W
EW THE EVI ER
VE
IE
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VERSE R EV E RE
The true impact of HUD’s guidelines
TH
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INSIDE THIS ISSUE | Financial Assessment: One Year Later
THE
REVERSE review JU NE 2016
HOT S EAT
ORIG INAT ING
OR IGINATING
PG. 15
PG. 16
PG. 18
Liberty’s Tom Werder sits down with TRR
How we can help expand the market
Assessing the borrower’s experience
MAR K ETING
Blog about it PG. 21
The Reverse Review June 2016
DISCOVER
THE PERKS OF PARTNERSHIP With American Advisors Group the Nation's #1 Reverse Mortgage Lender
24
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D E D I C A T E D PA R T N E R SUPPORT
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lenders is that AAG has a complete reverse mortgage solution. With them I get marketing, operations support,
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se training and service that all increase my company’s bottom line.” -Demas, Associated Mortgage Group
Grow your business with customizable marketing materials via the AAG partner portal! Partnering with AAG makes it easy! Get started in as little as 30 days! For more information, call today or visit us online! 866-964-1109 AAG.com/Wholesale 2 | TRR
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8 TRR | 3
The Reverse Review June 2016
From the editor RE
V IE
E REVE W TH RS
RS VE RE
A NOTE FROM JESSICA GUERIN
VE
IEW
RS
VERSE R EV E RE
The true impact of HUD’s guidelines.
TH
EW THE
RE
EW
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VI
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INSIDE THIS ISSUE | Financial Assessment: A One Year Later
THE
REVERSE review JUNE 2016
HOT SEAT
Liberty’s Tom Werder sits down with TRR PG. 15
ORIGINATING
How we can help expand the market PG. 16
ORIGINATING
Assessing the borrower’s experience PG. 18
JUNE 2016
COVER
The Nobel Prize-winning economist talks about the value of reverse mortgages.
MARKETING
Blog about it PG. 21
In this month’s feature story, we talk to famed economist and Nobel Prize winner Robert Merton about the importance of reverse mortgages. As part of his ongoing research on retirement funding strategy, Merton has embraced reverse mortgages as key to solving the retirement income crisis. This crisis, according to Merton, is not confined to the U.S. as the baby boomer generation ages; it is a global phenomenon, happening in countries around the world as life expectancies increase.
Merton predicts that the concept of a reverse mortgage will be adopted on a global scale, pointing to several countries that have already created successful equity release programs. In the future, Merton says, people will inevitably turn to their home equity to support themselves in their advanced age. Merton travels around the world to speak at financial summits, and his praise of reverse mortgages has garnered considerable attention. With adamant support from someone as prominent and respected as Robert Merton, perhaps the larger financial community will come to see the value of the product.
Connect with me about how you can participate. Reach me at jessica@reversereview.com
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4 | TRR
SENIOR PUBLISHER
Reza Jahangiri PUBLISHER
Erik Richard EDITOR-IN-CHIEF
Jessica Guerin
CREATIVE DIRECTOR
Traci Knight
COPY EDITOR
Kersten Deck MARKETING DIRECTOR
Alycia Greer
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 © 2016 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 Review Publishing, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 3800 West Chapman Ave., Orange, CA 92868
JESSICA GUERIN
Feedback is very important to us here at The Reverse Review. Send us your thoughts on this issue or comment online for a chance to see your perspective in print.
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table of contents
TRR 6.16
08 / STATS
21 / MARKETING
REVERSE MARKET INSIGHT
Spreading the word, one post at a time.
April top lenders and HECM endorsement stats through March
18 24
Blog About It
CARLOS SCARPERO
10 / NRMLA NEWS
Read about the association’s current initiatives.
22 / HMBS
Spreads Tighten on Wall Street An update from the secondary market
13 / ROUNDUP
A collection of recent facts and surveys affecting the reverse market
DARREN STUMBERGER
15 / HOT SEAT
Financial Assessment: One Year Later
Tom Werder
VP and National Retail Sales Leader at Liberty Home Equity Solutions
16 / ORIGINATING
One Conversation at a Time How the industry can help expand the market
23 / SPOTLIGHT
In an industry-wide survey, HECM professionals weigh in on the true impact of HUD’s guidelines. RALPH ROSYNEK & JESSICA GUERIN
30 / LAST WORD
21
22
Reverse Mortgages: Much More Than Just Business Why we should feel passionate about the work we do
AUSTEN VERST
18 / ORIGINATING
CHERYL McGRATH
Assessing the Borrower’s Experience The importance of exceptional service
16
JOSHUA SHEIN
FEATURE
26 / FEATURE
YOU CAN DO IT!
Robert Merton The Nobel Prize-winning economist on why he thinks reverse mortgages will solve the global retirement income crisis. JESSICA GUERIN
REACH OUT TO US ABOUT WRITING FOR TRR. INFO@REVERSEREVIEW.COM
“Robert C. Merton has been called a groundbreaking economist, an options guru and one of the finest minds in finance… [His] advocacy of reverse mortgages coincides with support from other leading academics and financial experts. It just might signal the beginnings of a shift in public opinion.
reversereview . com
8 TRR | 5
The Reverse Review June 2016
Readers Respond The last few issues of TRR inspired lots of conversation on the web. Here’s what our readers had to say:
READERS
respond
Do you have something to say?
February 2016 My Story By Dr. Yung Ping Chen “It’s interesting how the reverse mortgage grew out an organic need. More than one industry has started this way. Can you say ‘Uber’?” -Angella Conrard March 2016 The Four Ps of Marketing By Jason McNamara “Jason, your four-point, thought-provoking article serves as an impressive checklist and helped me focus on the most important reasons why marketers don’t always understand or take the time to analyze the balance needed for four legs on a chair. If reverse mortgages offer cash back, why not use a memorable number like 1-800-CASHBACK on radio and TV to substantially increase calls and advertising ROI instead of something random?” -Maynard Small
www.reversereview.com 8
“I have been an active participant in the mortgage industry for approximately 35 years, working in reverses
for the past 12 years for Wells Fargo, Seattle Mortgage, Bank of America, and iReverse Home Loans. The Reverse Review offers insight and information on new products in the industry, which are crucial for mortgage professionals who participate in our vastly growing industry to know.” -Stuart N. Laufe
Comment on our stories online for a chance to see your thoughts in print. Be a part of the conversation about how we can better serve our seniors!
