the long run. Financial Assessment gives the overall reverse mortgage program more stability than it had previously because it adds another level of protection for the client. Financial Assessment helps the client plan for the future costs associated with homeownership that include paying for taxes, property insurance and maintenance of the home. It gives seniors in all financial brackets the opportunity to consider, or be a candidate for, a reverse mortgage, even those who may never have been able to consider the program before.

legal

nce Financial Assessment is complete, some clients may be required to set aside money upfront before they receive the proceeds from their reverse mortgage to cover future obligations. This means they will receive fewer proceeds at the closing table. While this could discourage some future clients from looking into the program, it opens up the door to many people who have never been candidates for the program before.

servicing

Ric ha rd Man d e ll

Position for More to Succeed Financial Assessment is an important change to our industry and should be considered a healthy step in the right direction for the future of the reverse mortgage program. We now have the ability to put every client in a position to succeed financially today and for years to come. x reversereview.com

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The Reverse Review March 2014

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originating

The Condo Conundrum Mik e Ja c o b u s

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

update originating

3 FHA will not insure any mortgages in an approved project if 50 percent or more of the units are FHA-insured, although exceptions may be made on a case-by-case basis.

spotlight

3 At least 50 percent of the units must be owner-occupied or sold to owners who intend to occupy the units.

hmbs

3 No more than 25 percent of the complex’s total floor area can be used for non-residential/ commercial purposes, although HUD has said that exceptions may be considered on a case-bycase basis. Note, however, that FHA has put in place a temporary guideline allowing for up to 35 percent commercial space.

3 No more than 15 percent of the total number of units can be more than 60 days past due on their condominium association fee payments.

3 Budget and financial documents for existing projects (those that are less than 12 months old) must include a current annual budget for declared phases, a current balance sheet less than 90 days old, and an actual income and expense statement for the project. Note that bank statements and other information may also be requested.

legal

3 The condominium project must be primarily residential, contain at least two dwelling units and can be a detached or semidetached property, a row house, a walkup, a mid-rise or a high-rise, or manufactured housing.

3 No more than 10 percent of the units may be owned by one investor or entity. Note, however, that another temporary guideline has removed this requirement for the time being.

servicing

Here’s what you should know about obtaining approval for a HECM loan on a condominium:

marketing

o you have a potential borrower looking to obtain FHA approval for a reverse mortgage loan on their condo? Changes to the laws governing FHA loans on condominiums in February 2010 eliminated “spot approval” for reverse mortgages. Now, according to federal law, an entire condominium building or townhome complex must be granted FHA approval before a buyer can purchase a unit with a reverse mortgage or before an existing owner can take a reverse mortgage on the property.

3 Documentation must include information regarding special assessments and pending litigation. 3 The complex must be covered by hazard, flood, liability and other insurance required by the state or by local condominium laws, or be covered by insurance types deemed acceptable to FHA. x

Further information on approval and processing requirements can be found in the Condominium Project Approval and Processing Guide provided by FHA. reversereview.com

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The Reverse Review March 2014

originating

Financial Assessment: Then and Now Matt Ma r ovi c h

shrink the already limited market to the point that nobody can make a decent living anymore, whereas optimists look at the bright side and welcome any change that will strengthen the industry to keep it healthy and sustainable for the long haul, even if it means enduring some restrictions and rolling with the punches. And of course, there are many opinions that lie somewhere in between.

“It is impossible to know where one is going without first exploring where one has gone.”

t has been more than a year since the announcement that shook the industry, and reverse mortgage professionals everywhere eagerly await the opportunity to learn the details of the dramatic changes we are to endure for years to come. Never again will the program be as simple or as easy to explain as it has traditionally been. Nor will it ever be as easy to qualify for as it was in its heyday. This we know. From the elimination of the fixedrate Standard option to the impending implementation of Financial Assessment, the HECM industry has been completely flipped on its ear by HUD in the past calendar year. The program we all grew to love is forever morphing into something different, and all we can do is deduce where it will go from here. But what do we really know about Financial Assessment? Nothing, until HUD announces the final guidelines. Until then, speculation runs rampant. Doomdayers fear these changes are too drastic and the qualification requirements will 24

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Two years ago, MetLife Home Loans pioneered the concept of financial assessment in the wake of the shocking exits of Bank of America and Wells Fargo from the reverse industry. In the very beginning of 2012, MetLife announced it would institute its own policy of disqualifying applicants based on criteria such as poor DTI (debt-to-income ratio), no income, low assets and bad credit. The program lasted about a month and a half due to a remarkable loss in market share caused by the significantly stricter underwriting guidelines. Today, there is a very small, select group of HECM professionals who experienced some form of financial assessment firsthand as a result of MetLife’s short-lived program. I am among them. The most logical way to prognosticate what is ahead is to look at what has been done in the past. So let’s delve into Financial Assessment and all the other recent changes to the HECM program over the past year. In doing so, we will explore the cause or purpose of each caveat and attempt to gauge the long-term implication such a policy will have on the industry and our future clients.

“Never again will the program be as simple or as easy to explain as it has traditionally been. Nor will it ever be as easy to qualify for as it was in its heyday. This we know. From the elimination of the fixed-rate Standard option to the impending implementation of Financial Assessment, the HECM industry has been completely flipped on its ear by HUD in the past calendar year.”

originating Standard Versus Saver

Principal limits have been lowered completely, universally, across the board. Absolutely nobody qualifies for as much money today as they did six months ago. Clearly this is the FHA’s way of reducing risk and exposure to the number of outstanding loans that outlived their equity in recent years due to the drastic real estate market. Let’s not forget the rumors last year that the maximum limit of $625,500 would be reduced to $417,000, thus tightening the grip on many highervalue homes that might have excellent LTVs otherwise. The jury is still out on how much this will impact the industry in the coming year.

Gone! No more, forget about it. Remember the quadrant we all learned in HECM 101 way back when? Relics on a shelf, these terms no longer exist in the industry. They have been merged into one conglomeration of limited options. Likewise, the associated mortgage insurance premium (MIP) of 2 or .001 percent of the principal limit has been changed to 2.5 or 0.5 percent depending not on which program is chosen (since neither exist anymore), but rather on the mandatory obligation, an aptly titled, brand-new term that signifies the combination of any outstanding liens plus all closing costs for the loan.