April 2016 Reversing Our Emphasis By Richard Wills “I did a stand-up clapping and cheering ovation after reading the article ‘Reversing Our Emphasis’ in The Reverse Review. The common sense of Wills’ points are undeniable. Those in the business who are encouraging and promoting HECM origination for the sole purpose of maximizing short-term revenues without regard to the best interests of the consumer and without trying to make the customer experience as satisfying as possible are seriously damaging the longer-term growth and success of the reverse industry. The challenge is to create effective ways to discourage or block those who would originate without the necessary knowledge and experience and without the ethical commitment to do what is right for the consumer. Thank you for speaking out.” -Lynn Wertzler
“As a reverse mortgage escrow officer, The Reverse Review is key to my success! I give my clients who have never done a reverse mortgage or who are not part of my RM world a copy of the magazine or I send them links to articles. It’s the best way to educate the world on what I am truly passionate about.” -Theresa Harris 6 | TRR
SOMETHING ON YOUR MIND? Need to get something off your chest? Hate something we do? Love something we do? Letters to the editor may be emailed to JESSICA@ REVERSEREVIEW.COM.
“I read The Reverse Review every month. I have found several articles that I am able to share with referral partners. IT HELPS THEM UNDERSTAND THE DIFFERENT REASONS SENIORS FIND TO USE A HECM. Not everyone has the same needs, so it is important to have options.” -Mike Reddy
contributors JOHN K. LUNDE
TOM WERDER
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
Tom Werder is vice president and national retail sales leader at Liberty Home Equity Solutions, where he has worked since 2005. Werder has more than 25 years of mortgage industry experience and has held leadership positions in operations, business development, marketing and secondary markets. Before joining Liberty, Werder managed sales and operations functions at CalPERS Member Home Loan Program, which originated more than $2 billion annually.
8 | Stats g
John K. Lunde
Tom Werder
15 | Hot Seat g
AUSTEN VERST
16 | One Conversation at a Time g
As executive vice president of retail production at AAG, Austen Verst oversees all aspects of the lender’s retail origination channel. Verst joined the company in 2007 and is the second-longest tenured employee. He has run numerous divisions within AAG, including sales, marketing, training, IT, customer service and business development. Verst began his career as a financial analyst for a Fortune 500 tech company and has a degree in industrial engineering.
Austen Verst JOSHUA SHEIN
18 | Assessing the Borrower’s Experience g
Joshua Shein
Carlos Scarpero
Darren Stumberger
With more than 16 years’ industry experience leading Top 10 reverse lenders, Joshua Shein is a seasoned reverse mortgage leader. Shein is frequently called upon by national and trade news media to provide insight regarding mortgage industry trends and legislation, and has repeatedly been selected for the “Hot 100” list by Mortgage Professional America. Currently, Shein is a senior director at Home Point Financial. Previously, he was responsible for developing and growing Maverick Funding’s Reverse Mortgage Platform.
CARLOS SCARPERO
21 | Blog About It g
Carlos Scarpero is a former reverse mortgage loan officer who owns an online marketing agency for the lending industry. Known as “Mr. Leads” by his friends and clients, Scarpero has a wealth of knowledge about creating leads online. 937.572.3713 mr-leads.com
RALPH ROSYNEK Ralph Rosynek
Cheryl McGrath
BE A PART OF THE CONVERSATION.
23 | Financial Assessment: One Year Later g
Ralph Rosynek is the senior vice president of the Money House, Inc. – U.S. Division, responsible for sales and operations activities of the company’s HECM and forward mortgage national wholesale and correspondent business channels. Rosynek is a seasoned HECM DE underwriter and has written for The Reverse Review since the magazine’s launch as its underwriting expert. He has held many leadership roles in the reverse mortgage industry for the past 15 years. rosynek@moneyhouseus.com
DARREN STUMBERGER
22 | Spreads Tighten on Wall Street g
Darren Stumberger is an executive VP at LiveWell Financial and a leading expert on reverse mortgage securitization. He has more than 15 years of experience in residential mortgage trading and securitization, and chairs the NRMLA HMBS Issuer Committee. Stumberger has worked in New York City as a mortgage trader and banker for some of the nation’s leading investment banking firms, including Goldman Sachs, Morgan Stanley and Bank of America Merrill Lynch.
CHERYL MCGRATH
30 | Reverse Mortgages: Much More Than Just Business g Cheryl McGrath is a senior account executive at AAG. She has been a part of the reverse mortgage industry since 2002, working in loan origination before moving on to wholesale and correspondent lending in 2007. McGrath has a business degree from USC with a minor in gerontology.
Share your ideas with your colleagues and be a part of the solution. Reach out to us at info@reversereview.com.
-
reversereview . com
8 TRR | 7
The Reverse Review June 2016
stats April 2016
Top Lenders Report
12345 American Advisors Group
Liberty Home Equity
One Reverse Mortgage
Finance of Reverse America Mortgage Reverse Funding
Endorsements
Endorsements
Endorsements
Endorsements
Endorsements
966
446
316
270
262
Lender Endorsements LIVE WELL FINANCIAL INC
184
Lender Endorsements
RMS/SECURITY ONE LENDING
162
VIP MORTGAGE INC
SYNERGY ONE LENDING INC
147
WILLOW BEND MORTGAGE CO
NATIONWIDE EQUITIES CORPORATION
96
AMERICAN NATIONWIDE MORTGAGE COMPANY 11
HIGH TECH LENDING INC
90
SUCCESS MORTGAGE PARTNERS INC
10
89
SUN AMERICAN MORTGAGE CO
10
FIRSTBANK 60
RESIDENTIAL HOME FUNDING CORP
9
OPEN MORTGAGE LLC
57
GUILD MORTGAGE COMPANY
9
HOME POINT FINANCIAL CORPORATION
REVERSE MORTGAGESCOM INC
12
11
41
HOMEBRIDGE FINANCIAL SERVICES INC
8
UNITED NORTHERN MORTGAGE BANKERS LTD 41
ACADEMY MORTGAGE CORPORATION
8
FAIRWAY INDEPENDENT MORTGAGE CORP
39
CMG MORTGAGE INC
8
CHERRY CREEK MORTGAGE CO INC
39
BROKER SOLUTIONS INC
8
ADVISORS MORTGAGE GROUP LLC
35
COMMUNITY FIRST NATIONAL BANK
7
THE FEDERAL SAVINGS BANK
34
BANK OF NORTH CAROLINA
7
PLAZA HOME MORTGAGE INC
33
FRANKLIN FIRST FINANCIAL LTD
7
29
SUMMIT FUNDING INC
7
RESOLUTE BANK
SUN WEST MORTGAGE CO INC
25
UNIVERSAL LENDING CORPORATION
25
VANGUARD FUNDING LLC
PROFICIO MORTGAGE VENTURES LLC
24
NEW AMERICAN MORTGAGE LLC
M & T BANK
20
MORTGAGESHOP LLC
BANC OF CALIFORNIA NA
MCM HOLDINGS INC
7 6
6
6
18
MOUNTAIN AMERICA CREDIT UNION
6
16
GEORGETOWN MORTGAGE
6
AMERICAN PACIFIC MORTGAGE BANK OF ENGLAND
15
FIRST PRIORITY FINANCIAL INC
6
UNITED SOUTHWEST MORTGAGE CORP
15
LENOX FINANCIAL MORTGAGE CORPO
6
PEOPLES BANK
14
BERKSHIRE BANK
6
TOWNEBANK 14
AMERICA’S MORTGAGE RESOURCE IN
6
MONEY HOUSE INC
14
CARROLLTON MORTGAGE CO
6
13
COLONIAL SAVINGS
5
12
AKT AMERICAN CAPITAL INC
5
VAN DYK MORTGAGE CORPORATION
12
AMERICA FIRST FEDERAL CREDIT UNION
5
LAND-HOME FINANCIAL SERVICES MANN MORTGAGE LLC
8 | TRR
stats HECM Endorsement Stats Through March 2016 { FIGURE }
01
PURCHASE
$1,200
REFI STANDARD
$800 $600 $400 $200
{ FIGURE }
3/1/16
1/1/16
12/1/15
11/1/15
10/1/15
9/1/15
8/1/15
7/1/15
6/1/15
5/1/15
4/1/15
$0 3/1/15
DOLLARS IN MILLIONS
HECM ENDORSEMENT INITIAL PRINCIPAL LIMITS
$1,000
02
HECM ORIGINATORS (FHA & NON-FHA)
INDUSTRY SUMMARY
TRAILING TWELVE MONTH ENDORSEMENTS 6,000
INDUSTRY SUMMARY
MO. 4
2,597
-6.31%
1,895
1.77%
4,492
-3.06%
Retail Endorsement Growth
5
2,477
-4.62%
1,793 -5.38%
4,270
-4.94%
6
2,971 19.94%
2,324 29.62%
5,295
24.0%
7
2,694
-9.32%
0.3%
5,025
-5.1%
8
2,929
8.72%
2,820 20.98%
5,749 14.41%
0.91%
4,000
Wholesale Endorsement Growth
-3.88
2,000
Total Endorsement Growth
0 4 5 6 7 8 9 10 11 12 1 2 3 Retail
Wholesale *Numbers Represent Months
-1.11%
* Figures Above Reflect Change from Prior Month
RETAIL UNITS CHG%
WHOLESALE UNITS CHG%
2,331
TOTAL UNITS CHG%
9
2,589 -11.61%
2,080 -26.24%
4,669 -18.79%
10
2,427
-6.26%
1,901 -8.61%
4,328
-7.3%
11
2,467
1.65%
1,553 -18.31%
4,020
-7.12%
12
2,524
2.31%
1,705
9.79%
4,229
5.2%
2
2,199 -12.88%
1,690 -0.88%
3,889
-8.04%
3
2,645 20.28%
1,932 14.32%
4,577 17.69%
3
2,669
0.91%
1,857 -3.88%
4,526
TOT
31,188
23,881
-1.11%
55,069
%%%%% LOOKING FOR MORE STATISTICS? Go to rmsinsight.net for all of the industry’s latest stats and rankings. Brought to you by Reverse Market Insight reversereview . com
8 TRR | 9
The Reverse Review June 2016
nrmla news BROUGHT TO YOU BY NRMLA STAFF
DAS ZADAREKY L E AV I N G H U D Deputy Assistant Secretary for Single Family Housing Kathleen Zadareky, who supervised the implementation of Financial Assessment and other critical HECM reforms beginning in 2013, departed from HUD at the end of May. “Kathleen is a smart, analytical and open-minded executive and her tenure as DAS has been good for the HECM program,” says NRMLA President & CEO Peter Bell. “Program changes implemented under her direction have laid a foundation for the long-term viability of HECM.”
Roseville, California
National Tax Search, LLC Chicago, Illinois
REVERSE MORTGAGE
Education Week a Huge Success NRMLA reached more than 1,200 professionals during our inaugural Reverse Mortgage Education Week from April 18-22 and succeeded in its effort to help other professionals who work with seniors understand how a reverse mortgage can help meet their clients’ needs. Through NRMLA’s own webinar and events with the American Society on Aging, the Mortgage Bankers Association, the National Association of Realtors, and an in-person meeting with staff from the Office of the Comptroller of the Currency, we reached caregivers, CPAs, elder law attorneys, estate planners, financial advisors, gerontologists, mortgage bankers, real estate agents and other professionals who work with older adults. Because we’ve posted event recordings and materials online in our Reverse Mortgage Education Week Recap, reverse mortgage professionals can continue to point their professional contacts to NRMLA to learn more about HECM loans. CHECK OUT THE RECAP AT N R M L A O N L I N E . O R G .
LowerMyBills, Inc. Playa Vista, California
NEW CRMPs NRMLA congratulates the following people for achieving the status of Certified Reverse Mortgage Professional (CRMP): SUSAN E. CAFFINE Reverse Mortgage Funding LLC Melville, New York JAMIE LONGE Reverse Mortgage Solutions Houston, Texas
4
10 | TRR
Allegiant Reverse Services
4
2 “Reverse Mortgage Solutions for a Cash-Short Retirement,” written by nationally syndicated personal finance writer Scott Burns, describes three ways retired couples can increase their spendable income using a reverse mortgage.
The Committee referenced its previous Advisory Opinion 2015-2 (October 30, 2015; Ethical Refinancing of HECM Reverse Mortgage Loans and Anti-Churning Considerations—New Requirements) because of its related purpose to “help foster the development and vitality of the secondary market for such HECM loans.” Visit nrmlaonline.org to view Ethics Advisory Opinion 2016-1 and other previously published advisories.
NRMLA welcomes its newest members:
4
2 “Incorporating Home Equity into a Retirement Income Strategy,” by retirement planning expert Wade Pfau, was an article published in the Journal of Financial Planning that explores six different methods for incorporating home equity into a retirement income plan through the use of a reverse mortgage.