Credit Score

The 60 Percent Rule

This is usually the first detail that comes to mind when discussing Financial Assessment, since traditionally there has never been a credit requirement in HECM lending before, which has been one if its most prevalent selling points. “No monthly payments” is usually No. 1 and “no credit requirements” is usually No. 2. We cannot know the full extent of how strongly this will impact qualification because we can only guess how heavily weighted this particular factor in the equation is. For example, when MetLife instituted its own financial assessment in 2012, someone with poor credit could still qualify if their ratios were strong. By itself, the credit score might not be a huge disqualifier, but this can be compounded by high debt levels and/or low income. Here’s food for thought: If seniors take out a loan that has absolutely no obligatory payments for the rest of their lives, then why does it matter what their credit score is? Who cares? Apparently HUD does, so we’ll see how an assessment of a potential borrower’s credit score will impact qualification numbers.

Now, seniors are only allowed to borrow up to 60 percent of the principal limit during the first year, unless their aforementioned mandatory obligation is already over 60 percent, in which case they can draw the full amount of this obligation plus an additional 10 percent the first year. After one year, the restriction is lifted and they have access to their full principal limit. What purpose could this temporary restriction possibly serve? Perhaps it is an attempt to reduce the risk of elder abuse. Similar to the life insurance industry, which has a two-year cushion on suicides to curb insurance fraud, it is quite possible that HUD wanted a one-year cushion, not to punish or hamper seniors, but to dissuade others from manipulating seniors to take out such a loan in order to gain a quick buck.

marketing servicing

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spotlight

This article is intended to be an impartial and academic observation of the changing reverse mortgage industry. The opinions stated in this article do not reflect those of any company the author has ever been associated with, past or present.

hmbs

In conclusion, HECM underwriting guidelines have tightened, and they will continue to tighten once Financial Assessment launches in April. What will the new program look like? Will a reverse mortgage begin to look more like a forward mortgage in terms of documentation and qualifications? Will HUD borrow the model from MetLife and adapt its own rules? How heavily weighted will each new factor be? (For example, is good credit with low income more desirable than poor credit with high income and a great LTV?) How much leeway will competitors have in deciding their own underwriting guidelines within the confines of Financial Assessment? Will these tighter guidelines make the loans more attractive to investors in the secondary market? How will that affect pricing among competitors? And here’s a scary question: Will these tighter rules make it more difficult to qualify those clients who need the program the most? If so, how does that affect the long-term sustainability and profitability of this program? The answers to these important questions remain to be seen. x

legal

One could also ask why someone would have to document any income whatsoever for a loan that has no required payment. We never did before! But perhaps the real source of concern for HUD is not the ability to pay off the loan itself, but rather that the client show both the willingness and ability to maintain homeowner’s insurance and property taxes over the life of the loan, thereby minimizing the risk of foreclosure. This could be a logical argument for checking credit, assets and income under the new rules. It should also be mentioned that when MetLife instituted its version of financial assessment in 2012, the term “income” was used rather loosely. For example, someone with limited fixed income could still qualify if it was deemed that their LTV was superior—meaning the available funds did not have to come from documentable “income,” per se, if the newly available HECM funds were more than enough to cover living expenses for an indefinite time, based on age and life expectancy, of course.

originating

DTI

update

Principal Limits

The Reverse Review March 2014

prepare

title tip 8

Navigating the Process of Payoff Demands

By Megan Hafenstein

As with any transaction, receiving payoff demands is a necessary step in the title and settlement process. With reverse mortgage transactions, obtaining these demands can be complicated because many of the borrowers have resided in their homes for decades. Whether it’s the IRS or a private beneficiary, a line of credit or a foreclosure with a fast-approaching sale date, each entity can be as diverse as the borrowers themselves. Each lender or institution has its own process to request and also receive payoff demands. After more than 15 years of navigating lenders and lien holders, PRC has compiled a roadmap to better navigate the process.

National Lending Institutions and Banks 4Some have automated systems where you can place the payoff request via telephone or Internet and obtain it within minutes. Others require faxed requests with the borrower’s authorization. The method of requesting is often different depending on whether it is a first mortgage versus a second mortgage or HELOC, even with the same lender. 4Many lenders require a borrower’s signed authorization to provide a payoff demand. Some even require the borrower’s authorization to be PRC specific. 4Turnaround times can vary from within 24 hours to as many as 10 business days. 4The good-through dates are often 30 days for conventional or first loans, but can be as little as one day for HELOCs. 4Obtaining an updated demand can be fairly simple and quick with some lenders, but can take up to 10 business days (like the original request) with other lenders.

Reverse Mortgages 4Let your title company know at the onset if the borrower has an open line of credit or is receiving monthly draws. 4Usually a faxed request in writing with borrower’s authorization is required. Turnaround times can vary but are typically 24 to 72 hours. 26

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4The payoffs are often good to the end of the current month. 4Obtaining an updated demand can be a problem toward the end of the month, because some lenders will not allow you to request an updated payoff until the first day of the following month.

Loans in Foreclosure 4Ask the borrower if they are aware of a sale date and relay that information to your title agent. 4Your title company typically has to go through the lender’s foreclosure attorney to obtain a payoff demand.

beneficiary at the time of the demand. If any of these can’t be located, let your title agent know right away because the situation will need to be brought before the underwriter.

IRS Liens 4Before requesting a demand, your title company will need a completed and signed Form 8821 from the borrower (all applicable tax periods must be listed separately on this form). The IRS will not allow anyone to request a demand without this form. 4Turnaround time is approximately 15 business days.

4Turnaround times for foreclosures are usually longer than other loans.

4The payoffs are usually good for 30 days.

4Payoff demands for loans in foreclosure often expire quicker than they do for loans not in foreclosure.

Judgments

4Additional fees (of significant amounts) often accrue and are added to the total amount due.

Private Beneficiary 4Your title company may send a request in writing after speaking with the beneficiary. Turnaround times can vary. 4The payoffs are usually good until the loan funds, because it gives instructions to collect per diem. 4Title companies may require the original note, original deed of trust/mortgage, and the recordable release from the

4Title companies usually request in writing via fax or email after speaking with the attorney. Turnaround times and goodthrough dates can vary.

FHA Loans 4Interest is due all the way to the end of the calendar month when the payoff is made. If the payoff date could be near the end of the month, an additional month’s worth of interest must be collected.

VA Loans 4If the VA is still in title, a deed is needed from them and there is normally an upfront fee.

promote

marketing Social Media Management Sea m u s M cKe o n

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spotlight

reversereview.com

hmbs

Both are extremely comparable in size and scope and I recommend checking them out. Hootsuite is available for free as well as a paid premium service, and Sprout Social is available for a monthlong free trial. So what are you waiting for? Get on both, create a list of active social media enthusiasts in the mortgage sector and put @SeamusMck on it. Then you too can watch me and my cousins hope that no one else is paying attention to how many silly animal videos we watch, because that’s what the Internet is about, isn’t it? Now, get tweeting! x

legal

Sprout Social has a prettier interface, but since I use them both mainly for Twitter, I actually prefer Hootsuite because it puts more in front of my face at one time without requiring me to switch between internal pages or tabs. Hootsuite has a more streamlined display of multiple Twitter lists, while Sprout goes the extra mile in giving you pretty graphics of metrics charts to make your CEO nod along in bewildered agreement.

servicing

Hootsuite was one of the first social media management tools that I found, back when it was mainly used only for Twitter, or back before Facebook started integrating Twitter functions into its platform. It’s a great tool that has the best interface I’ve come across, and it’s still my go-to tool for Twitter. Sprout Social is the newer kid on the block, but its momentum is increasing.

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There are a few popular social media management tools that have come and gone, or had their heyday and are slowly fading out of popularity. (Tweetdeck, we had a great run.) Two that are here to stay are Hootsuite and Sprout Social.

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What’s your day like at work? If you have plenty of time to peruse social media, tweet your thoughts, check Facebook and chat about the weather, then I can have my resume in your inbox in minutes! But if you’re like the rest of us who are on a tight schedule of managing multiple tasks, you want the comfort of knowing that you have the right tools for the job and that you’re not reinventing the wheel. That’s where social media management tools come in.

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he truth behind social media management is the same as that behind all aspects of business: Time is money. If you’re saving time, you’re saving money. To that end, this month’s Reverse Review marketing column will highlight two pioneering social media tools that will help you and your marketing department save time (and streamline workflow).

Both of these platforms are worth checking out. Each of them can manage multiple social media platforms in one central interface, freeing you from having multiple tabs with multiple logins, automating the dissemination of content (content is still king!) across multiple platforms, perpetuating your brand and your marketing message to the interweb at large. More importantly, perhaps, is that it adds a chronological element to your posting, allowing you to plan and author tweets, posts, etc. throughout the week or month well in advance. Most people don’t have an hour a day for social media, so when the pre-coffee stage of Monday morning rolls around and you can’t quite function, you can tell yourself that you’re being productive by scanning your news sources and your brain and authoring comments/posts/tweets to post for the rest of the week. As the week progresses, you can focus more on how well your content is being received and measure engagement.

The Reverse Review March 2014

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ASSIST

servicing The Webbed Feet of the Industry Rob in R ic e

Moving Forward

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Borrowers are grandparents, parents, sisters, brothers, aunts and uncles, and should be serviced and treated with the respect and patience warranted. We will all be walking in their shoes one day. Prominently displayed on the wall of our borrower care department are these words of wisdom from Maya Angelou: “I have learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” For those in reverse mortgage servicing, no truer words have ever been spoken. x

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Of major importance is accelerating the evolution of reverse mortgage servicing to ease the entrance of baby boomers into a reverse mortgage loan. As a rule, baby boomers entering the reverse mortgage space are better educated and have a better grasp of the reverse mortgage product and information than ever before. They look to the servicer to confirm their understanding of the product and its servicing, not to explain the product to them. Servicers sometimes are asked to review every detail, every calculation and every procedure until the borrower confirms they have what they seek.

Borrower care associates are givers by nature and people who want to go the extra mile to provide assistance. Comments such as, “I don’t know what I would have done if I didn’t have this reverse mortgage” fuel our efforts. We love what we do, as challenging as it can be.

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In our initial contact with the borrower, we too often hear that the borrower still has many questions about their loan. We advise every servicing associate to treat each and every caller as if they were their parent or grandparent.

parties to sort out issues. As a servicer for seniors (a protected class) and their loans, we take care of the borrower, and that protects our clients.

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At Present

While fraud is not pervasive, servicers must have controls in place to protect the borrower. Account passwords are regularly set up, accounts are flagged with warnings to contact the borrower before any changes are made, or to contact the holder of the Power of Attorney before the borrower makes any changes. If and when necessary, conference calls are set up between multiple

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Servicing in the reverse mortgage space is too often misunderstood or diminished as simply the distribution of monthly statements and checks. It is that, but it is also so much more. As a servicer for seniors, customer service (or, as we call it, “borrower care”) personnel become problem solvers, investigators and protectors. Associates are urged to cultivate and maintain an investigative nature to prevent borrower information from falling into the wrong hands.

Daily borrower care efforts must represent three separate but joined interests: borrowers, clients and the servicing or subservicing company that employs them. From time to time, borrowers will require protection from the people in their lives. In receiving draw requests, associates will hear, “I’m the borrower’s child, what more do you need?” These callers are unaware of what servicers have experienced firsthand. On occasion, those with Powers of Attorney have misused their authority by withdrawing borrower funds without notifying the borrower of the changes being made to the loan. Other times, ex-spouses have attempted to sign for line-of-credit withdrawals or wayward children call impersonating borrowers. The list of fraudulent activities goes on.

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he actor Michael Caine is credited with saying, “Be like a duck. Calm on the surface, but always paddling like the dickens underneath.” Servicing, at its best, functions like the webbed feet of a duck. Our industry continues to move across what are often turbulent economic waters, propelled forward and secured by the reliable and hardworking efforts of its servicers.

The Reverse Review March 2014

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Subordination Agreements Explained Ale x a n d e r J . C ha udhry

subordination agreement is a written agreement between two lien holders who hold liens on the same real estate. This contract may be a useful option to explore at the origination table with senior clients who have existing second liens. Since many existing second lien holders will be unfamiliar with HECM subordination requirements, this article provides guidance on the use of subordination agreements during loan origination. When there is more than one mortgage on the property, the mortgage that was recorded first will have priority. The relative position of the mortgages is important because it gives the mortgage holder in first lien position priority in the interest of the property. For instance, assume that a homeowner has an existing first mortgage and also has an existing HELOC that was obtained and recorded after the first mortgage. If the homeowner defaults on either obligation and the respective lender initiates foreclosure proceedings, the lender in first lien position will receive payment from the foreclosure sale before the lender in the second lien position. Since there is only a limited amount of money generated from a foreclosure sale, the lower a mortgage is in priority, the less likely it will be fully paid in the event of default and foreclosure. In certain instances, the priority of recorded mortgages can be controlled by a written agreement known as a subordination agreement. In this contract, lien holders agree on the relative priorities of their liens.