The committee clarified that not all planned prepayments are unethical. As part of an aging-in-place or retirement planning strategy, the borrower may make periodic, planned, partial prepayments over time.
NEW MEMBERS
4
2 An NBC Nightly News segment on reverse mortgages aired April 22 to 8 million viewers with the web tagline, “Consumer advocates now say that taking out a reverse mortgage could be a smart way to bring in more money.” The piece emphasizes new consumer protections for borrowers and includes an interview with Greg McBride of bankrate.com, who said, “Reverse mortgages are going to be a lifeline for millions of retirees who are under-saved for retirement.”
Unethical planned prepayment HECM Loans are generally characterized in the advisory as transactions where the borrower may receive favorable loan terms and conditions after coming to an agreement or understanding with the loan originator about the amount of loan proceeds to be drawn at closing and then prepaid at a later date.
4
IN THE PRESS:
The Standards and Ethics Committee published Ethics Advisory Opinion 2016-1, which discourages NRMLA members from offering or providing “planned prepayment HECM loans,” with some exceptions.
4
Former U.S. Treasury official Bob Mulderig, who came to HUD in 2015 to serve as Zadareky’s deputy, took over as Acting Deputy Assistant Secretary for Single Family.
E THI C S C O MMI T T EE TA CK L ES U N ET H I CA L P L A NNE D PREPAYMEN T S
TODD WOODCOCK Responsible Reverse Mortgage, Inc. Port Charlotte, Florida
nrmla news W H AT H A P P E N E D
at NRMLA West
More than 260 reverse mortgage professionals from 100 firms convened at the Hyatt Regency Huntington Beach Resort & Spa in Huntington Beach, California, for the 2016 Western Regional Meeting, May 1011, to catch up on current news and trends and to network with their peers. Here are some highlights: WESTERN REGION LEADS ECONOMIC RECOVERY The economy’s “not that bad, but it’s not that good,” said Jordan Levine, an economist with the California Association of Realtors, during the opening session. Despite this moderate opening assessment, Levine went on to paint a promising picture of where the country’s economy has gone and where it is going, led by West Coast states where the job market is recovered and is “handily outpacing the rest of the country” in growth. What does all this mean for housing and specifically for reverse mortgages? Despite a renewed willingness among bankers to lend more, and increased mortgage availability as a result, the older generation does not seem to be moving at rates comparable to earlier eras, according to Levine. An influencing factor here may be fear of capital gains taxes. But as values increase and people remain in their homes, they build more equity, which could be influential in encouraging reverse mortgage take-up.
CAREGIVING COSTS NEED NEW SUPPORT As a society, we are facing a “collision between myth and reality” when it comes to the need for long-term care, according to Dr. Gretchen Alkema, vice president for policy and communications at the SCAN Foundation, who spoke about long-term care financing policy recommendations. On one hand, more than half of those questioned in a recent survey expect their loved ones to need long-term care in the next five years. On the other hand, only 24 percent of them think they will ever need help. With 70 million boomers reaching retirement age, there is an emergency national need for non-medical functional support or help with activities of daily living, such as getting out of bed, bathing and dressing. Such care is paid for by those without assets or sufficient income by Medicaid, but it’s not covered for the overwhelming number of elder adults who depend on Medicare to cover health expenses. On average, people will spend $138,000 out of pocket for long-term care in their lifetime.
Currently, there is no existing program to help pay for this, which is causing consumer uncertainty and confusion. “This will not be solved by current tools,” Alkema said. “It will require new tools, systems of care and policies.” This dilemma seems to indicate that, next to paying off forward mortgages, the most common usage of reverse mortgages over the next 25 years may well be to pay for long-term care needs. HECM BORROWERS OPEN UP A group of four solidly middle-class borrowers, each over 62 years old, met for the first time while walking up to the dais to participate in a panel discussion about their perceptions of reverse mortgages and how the loan has impacted their lives. Dennis Galloway, a successful real estate consultant, used to travel across the country every week until a few years ago when he underwent a triple bypass surgery that grounded him (at his family’s insistence). Around the same time, the housing market slowed and so did Galloway’s workload and cash flow. It was his accountant who referred Galloway to a local reverse mortgage loan originator who explained the features and responsibilities of the product and prepared him for the application process. “It was a great decision and more people should take it seriously,” Galloway told conference attendees. For Randy Stultz, it was his mother’s need for in-home care services that convinced them to get a reverse mortgage. Stultz lived with his mother, and his name was also on the title to the home, so together they got a reverse mortgage with a line of credit that continues to impress him. He excitedly shared, “The credit line growth is stable and for me has grown $60,000, while my other investments are only up $20,000 in the same time period.” Leo Corono used the proceeds from his first HECM loan to cover the cost of health insurance until he became eligible for Medicare. Donna Adam, a former wealth manager, told the group that she was incredibly reluctant to take her reverse mortgage, but has found that it was the right thing to do for her situation, and she’d recommend a HECM loan to any client if she thought it would meet their needs. The panelists also answered audience questions about the fees associated with their counseling sessions (it was a range), where they did their research (mostly online), and what the industry can do better (too much mail!).
reversereview . com
8 TRR | 11
The Reverse Review
PRC HAS BEEN
June 2016
FIRST IN REVERSE 15 YEARS RUNNING
We are proud to be the first national title and Settlement Company to specialize in reverse mortgages. Our dedicated team of professionals offers the experience and knowledge to smoothly close reverse transactions—correctly. Having closed more than 150,000 reverse mortgage loans, PRC understands the importance of comprehending all HUD and lender guidelines.
Experience | Excellence | Commitment | Pride 12 | TRR
TOLL FREE: (800) 542-4113 | www.PRClosings.com
NUMBER CRUNCH
HEALTH & WELLNESS
$245K
The number of seniors over 80 reporting fair or poor health has fallen.
-Fidelity Investments
MONEY MATTERS RETIREMENT CONFIDENCE IS DROPPING
Baby boomers today are less confident than they were five years ago that their savings will last through retirement.
THIS MONTH A LOOK AT THE 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.
{
The approximate cost of health care expenses in retirement for a couple that retires at 65
“Approximately 80 percent of seniors age 62 or over in the United States own a home, and equity in owner-occupied homes comprises the primary source of wealth for most seniors.” -The Ohio State University’s “Aging in Place” study
37% 2016
-Insured Retirement Institute
2012
34% -University of Michigan “Health and Retirement” study
FINANCIAL FACT
were confident
are confident
43%
Q UOTED & N OTED
2011
24%
1998
LIFE EX P ECTA N CY
Men who will turn 65 in 2030 can expect to live six years longer than their counterparts in 1970.