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In a subordination agreement, a prior lien or mortgage holder agrees that its lien will be subordinate, or second, to a subsequently recorded mortgage. In the example provided above, if the homeowner refinances their first mortgage with a new mortgage but wants to keep their equity line open, the new mortgage will be junior to the existing home equity line because it was obtained and recorded after the equity line. Since most lenders will not agree to provide a loan unless they are guaranteed that their mortgage is in first lien position, the only way this type of transaction can work is for the homeowner to satisfy the equity line at closing or when the existing home equity lender agrees to subordinate its line of credit to the new mortgage. In this example, if the homeowner wants to keep their equity line open, they could request a subordination agreement from their home equity lender so that the equity line will remain open but junior, or subordinate, to the new mortgage. If

the subordination request is approved, the agreement will be executed by the home equity lender and recorded in the applicable land records. The subordination agreement serves to make the home equity â&#x20AC;&#x153;In certain line of credit instances, subordinate the priority to the newly of recorded obtained mortgages can mortgage even be controlled though the by a written new mortgage agreement was recorded known as a after it. subordination agreement. In this In 2006, contract, lien HUD issued holders agree Mortgagee on the relative Letter 2006-20 priorities of addressing the their liens.â&#x20AC;? requirements for subordinate liens under the HECM program. In this letter, HUD advised that an existing lien of record against real estate that serves as the collateral

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Although it may be an uphill battle to persuade an existing second lien holder to subordinate its lien to the HECM liens, those reverse professionals who fully understand the HECM program and its subordination requirements will be better able to help their clients obtain the agreement. x

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Each existing second lien holder will have its own specific subordination requirements that must be met in order to approve the subordination

Existing lenders may be unfamiliar with HECM subordination requirements and therefore careful attention should be paid to these important details. If the subordination request is approved, confirm that the subordinating lien holder submits two subordination agreements. One agreement is for the reverse mortgage lender’s lien and the second agreement addresses HUD’s mortgage lien. In the subordination agreement, the subordinating lender should acknowledge that its lien is in third lien position behind the reverse mortgage lender and HUD. The subordination agreements should show the reverse mortgage amount as no less than 150 percent of the maximum claim amount and must not place any restrictions on the reverse mortgage lender, investor, HUD or terms of the HECM. The original subordination agreements must be properly executed and recorded in the applicable land records. Copies of the recorded agreements should be kept in the HECM file.

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The important language in these letters is that subordinate liens are not allowed if they are incurred by the borrower “in connection with the HECM transaction.” This language prohibits a borrower from obtaining a subordinate lien at the same time the HECM is originated. For instance, if the proceeds from the HECM loan are insufficient to pay the closing costs and to repay any existing mortgage liens, the borrower is not permitted to obtain a new mortgage during the HECM origination process to help pay those costs that will be subordinate to the HECM. However, according to HUD, “existing second liens may also be re-subordinated to third lien position behind the HECM first and second liens.” It is clear from this ruling that HECM guidelines do not

Reverse professionals should understand that many existing second lien holders will have strong reservations about subordinating their lien to a reverse mortgage. Since a reverse mortgage is a negatively amortizing loan, the existing second lien holder will likely be concerned that the amount of the reverse mortgage could ultimately exceed the value of the home. The second lien holder will therefore require assurances that there is sufficient equity in the property in order to consider the subordination request. Be prepared to explain to the existing lien holder that HECM guidelines are conservative and mandate that there is sufficient equity in the property to qualify for the program. Also, be prepared to explain why HUD’s mortgage lien is required to be in second position.

request. A copy of a new appraisal will generally be required to show the property value. In addition, lenders will likely require copies of the loan application for the new mortgage, a preliminary HUD-1, a copy of the title report and application fees. Some lenders will prepare and issue their own subordination agreements while others will require the homeowner to furnish the agreement to the lender for review and execution. The entire process may take some time. Most lenders will not expedite subordination requests, so it makes sense to plan ahead.

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In 2009, HUD issued Mortgagee Letter 2009-49 to reiterate its existing policy regarding subordinate liens. According to the letter, HECM regulations mandate that there shall be no outstanding or unpaid obligations, either unsecured or secured, incurred by the HECM mortgagor in connection with the HECM transaction, except in cases involving repairs to the property, and/or mortgage servicing charges. The letter also made clear that state and local court judgments, liens and federal judgments and debts are allowable subordinate liens at HECM origination.

require all existing second liens to be paid in full at the HECM closing. Subordination of existing second liens during HECM origination therefore may be an option in appropriate cases. If a reverse mortgage professional has a client with an existing second lien who wants to explore subordination options, the following points should be kept in mind. Recall that in the reverse mortgage context, regulations mandate that the HECM security instruments must be in first and second lien position. The reverse mortgage lender’s mortgage must be in first position and HUD’s mortgage must be in second position. The reason for the second mortgage is to secure any mortgage payments that might be made by HUD to the borrower in the event that the lender fails to make the payments under the loan agreement, or if it assigns its interests to HUD. Therefore, if an existing lien is subordinated to the HECM, it will actually be in third lien position.

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for a HECM loan is allowed to be subordinated if two conditions are met: the existing lien is subordinate and does not intervene between the first and second HECM liens; and that there are no outstanding or unpaid obligations incurred by the HECM borrower in connection with the HECM transaction. Mortgagee Letter 2006-20 was understood to mean that an existing mortgage could be subordinated to a HECM as the current mortgage existed prior to the creation of the HECM loan and was therefore not created “in connection” with the HECM transaction.

The Reverse Review March 2014

“

“ >> Nationwide title and settlement experts

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Things are not always as they appear. With PRC, you get more than 15 years of experience and knowledge working for you. Our commitment to be the partner that you rely on has never changed. Don’t be fooled by imposters, what you see is not always what you get. Experience, knowledge and commitment are what make the difference. You will find that difference at PRC.

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secondary

learn

HMBS Spreads Tighten as Volume Dips Da rre n S t u m b er g er

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“While the closed-end product doesn’t raise new risk to GNMA issuers, it does present a much larger exposure that needs to be spread and rate hedged. Issuers as a function of the fixed HMBS program always have rate and spread exposure to subsequent securitizations of MIP and the servicing strip, but the exposures now are much greater because they include the unused principal limit of the loan.”

In any event, it seems these new permutations of the fixed-rate HECM are here to stay and GNMA issuers will have their hands full hedging the exposure through the rates market. At a quick glance, it took only a 1.5 to 1.75 percent rise in rates for a 10-point premium to evaporate to zero. With this, I wish the issuer community good luck! x

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IO demand has picked up after several months of softness with yields retracing several hundred basis points in Q1. As we prepare for the NRMLA meeting in New York City, the new fixed-rate products currently being originated in the marketplace have dominated discussions among dealers and investors. Closed-end and open-end fixed-rate loans are being originated under all the standard payment plans (i.e., lump sum, tenure, term and modified tenure, and modified term). While the closedend product doesn’t raise new risk to GNMA issuers, it does present a much larger exposure that needs to be spread

and rate hedged. Issuers as a function of the fixed HMBS program always have rate and spread exposure to subsequent securitizations of MIP and the servicing strip, but the exposures now are much greater because they include the unused principal limit of the loan. The open-ended loan raises the additional risk of allowing the consumer to partially prepay the loan and allowing a re-draw at the original interest rate.

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Secondary flows have been strong with a lot of 2011 and 2012 fixed-rate paper trading in the 50s and 60s to swaps, and 2009 and 2010 paper trading 5 to 10 basis points tighter for corporate settle.

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We expect origination volume totals to continue to drop into the spring and summer of 2014 as January HMBS issuance came in 15 percent lower than the three-month rolling average. We should see another big drop in February on the order of 25 to 30 percent month over month. As of the last week of February, issuance was just over $400 million for the month.

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Through February there have been more than $750 million in HREMICs brought to market, with Bank of America Merrill Lynch selling $330 million of these structured securities, Stifel Nicolaus more than $300 million and RBS just over $118 million. The current $750 million issuance total is roughly two-thirds of what came to market during the same period of 2013. Issuance of HREMICs in the first two months of 2013 was in excess of $1.1 billion and can surely be attributed to declining volumes as dealers need longer to aggregate dealsize critical mass (which is typically $150 million or more).

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MBS spreads have consolidated after a furious tightening in the beginning of the year. Fixed-rate HMBS is trading roughly 60 to swaps (about $111 dollar price) for corporate settle, which is just shy of a 3 percent yield in the eyes of investors. Floating-rate HMBS has touched wider off the 2014 tights and is trading in the mid-70s discount margin and high $107/low $108 dollar price.

The Reverse Review March 2014

spotlight article is , In thedition alk th’s mon eagues tness

We asked and you answered!

The Industry Responds

. coll readi ment yourut theirl Assess abo nancia for Fi

n an effort to help our readers better understand and prepare for Financial Assessment, we’ve joined forces with our expert underwriter, RMS’ Ralph Rosynek, to create a survey for industry participants about what resources they may need to better grasp HUD’s pending guidelines. TRR has gathered input from nearly 200 reverse professionals thus far; here’s what your colleagues had to say:

81% of respondents identified themselves as loan originators

Years spent originating reverse mortgage loans

73% focus solely on reverse mortgage loans 23% do both forward and reverse mortgage loans based on customer need Our respondents’ initial training and education was acquired through a multitude of sources, with company-provided training coming in first at just over 50%.

23% 7%

as managers or officers

as support (i.e., processors, underwriters, funders, closers)

as third-party vendors 34

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72% participate in continued education and training through webinar instruction, 48% through printed materials (i.e., training and underwriting manuals).

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67%

67% participated in a reverse 22% mortgage training or education activity within the last 90 days, 22% within the last 6 months.

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Most respondents said they prefer to receive continued education through webinar sessions.

Most said they were very comfortable reviewing information contained in a credit report.

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53% Somewhat familiar 22% Not familiar 16% Very familiar 14% Waiting for the final version before I familiarize myself

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When asked how familiar they were with the Financial Assessment information HUD has provided thus far, responses varied across the board, with most reporting being somewhat familiar.

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While most reported being very comfortable, respondentsâ&#x20AC;&#x2122; comfort levels with reviewing borrower tax returns for income determination purposes appeared to be varied.

When it came to calculating preliminary borrower debt and expenses to determine income eligibility, 58% said they were very comfortable, while 29% said they were somewhat comfortable.

The Reverse Review March 2014

“ The best

reverse mortgage company in

the industry.”

-Henry Winkler

PROUD to have an A+ rating with the BBB.

Our Unique, Award Winning Culture One Reverse Mortgage is a Quicken Loans company. You may have heard about the award winning culture that has people very interested in becoming one of our “team members.” The building blocks of our culture are our ISMs. ISMs are the ideas we work and live by here at One Reverse Mortgage, Quicken Loans and our family of companies. The ISMs don’t just describe what we do, they describe who we are! Our ISMs create an atmosphere that promotes enthusiasm, passion, and creativity! Here are just 3 of the 19 ISM that are a way of life when you work for a Quicken Loans company!

ISM

We Are The “They”

There is no “they” here. “We” are the “they.”All in a mission together. No corporate barriers. No boundaries.

Yes Before No

Not everything can be a “yes.” But it does mean that we respond with the mindset of “yes” first.

Do The Right Thing

The high road is not a short cut. Stick to the highest standard of integrity, without compromise. Doing the wrong thing is never worth it.

Visit onereversemortgage.com/about-us/careers to learn more about career opportunities!