The current average monthly Social Security benefit is $1,341. For retired couples who both receive benefits, the monthly average is $2,212.
reversereview . com
8 TRR | 13
The Reverse Review June 2016
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Proven models that deliver repeatable results.
SALES COACHING
Cultivation and development with Builders, Real Estate Agents and Financial Advisors.
TURNKEY MARKETING PLATFORM
Robust library of unique collateral to support your B2B and direct consumer efforts.
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www.rfslends.com
NMLS #1025894
THOMAS WERDER From his iPod go-to and his favorite TV show to the craziest thing he’s ever done, we get the scoop from Thomas Werder, vice president and national retail sales leader at Liberty Home Equity Solutions.
Vice president and national retail sales leader
>
Ten years from now I will be paying for
>
my kids to get through college. >
>
>
>
>
>
I entered this industry because there was a great opportunity to join a startup and work with people I trusted and enjoyed being around.
the way. >
the market. We need to expand our distribution to more companies, i.e., the
I can’t go without some type When I was a kid I slept too
forward space. >
I’ll never forget my bosses along my career path.
>
My first job was doing campground maintenance.
>
My favorite time of the day is the morning.
>
My iPod go-to is Lloyd Cole and the Commotions.
>
known to the general public. >
Before I entered the reverse
mortgage industry I was running a
correspondent program for CitiMortgage. WHAT THOMAS THINKS
My parents taught me how to see both sides of the story.
>
Ten years from now the reverse
mortgage industry will be more widely
much. >
The biggest challenge in the reverse mortgage industry is expanding
of exercise. >
If I could time travel, I would travel
back in time to see what I missed along
baseball player. >
For success I have sacrificed
spending more time with my family.
I never miss an episode of House of When I was younger I wanted to be a
The worst purchase I’ve ever made was a new car.
Lies. >
The most memorable moment in my life was when my girls were born.
The craziest thing I’ve ever done was bungee jump off a bridge at midnight.
>
>
If I were a professional athlete, I would be a golf professional.
>
are important to you.
My celebrity crush is Gwen Stefani (the early years).
The best lesson I’ve ever learned was to spend more time with the people who
My favorite vacation was in Kuiko, Hawaii, with family and friends.
EVERY MORNING I EXERCISE.
I always try to be respectful and seek to understand.
If I could change one thing about the reverse mortgage industry it would be not to accept what we have done in the past and to start trying new approaches to the way to conduct business. reversereview . com
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The Reverse Review June 2016
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One Conversation at a Time By Austen Verst
How the industry can help expand the market Sound familiar? One conversation at a time, philosophically speaking, is how we increase our market penetration rate. We cannot rely on mass advertising/ marketing or just pay higher commissions than our competitors to draw in sales reps. If we as an industry continue with just these two business models, I’m certain the reverse mortgage market will never reach its full potential.
I’m sure many of you have come across the following scenario: I meet someone new and the conversation eventually circles around to what I do for a living. About nine times out of 10, when I state I’m in the reverse mortgage business, my acquaintance responds silently with a look on his face that says, “Does this person really take seniors’ homes away from them for a living?” Fast forward 10 minutes later, after I’ve given my reverse mortgage elevator speech, plowed through their misperceptions and described how this financial tool can help millions of seniors, and he is inevitably asking for my business card to share with someone they know. 16 | TRR
Please don’t get me wrong—mass marketing helps. But that on its own is not enough to grow industry volumes to where they should be. It’s difficult to change consumer perceptions about the product with a single 60- or 120-second TV spot. Yes, some seniors call a lender in order to get a better understanding of the product, but the majority of American seniors are not persuaded by just a commercial, and TV has limited scale potential. Likewise, Google AdWords and Bing do not create instant interest in the product. These vehicles simply direct people who are already interested in the product to a company willing to pay for them. Moreover, while a direct mail piece may help continue the conversation, the cost per qualified lead is higher than any other lead generation
method, making it cost-prohibitive to scale. As for those who pay to play with their commission structure—while this might be financially advantageous for the “feet on the street” sales reps out there (and we shouldn’t fault them for wanting to improve their financial livelihoods), this model lends itself to the high employee attrition rates we see in our space. Not only is it difficult for companies to remain both profitable and competitive to work in this model, it contributes to shrinking the pool of experienced sales reps each year. This translates to fewer conversations decreasing loan origination volumes. The Solution Is Clear If we want to reach our full potential as an industry, businesses need to consider these changes:
ONE Hire, invest in and develop sales reps.
To generate more conversations about reverse mortgages with senior consumers and their families, we need to grow the number of trained sales reps in our market. By building a larger and more informed sales force across the industry, we can all reap the benefits of growth. And if we invest in our work force to develop and coach them, not only will they be more effective in their positions, but we’re fostering their professional growth for long-term retention.
ORIGINATING History has shown it’s OK to look outside the industry for qualified candidates. Financial Freedom, Wells Fargo and Bank of America did not rely on other companies to feed their sales force. They trained employees who were unfamiliar with reverse mortgage loans, and they were able to scale their businesses to levels we have not seen since they left the market.
TWO Share information with
influencers/expand your horizons.
changes.
While it’s easy to blame decreasing industry volumes on the product policy changes that have been instituted over the past 18 to 24 months, I think many of you will agree, we don’t have a product issue. Policy changes have buttoned up most of the remaining market challenges to ensure consumer safety and to reduce foreclosure risk for the long-term sustainability of the industry. Even in a post-utilization and post-FA world, we have a tremendous product that can serve a huge demographic of American seniors. We know this because every time we educate potential borrowers, they are ecstatic about how the product can change their lives.
with positive stories.
All of us who reside in the reverse mortgage space have encountered the borrower who cries upon receiving the news that his or her loan has been
The reality is that there’s no magic pill to growing the market overnight—it will take one conversation at a time and a regular, sustained effort to educate and inform our sales force, influencers and customers. And if we do, there may be more opportunities than we know what to do with. Wouldn’t that be an amazing challenge? I imagine walking into a room and meeting new acquaintances, and when the conversation turns to what I do for a living, I’ll see them smile and hear them proudly share their friend’s, loved one’s or their own reverse mortgage story. n
MARKETING
FOUR Combat negative press
funded. For these folks, their reverse mortgage was a game changer. Most of us have access to borrower stories about how their reverse mortgage paid off their homes, paid for in-home care to help them or their spouse live out his days in comfort, or helped them move closer to family members or warmer climates. As an industry, we need to be more proactive in sharing these stories to consumers and their families. We need to get the word out, over and over.