Roderick Rhodes

Jerry Jones

One Reverse Team Member Since 2006

Heather Alexander

Jim Crombez

One Reverse Team Member Since 2009

One Reverse Team Member Since 2005

One Reverse Team Member Since 2011

One Reverse Mortgage is a licensed mortgage lender. The following states require disclosure of licensing information. (If your state is not listed, it doesn’t require a specific license disclosure or we are not currently licensed in that state.) Arizona – One Reverse Mortgage, LLC, 16425 North Pima, Suite 200, Scottsdale, AZ, Mortgage Banker License #BKBR-0115032; Arkansas – One Reverse Mortgage, LLC, 9920 Pacific Heights Blvd, Ste 350, San Diego, CA, Mortgage Lender/Mortgage Broker – License # 42785; California – Licensed by the Department of Corporations under California Finance Lenders Law – License # 609-9652; Georgia Residential Mortgage Licensee (#23385) – 9920 Pacific Heights Blvd, Ste 350, San Diego, CA; Illinois – Residential Mortgage Licensee #MB 6760594 – Department of Financial and Professional Regulation, 122 S. Michigan Ave 19th Floor, Chicago, IL 60603 (312) 797-8736, 9920 Pacific Heights Blvd, Ste 350, San Diego, CA; Maine – One Reverse Mortgage, LLC, Supervised Lender License NMLS #3030; Massachusetts – One Reverse Mortgage, LLC, Mortgage Lender License #MC 2052; New Hampshire – Licensed by the New Hampshire Banking Department #10940-MB; New Jersey – Licensed Mortgage Banker – NJ Department of Banking, first (and/or second) mortgages only; New York – Licensed Mortgage Banker, N.Y.S Banking Department, License #107328; Oregon – License #ML-3511; Pennsylvania – Licensed by the Department of Banking-License # 21860; Texas – One Reverse Mortgage, LLC 9920 Pacific Heights Blvd, Ste 350, San Diego, Virginia: One Reverse Mortgage, NMLS ID #2052 (www.nmlsconsumeraccess.org). Restrictions may apply. Washington – Consumer Loan Company License – CL –2052. Equal Housing Lender, One Reverse Mortgage TRR 36CA; Nationwide Mortgage Licensing System Number 2052

spotlight article

When asked, based upon their knowledge of the Financial Assessment to date, what impact they expect FA to have on their volume, nearly 60% said they expect the program to affect their volume.

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4“FHA/HUD interpretation of the coming changes, or a help line to clarify how to interpret their guidelines. Also, positive explanations of the changes and what it will take for prospects to qualify for a HECM.”

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We asked respondents to comment on what types of sales and marketing resources they think they will need to assist with the implementation of Financial Assessment, and here’s what they had to say:

4“Official guidelines in a language that borrowers can understand”

“The more technically difficult the process becomes, the less competition we will have.” “It will probably reduce the number of eligible seniors who can take advantage of the HECM program.” “I understand the reason for changes, however, I wonder what will happen to those who now do not qualify.” “I hope that it actually achieves the desired goal.”

4“Better marketing tools for focusing on financial planners”

“There will be additional confusion if all lenders do not interpret the HUD process in the same manner.”

4“Techniques to use when discussing this with seniors” 4“Webinars and online programs with calculations” 4“A tool that clients can access and that is user-friendly to help them understand the requirements”

“It does not matter, adjust to the change and move forward.”

“Once the rules are final, we will need the underwriters to let us know how they will look at different situations. We will need specifics.” “We just have to wait and see. I have been in lending for 30 years, [and have] done many forward loans during that time, so I’m comfortable with calculating income and reviewing credit reports. I just hope

“I think it’s about time borrowers are assessed to ensure they have the financial capacity to continue living in their homes after they’ve taken out a reverse mortgage.” “Loan officers must have some kind of a pre-approval for potential clients. I am a counselor. Counseling is required prior to application and the financial assessment. Sending clients to counseling without having a strong feeling of approval will result in a waste of counselor and client time and money.” “I’m very concerned that this will lock out those who are most vulnerable, who need money for food and in-home care, or are facing losing their home.” “I think that it is going to impact our loan volume. Lots of credit reports that I do now show that most of the people have low credit scores and subpar credit.” “My hope is that by implementing this, it does not eliminate those most in need.” “It will definitely slow the process down. Collecting documentation is always a challenge, especially from older clientele.” “I understand why this new process is needed. It is what it is!” reversereview.com

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4“A commonsense, detailed explanation of Financial Assessment with reasons why it is good or necessary for the borrower”

“I think something should have been done long ago to protect seniors from foreclosure due to tax and insurance non-payment.”

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4“For inexperienced originators, training on how to gather financial information without interrogating the senior borrower.”

“I processed reverse mortgages at MetLife when it initiated a financial assessment. It added another step or two to the process, but I did not lose loans because of [it].”

that reverse loans will not end up being underwritten using the same process as forward loans.”

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4“Online tools and presentation material for borrowers”

When asked to comment further on the general implementation of Financial Assessment and how it might impact business, here’s what your colleagues had to say:

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4“A temporary HUD hotline to clarify usable income on a caseby-case basis would be helpful and would give underwriters and LOs a safety net for the first six months while the industry cuts its teeth. It will give us stability until we create a historical basis to rely upon.”

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4“Lender input and examples”

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The Reverse Review March 2014

By Jessica Guerin

or the reverse mortgage industry, 2014 got off to a choppy start as the market struggled to adjust to new program guidelines.

In the fall of 2013, HUD announced highly anticipated changes to the HECM program that would drastically impact how lenders in the space did business. The new guidelines—which limited upfront draws, reduced principal limit factors and promised the institution of a financial assessment of borrowers— effectively steered the industry away

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from a large portion of its traditional customer base. Industry participants were left to figure out how to make a living with a different type of product, one that requires them to connect with more financially savvy consumers interested in leveraging their home equity to support retirement. As originators scrambled to reassess their business models, the HECM market took a sharp downturn with volume and revenues taking substantial hits. While there are many longtime proponents of the product who adamantly believe in the HECM’s

potential, some are uncertain about their ability to stay afloat in the wake of all this change. HUD’s new guidelines have drastically altered the business, and reverse professionals are wondering how they can survive in this new HECM world. Feeling the Effects HUD’s program revisions have left a deep gash in the HECM market, and the industry has felt its effects. According to Reverse Market Insight’s John Lunde, the impact on HECM volume across the board has been significantly greater than anticipated.