ORIGINATING
We should nurture professionals who deal directly with American seniors on a daily basis, including real estate agents, traditional forward brokers, builders, financial advisors, caregivers, and estate or eldercare lawyers. The more informed they are about the product, how it can help clients achieve security in retirement, and how it can grow their own business, the better it is for all of us.
THREE Embrace recent policy
HMBS SPOTLIGHT
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The Reverse Review June 2016
ORIGINATING
Assessing the Borrower’s Experience By Joshua Shein
The importance of exceptional service
Recently, two experiences in my personal life gave me pause, making me think about our business, our industry and our process. They also reminded me how every interaction with a potential consumer impacts their overall perception of you and your company. My first experience was shopping for a new car, which, while exciting, can be a painful process. I visited numerous dealerships over several weeks. I noted that each dealership provided an entirely different experience. Depending on the day of the week, the day of the month and most importantly, the time of day, the attention and service I experienced was completely different and unique. In some instances, the salesperson did an interview to confirm budget, needs, interests and priorities. Most were capable at capturing my 18 | TRR
contact information, but the level of detail varied; some simply asked for an email and phone number, while others did a full CRM-style collection of information. Many, however, paid little attention, appeared tired and distracted, and simply wanted to complete the test drive as quickly as possible, then assess how serious of a buyer I was and whether I was ready to make a sameday commitment. As the consumer in this situation, my experience made me question the dealership, the salesperson’s style and the overall feeling I had when I left each location. Despite comparable models and competitive pricing, I found myself gravitating toward the salesperson who took the time to work with me, was truly interested in my needs and priorities, and was not in any rush to firm up my commitment that day.
This sentiment evolved in the weeks following the process. While I was not ready to make a final decision after that initial test drive, I left each dealership interested. However, fewer than half of the sales representatives followed up with me, and of those who did, only one followed up more than once. The car and dealership at the top of the list quickly gravitated toward the bottom after the representative who spent an hour and a half with me failed to follow up. It occurred to me that in our industry, the borrower who calls, emails, or hears from us by phone or email may often feel the same way. In light of this, here are some questions you should be asking yourself and your sales team:
ORIGINATING
1
Finally, is there pressure to get a firm commitment on the first interaction or does the prospective consumer feel that they are working with a patient, professional and successful licensed mortgage consultant who will work with them no matter how long the process or decision takes?
While I am intimately familiar with every detail of the reverse loan process, it has been a while since I refinanced my loan. This new experience for me on the consumer side demonstrated how daunting the process can be and how important elevated customer service and communication is. My experience made me really think about how we do business on the reverse side. I went into the refi process with more knowledge than the average borrower, but I was still overwhelmed and frustrated. I quickly understood how aggravating and intimidating this could be for most borrowers. First, the sheer volume of paper: disclosures and documentation, sent via FedEx, USPS and email, is confusing, overwhelming and repetitive. Does your borrower clearly know what they will receive and when, and what does and does not need to be signed and returned, or simply reviewed and then retained by them? Do they understand that additional documentation will be necessary depending on other changes that may occur during the process? Next you must collect all of the necessary documentation, a daunting task. Is your processing team calling
The timing for the next steps—and communicating that to the borrower— was crucial. I honestly had no idea how long it would take to finalize the submission, get the loan into underwriting and receive conditions. Constant and regular communication from the processing team helped keep me in the loop and prevented me from having to ask for updates all the time. They essentially beat me to the punch! Finally, for reviewing and meeting the conditions, another phone call from processing, an email, and an honest and open expectation on timeframe (and a reiteration that rate and fees and numbers are all still good and locked in) helped keep us on track and feeling good about getting to the finish line. As with HECMs, some forward loans can take a long time from submission to closing, depending on the situation, market, rates and industry volume. Being honest and upfront with the consumer on the stages, steps, timeframes and documentation can make all the difference in ensuring that your borrower walks away from their closing happy, satisfied and eager to refer more business your way. Regardless of industry, exceptional service always stands out. Think about how the customer feels from the first contact and how they will feel at the end of the loan process. You can be certain your business will benefit. n reversereview . com
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5
What impression does the consumer have after talking with one of your LOs? What impression do they have after receiving your information by email or by mail? Is it always consistent from the team to all consumers? Is it always professional, informative and helpful?
The second experience I had was with my own personal refinance. I knew it was finally time to lock in for myself the low rates all of my forward originator colleagues had been selling.
the borrower? For me, receiving a personal call from the processor made a big difference and helped me balance the email sent with the list of documentation needed. The personal touch always makes a difference. Furthermore, with all of the additional documentation needed these days for any loan, putting all of that information in front of the consumer early made a big difference.
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4
Are you treating every borrower the same on the first Monday of the month as you are on the last day of funding or closing for the month? If someone calls in at 4 p.m. on a Friday at the end of the month, will that borrower experience the same level of service and attention?
The key points to the left are what will always differentiate the long-term professionals from the quick-buck ones and pushy salespeople. Accordingly, these steps will separate the good, quality loans from the rest, cultivating relationships that will build business, grow your database, and lead to outstanding referrals and five-star reviews.
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Are you treating every borrower the same, regardless of where they are from or the size of their home or, ultimately, the size of their loan?
“Being honest and upfront with the consumer on the stages, steps, timeframes and documentation can make all the difference in ensuring that your borrower walks away from their closing happy, satisfied and eager to refer more business your way.”
ORIGINATING
2
Is every prospective borrower being educated on the product and their options, and are they interviewed to determine their needs, goals and reasons for pursuing a HECM? Is each and every member of your team treating them the same way and working together to satisfy the borrower’s goals? Are you capturing all of their information into your CRM for mining in the future, regardless of whether or not they have an immediate need for a HECM?
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PROMOTE
MARKETING Blog About It By Carlos Scarpero
Want the online version? reversereview.com/magazine
Spreading the word, one post at a time If you are trying to find a way to promote your reverse mortgage business, get online. Blogging can be a great way to get more business—but only if you do it right. ORIGINATING
Check the News
Follow the Competition Another excellent resource for content is your competition. What are your competitors blogging about? What are your vendors blogging about? Which posts are getting traction? Once of the easiest ways to follow the competition is by using a tool called Perch (perchapp.com), which allows you to set up social media alerts that will share what your competition is posting. These alerts are consolidated over multiple channels.
Ask Clients and Prospects
Diversify Your Content
Another way to find content for your blog is to interview your satisfied clients. Original success stories are an excellent focus. The more rewarding examples of how the loan can offer financial security for borrowers and improve their quality of life, the better. It might also be interesting to post about feedback from prospective borrowers. Listen to their concerns and stopping points; write about what originators can learn from their responses.
Your blog doesn’t have to be entirely about reverse mortgages. Think about other topics relevant to your target audience that you could cover, like estate planning, long-term care and agingin-place technology. If you don’t feel you know enough about these topics to write about them, do some research and interview an expert.
You can also access questions from reverse mortgage prospects online. Yahoo! Answers is an online question-and-answer platform that can be a treasure trove of information. A quick search on Yahoo! Answers turns up well over 10 pages’ worth of reverse mortgage questions that real prospects are asking
Maintaining a regular blog that focuses mainly on the benefits of reverse mortgages can help promote your services and advance your business. But it also serves a greater purpose. Your blog can aid in the industry’s collective mission to correct the misinformation and provide consumers with solid, accurate and helpful facts about an important financial product, one post at a time. n reversereview . com
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SPOTLIGHT
One excellent resource for your reverse mortgage research is buzzsumo.com. Users can enter a keyword about a specific topic to view related articles that are getting the most social media buzz. It’s a great way to see what people are talking about. The site is free for limited searches or $99 a month for unlimited services.
right now. It’s a goldmine of potential information. Write your own answers to their questions, or tackle common points of confusion.
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Seasonal events can also inspire content. During tax season, you could write about the tax implications of reverse mortgages. You could tie the election in to a post.
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One of the easiest ways to find content for your reverse mortgage blog is to check the news. What trends can you pinpoint? Pay attention and you will discover news items that you can comment on. For example, a story that misrepresents reverse mortgages creates an opportunity to post a counterargument, showing how a reverse mortgage can, in fact, be very beneficial. Alternatively, a positive news story about reverse mortgages could inspire a post that refers to the story and expands on it.
The Reverse Review June 2016
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Spreads Tighten on Wall Street By Darren Stumberger
An update from the secondary market
HMBS spreads for annual adjustable-rate HECMs have continued a steady march tighter to 45 discount margin after touching 85 DM earlier this year. The annual LIBOR product type comprises 75 to 80 percent of total new loan issuance. Broker dealers are creating HREMIC securities backed by this production in the form of par-priced floating-rate classes and interest-only bonds. Demand from the investor base for both classes of securities has remained solid amid a volatile interest rate background. Fixed-rate spreads have not tightened as much as the annual LIBOR product and are clocking in at roughly 75 to swaps. Levels touched just north of 100 to swaps earlier in 2016. The HREMIC execution for fixed-rate tends to be a harder execution to place with investors, and if HMBS (pool) investors are out of the market, there won’t be much of catalyst to encourage tightening. Additionally, fixed-rate origination is a very small percentage of the total, which makes it a harder proposition from a supply-spurs-demand context. Onemonth LIBOR paper has tightened a bit to 70 DM and again is only 15-20 DM tighter since early 2016. Production is much less in comparison to annual and similarly to fixed-rate; there is too little supply to create large swaths of investor demand. Prepayment speeds for HECMs have slowed down a good amount due to two dominant factors. First, the introduction of the 18-month HECMto-HECM refinance moratorium has 22 | TRR
ACCORDING TO DARREN
“First, the introduction of the 18-month HECM-to-HECM refinance moratorium has greatly limited the number of refinances and has chopped newly issued HMBS speeds by about 50 percent. Additionally, the more recent focus by NRMLA and FHA on early partial prepayments has rooted out bad loan officer behavior and contributed to slower speeds.”
greatly limited the number of refinances and has chopped newly issued HMBS speeds by about 50 percent. Additionally, the more recent focus by NRMLA and FHA on early partial prepayments has rooted out bad loan officer behavior and contributed to slower speeds. Newly originated annual LIBOR speeds were running 6-8 CPR (conditional prepayment rate) and are now 2-3 CPR. More seasoned paper continues the longstanding story of slow and predictable with fixed-rate HMBS slowing to 15 to 30 percent of the HECM prepayment curve and floating rate to 40 to 50 percent of the HECM prepayment curve. The delta between the two usually relates to the equity position of the home upon maturity event. When there is equity preserved
(usually in the case of an adjustable rate), there is more motivation on behalf of the heirs to quickly liquidate and pay off the UPB. The fully drawn fixed-rate loan won’t have as much equity preserved and hence less heir motivation to do anything in quick fashion. All in all, with the introduction of Financial Assessment and subsequent sharp drop in production levels, market participants will need to continue to develop ways to penetrate the consumer base to boost originations. The secondary market is operating well, and the story of a fully robust capital markets solution to a growing social issue is in place. The heavy work now is on the originator entities to bring home the value proposition to the large untapped marketplace. n
SPOTLIGHT IN THIS MONTH’S EDITION
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HECM PROFESSIONALS SHARE THEIR EXPERIENCE WITH FA.
2016
2015
In total, 76 HECM professionals around the country responded to our survey last month, answering questions that can help us gauge how the rules have affected prospective borrowers. Has FA helped eliminate seniors who were unlikely to succeed in the program, or has it impeded a responsible segment of borrowers from enjoying the benefits of a HECM? How have lenders fared under FA? Have processes been successfully adjusted to accommodate the guidelines, or is more education and training needed to develop better practices and a smoother workflow? 8
By Ralph Rosynek and Jessica Guerin
Here is what your colleagues had to say: QUESTION 1 In the last 90 days, what percentage of the files that you have originated have been denied due to Financial Assessment issues?
Less than 5% of files
Less than 10% of files
20-30% of files
More than 40% of files
10-20% of files
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SPOTLIGHT
OLD. To mark this anniversary, we’ve asked our readers to participate in a survey to determine the true impact of the new guidelines. The survey was not designed to foster gripes, but inspire thought and discussion as to how we can improve our own practices to better accommodate FA.
See them at reversereview.com.
HMBS
F
INANCIAL ASSESSMENT IS OFFICIALLY 1 YEAR
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HECM professionals weigh in on the true impact of HUD’s guidelines.
june 2016
ORIGINATING
Financial Assessment: One Year Later
The Reverse Review June 2016
SPOTLIGHT
Note: The data below represents the top three answers chosen by survey participants, with percentages to reflect the number of respondents who listed the answer as their leading choice.