“We originally expected about a 20 to 25 percent unit volume decline from lower principal limit factors and about a 50 percent initial UPB decline resulting from the unit volume declines in combination with initial utilization restrictions,” he says. “Actual experience has been quite a bit worse.” Lunde says HECM application totals are roughly 40 percent less than they were one year ago. “That’s a pretty drastic impact. We expect to see volume recover from current levels as companies finish retooling marketing to work with the latest product guidelines, but [we’re] not sure what Financial Assessment will do to that outlook once implemented.” Indeed, lenders big and small have reported a decline in volume since the new rules have taken effect. Mike Gruley, of 1st Financial Reverse Mortgages, says his company has felt an impact. “We’ve seen a volume dip in units, but it’s a one-two punch, because then we’ve seen a revenue dip from losing the Standard fixed,” Gruley says. “The combination of the two is pretty tough.” Jack Belles, of Reverse Mortgage of New England, also says his volume has dropped off under the new rules. “There are so many people who fall just outside the guidelines,” Belles says, adding that he turned down three seniors just that day because their funds fell short of the money to close. “A ton of people are being cut out… The people who are really hurting right now, unfortunately, most of those folks we can’t help anymore.” Belles also says losing the HECM Saver product has been rough for his team. “Losing the Saver was huge, because we were doing a lot of Saver business.

That was an easy sale, because it made the closing costs tolerable.” 8 Forget About the Old Days While it’s true that the program’s revamp has made it less amenable to those who may have needed it most, some say the key to adjusting to this change is letting go of what the program used to be. If originators continue to focus on what the HECM no longer offers, they may not be as effective in selling the benefits still available to borrowers under the new rules. Paul Fiore, senior vice president of retail lending at AAG, says he reminds his sales team not to talk to borrowers about what the program used to offer. It doesn’t matter how much money the borrower could have gotten if he completed the loan process last year, Fiore says, it’s about the problems they can solve with the cash they can access under the program now. “As a salesperson, focus on what you can sell and not what you used to be able to sell. So many people think about what they used to have,” Fiore says. “When you reminisce about the past, it usually makes the present irrelevant, and then you can’t sell the product as well. It’s still a great product that still helps a ton of people. Focus on that.” 8 Rethink Your Conversation with Potential Borrowers In order to effectively relay the benefits of a reverse mortgage in its current form, many insist that originators need to reassess the manner in which they approach potential borrowers. The new guidelines have steered the industry away from a needs-based clientele, meaning that originators will have to learn how to approach borrowers who would consider a

“As a salesperson, focus on what you can sell and not what you used to be able to sell. So many people think about what they used to have. When you reminisce about the past, it usually makes the present irrelevant, and then you can’t sell the product as well. It’s still a great product that still helps a ton of people. Focus on that.”

paul fiore

HECM as a financial planning tool. Connecting with this type of senior requires a new approach and a different kind of conversation. “I think everyone has to change their message,” Fiore says. “As an industry, we all have a responsibility to make sure people understand that the reverse mortgage is more of a planning retirement tool; it’s not just for the financially destitute. For everybody in this industry to grow and survive, we need to emphasize the positives of the product and what it can accomplish for people.”

Sherry Apanay

“I think that every originator out there today is going to have to look at how they’ve gone after the business and re-evaluate it. You really have to start the conversation with the borrower about their finances… You have to have a conversation about what their goals are and what they’re trying to achieve, and really look at the whole picture.”

Sherry Apanay, chief sales officer at Urban Financial of America, agrees that changing the conversation is a must. “I think that every originator out there today is going to have to look at how they’ve gone after the business and re-evaluate it,” she says. Rather than immediately launching into a discussion about the HECM’s benefits, Apanay suggests originators talk first about that particular senior’s financial needs. “You really have to start the conversation with the borrower about their finances. You have to talk to them, and not just about how a reverse mortgage can help meet their needs. You have to have a conversation about what their goals are and what they’re trying to achieve, and really look at the whole picture.” Apanay says the changes are forcing the industry to tackle a challenge that has been discussed for quite some time. “We’ve talked for years in this industry about how we wanted 8 reversereview.com

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reverse mortgages to be part of a retirement planning process, something that seniors looked to as part of their normal retirement planning,” she says, adding that now, with the new changes in place, “we’re forced [to look past] the lowhanging fruit. I think it’s really a great opportunity, because it forces us to start doing the extra work it takes to have that kind of conversation… It forces the market to move to where it has needed to move for a while.” 8 Focus on That 98% As the industry works on connecting with planning-oriented consumers, it has the opportunity to reach a wider customer base. The HECM market notoriously clings to a mere 2 percent penetration rate, despite economic statistics and aging demographics that suggest so many more seniors would qualify for and benefit from the product. With the new rules in place, originators have no choice but to work on expanding their reach. “It’s time to reopen the dialogue with that 98 percent,” Gruley says. “That’s what the smart originator does.” He says originators should attempt to connect with all sorts of potential clients and interested parties, including financial advisors and Realtors. “Start communicating with the whole 100 percent, and maybe you’ll tap some of that 98 percent. Maybe that 2 percent doesn’t get served like it used to, but maybe it shouldn’t be served for all the reasons HUD has articulated. That continues to be our challenge, getting to that 98 percent. But that’s where our future is; I have no doubt about that.” Gruley says the program revisions have given originators a major talking point when approaching different types of consumers. “You can use the new product developments to change the way people view and understand reverse mortgages,” he says. “[The guidelines] are a step in the right direction for our industry in its effort to communicate to the world that HECMs can be one of the best retirement tools available to the 62 and older crowd.”

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Fiore agrees that the guidelines can help the industry reach a new demographic. “The goal ultimately with these safety measures in place is that people will look at a reverse mortgage differently. So you’ll touch the borrower who maybe previously had not [considered] looking into a reverse mortgage, and you make up for the loss of loans with increased interest from other people who may now look at the loan.” But the change won’t be immediate; it will take time for the public’s acceptance of the product to turn a corner. “I don’t think it’s an overnight success thing,” Gruley says. “It’s going to be a transition and it will take time. It might be a year or more, and time will tell who is going to bear through it and who is not. It’s just basic sales: You go out and shake hands and kiss babies and get to know people and form relationships, and as the product gains acceptance, you’ll be in a great position to benefit from it.” 8 Keep Expenses Low In the meantime, companies will have to work on tightening up expenses in order to stay afloat in this lowvolume environment. Until things turn around—which many agree may not be for a year or more—companies will need to watch their balance sheets and keep expenditures at a minimum in order to maintain profitability. Lunde says many companies in the space are re-evaluating their processes in light of the program revisions in order to remain in business. “With the recent changes pushing down revenue per loan, people are refining their focus on methods that can fit within the new cost constraints and increasing their efforts to maximize efficiency with their spending,” he says. Gruley says that with volume dropping, it’s especially important for small brokers and lenders to watch their balance sheets, but that some corners cannot be cut. “They’ve got to maintain their efficiencies and their profit margins in this lowvolume environment, they just have to. They’ve got to keep their cost

to produce low and they’ve got to control their expenses, but without compromising the support they give their salespeople. There’s no savings in cutting back on support for quality salespeople,” he says. “Having a quality team and supporting them is part of being efficient.” 8 Commit to Putting in the Work At the end of the day, many agree that those who will survive in this business are those who are willing to put in the extra work. With the program changes in place, it may require more legwork and more effort to find clients and help them obtain reverse mortgage loans, meaning that, for now at least, originators may need to put in longer hours to do the same amount of business as before. “If originators want to survive, they’ve really got to look inward and find out if they’re cut out to invest the kind of time that’s needed,” Apanay says, adding that the new rules require originators to spend more time connecting with potential borrowers. “You’ve got to invest the time to really understand their full picture.” Belles agrees and says the extra hours are essential to maintain profitability. “Everybody is working harder, because you have to look at so many more loans to get the same amount of business. It’s a numbers game,” he says. “I’m convinced there’s still business out there, you’re just going to have to work a lot harder for it. You’ll have to outwork everybody to keep your head above water.” 8 Keep the Faith While the current market environment may be challenging to navigate as the industry adjusts to a new way of doing business, it’s important not to lose focus on the value of the product and the help it can afford senior borrowers. Many professionals across the HECM space admit that this year—and perhaps even the year after that— will be challenging for the reverse mortgage industry. Still, all seem to agree that the HECM has tremendous potential, and many hold on to the

belief that it will one day become a mainstream financial product.

jack belles

“Everybody is working harder, because you have to look at so many more loans to get the same amount of business. It’s a numbers game. I’m convinced there’s still business out there, you’re just going to have to work a lot harder for it. You’ll have to outwork everybody to keep your head above water.”

Lunde says all the facts point to a promising future for the HECM program. “I continue to believe that the vast majority of households do not have sufficient savings outside of their home equity to pay for retirement, and the government simply doesn’t have the funds or willingness to meet the shortfall, so tapping home equity in some form will be the answer,” he says. “Our industry has to prove that we’re the best way for households to access that home equity for retirement.” Lunde says if the industry can move the needle just a little in the way of public acceptance, that would still do a lot for business. “Even if reverse mortgages are the second or third option on a menu of choices, that would leave annual volume at least 10 times where we’re at today.”

Apanay also says she believes the product’s future is bright. “I’m very optimistic about the value proposition of this industry. Even with our limitations, even with our challenges with the changes that have come to the program, it’s still a great benefit for any senior who has a home,” she says. That said, Apanay does admit that the waters will be choppy for a while. “I think it will take a little time for all the dust to settle, for people to get comfortable wherever they’ve landed and with whatever new products come into the industry.”

worse—but if you believe in the product and you believe in what it can accomplish, if you focus on the good and present that, you can show how much this can help someone.”

Accepting all this change is part of the challenge, according to Fiore, who says that in order to adapt, reverse professionals must focus on what the product can do for seniors. “Change is constant,” Fiore says. “You never know what changes will be brought—some of them will be positive for your business and some of them will be

“I do sense that there’s this mountain we need to get over and the promised land is on the other side,” Gruley says. “That mountain may vet out a lot of people, a lot of originators and a lot of companies that don’t want to climb it, but I think it creates great opportunities for those who are left.” x

While it’s clear that those in this industry maintain a strong belief in the benefits of the reverse mortgage program, no one seems to deny the fact that there is a challenging road ahead for professionals in the space. For those attempting to stick it out, it’s all about staying afloat in these turbulent waters until the tides shift and business rebounds.

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last word

reflect

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Finding Success in 2014 Joh n S m al d o ne

he year 2013 was a very interesting but frustrating year for the reverse mortgage industry. We saw many changes take effect, and we also saw many delayed into the new year. This brings us to today, with the release of the final Financial Assessment guidelines still pending. This year, in the wake of so much change, we will have to step up to the plate for our industry and our clients. We need to be thoroughly educated on the recent wave of changes. We need to be on top everything—negative and positive—that will affect our seniors. There are still many opportunities ahead of us, as long as we recognize how to capitalize on them. No doubt you’ve heard many times before that every day, there are more than 10,000 seniors turning 65 years old, and close to 8,000 turning 62. This spells opportunity, but the fact remains that the rules of the game have shifted and the reverse mortgage lending environment has changed, which means we need to approach the market in different ways. “But remember, whether you’re approaching a potential referral partner or an interested senior consumer, avoid the tendency to sell the product right off the bat. Instead, focus on building trust and educating them about the concept of home equity conversion. Getting to know the person you’re speaking with and building trust is what it is all about, my friends. This will never change.”

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I have been in this industry more than 16 years now, and one thing I learned early on is that trust is the single most important thing you can relay to your client. A huge part of our job is to create a strong bond based on trust between ourselves and our prospective clients. Education goes hand in hand with this trust. If you know and understand the product and can comprehensively explain the recent guideline changes, you can better build that trust with your client.

With the new rules in place, it’s important that we be prepared for the fact that some seniors may no longer qualify for the program. We must not let this deter us from doing business, but use it as motivation to seek new opportunities to connect with more affluent senior consumers, those with a lower loan-to-value ratio or those who are free and clear of debt. I am not saying to turn away from those in need and those who want a reverse mortgage for traditional reasons— on the contrary! I am saying supplement this needs-based market with a different segment. Call on small community banks, financial planners, attorneys, accountants and longterm health care providers. These types of professionals can be great partners. But remember, whether you’re approaching a potential referral partner or an interested senior consumer, avoid the tendency to sell the product right off the bat. Instead, focus on building trust and educating them about the concept of home equity conversion. Getting to know the person you’re speaking with and building trust is what it is all about, my friends. This will never change. For the reverse mortgage industry, 2014 will be a different kind of year, but there are many opportunities still available. If you educate yourself on the guideline changes and focus on how the revised program can meet the needs of our seniors, you will find great success. x

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The Reverse Review March 2014

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