QUESTION 2 Of these files, what is the No. 1 issue that was indicated as the basis for a denial?
QUESTION 4 Based on the HECM files you have originated under FA, what is your greatest frustration with the process?
Delayed processing turn times
1. Public Records Filings
2. Cash Flow
3. Unacceptable credit
QUESTION 3 Of the HECM files that you have originated in the last 90 days, what is the most common issue you encountered in the origination process that required additional assistance?
Varying lender/investor overlays
Lack of lender/investor guideline assistance
QUESTION 5 What single item has had the greatest impact on your origination activities?
1. Borrower information gathering delays have increased origination times
2. Financial Assessment processes have added to overall prequalification times
3. Prequalification requirements have complicated borrower decision clarity
QUESTION 6 What do you think would have the greatest impact on those considering a HECM?
1. Provide greater proceeds availability from PL calculation formulas 2. Expand compensating factor definitions 1. LESA REQ 24 | TRR
2. Counseling REQ
3. Borrower Cash Flow
3. Reduce number of application and closing documents required to transact a HECM
SPOTLIGHT
Tell Us How You Really Feel At the end of our survey, we asked participants to include their thoughts on how Financial Assessment has impacted the reverse mortgage space. Here are some of their comments: “Other than the extra time and energy, I haven’t found the FA to be a burden.”
“All in all it has not greatly impacted my work; there are just more guidelines to follow.” “Too many people are getting turned down when I think an exception could have been made. I’m closing fewer loans now since Financial Assessment has started.”
“Overall, I feel FA improves the product for both the borrower and lender!” “I feel the FA ruling is a good thing for the reverse mortgage industry… If loan originators would embrace the FA ruling in a positive manner, many would find it would work to their advantage!” “Financial Assessment has made the loan process more complicated for consumers. Thus, consumers are leaning more toward equity loans, which have recently become easy to get. HECMs have become more complicated and restrictive, and equity loans have become more common and simplified.”
MARKETING
“Document collection is long and difficult. Lenders interpret FA differently. Rules are evolving. Willingness is difficult, especially where different states have different definitions of delinquent.”
“The number of times we as loan originators have to go back to the borrowers for more and more and then even more information and documentation is very upsetting and discouraging for the client. They become frustrated with us. There seems to be too many people handling the file and there are delays as a result.”
“It takes me twice as long to gather the information upfront and explain the guidelines on Financial Assessment and LESA to the borrower... But the process has been better than I originally expected.”
ORIGINATING
“We ‘pre-underwrite’ all prospective borrowers before fully processing them, and thus do not have loan denials. But this takes much more origination and processing time than before FA.”
“It has made my work a lot more complicated and it has materially contributed to the borrower’s skepticism. Many seniors don’t have all of the documentation readily available. Some just throw up their arms and say, ‘Forget it.’”
“It has not been that bad. It only cost me one or two loans in the last year.” n HMBS SPOTLIGHT
reversereview . com
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The Reverse Review June 2016
NOBEL LAUREATE
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ROBERT C. MERTON has been called a groundbreaking economist, an options guru and one of the finest minds in finance. For those in tune to the finance world, Merton is as high-profile as it gets.
A sought-after speaker on the investor circuit, Merton caught the attention of the crowd at an asset management conference in St. Louis last fall when he commented on the value of reverse mortgages. “Americans have wrongly steered clear of reverse mortgages,” he said. “This is going to become one of the key means of funding retirement in the future.” Merton’s advocacy of reverse mortgages coincides with support from other leading academics and financial experts. It just might signal the beginnings of a shift in public opinion. Certainly, support from someone as influential as Robert Merton is a tremendous boost for reverse mortgages, one that might help elevate the product in the financial community, in the press and in the public eye.
WHO IS
ROBERT MERTON? Robert Cox Merton is a longtime student of economics. He holds a B.S. in engineering mathematics from Columbia University, an M.S. in applied mathematics from the California Institute of Technology and a Ph.D. in economics from MIT, in addition to honorary
GOING TO THE SOURCE
degrees from 13 universities. (Merton’s father, a prominent sociologist, was also a noted academic, known for pioneering the focus group and coining the terms “role model” and “self-fulfilling prophecy.”) In 1997, Merton was awarded the Nobel Prize in Economics for his work in developing a new method to determine the value of derivatives. His optionspricing method, the Black-Scholes model, has been labeled one of the most revolutionary concepts in modern finance. Nowadays, Merton sits on the faculty at MIT’s Sloan School of Management, serves as a professor emeritus at Harvard University, and is a resident scientist at global asset management firm Dimensional Fund Advisors. His current research includes a focus on lifecycle investing and retirement funding solutions, a topic that has led him to assess the benefits of home equity conversion. His work takes him around the world, where he speaks before groups of riveted followers and sometimes extols the reasons why reverse mortgages have such value. TH E G LO BA L R ETIR EM EN T C R ISIS According to Merton, home equity conversion stands to play a key role in solving the retirement crisis—a problem that plagues countries around the world, not just the U.S. The global financial crisis that exploded
in 2007/2008 depleted savings for many and volatile markets prevented a significant rebound. Add to this a dramatic increase in the 65-plus population and increasing life expectancies around the world, and it’s clear that the world economy is experiencing pressure like never before. Faced with an aging population, government benefits and pension plans in many countries are stifled as resources once earmarked for retirement funds are being funneled toward health care and other services to accommodate aging. “The world is getting older,” Merton says. “With our baby boomers in the U.S., we are an older society. China is aging even faster than the U.S., and Korea faster than China. Increasing demographics is putting pressure on funding.” This means that the traditional threelegged stool of retirement funding— government benefits, employer pensions and personal savings—is getting awfully wobbly. It appears that now, the responsibility to fund retirement has mostly shifted to the individual. R ETH IN K IN G R ETIR EM EN T But the picture is not entirely bleak, as Merton points out. “There is good news, and I underscore, it is very good news: Future generations are going to live longer. This is great. But, as with many good things, there comes another challenge, which is simply how to fund those extra years.” If you live 10 years longer than your parents, but still want to retire around 65 as they did, you now have to save enough to support 20 years of retirement, Merton points out. “The only way you can do that is to save 33 percent of your income.” If saving more during your working years proves impossible, the alternative is to alter your lifestyle in retirement. 8
“The world is getting older. With our baby boomers in the U.S., we are an older society. China is aging even faster than the U.S., and Korea faster than China. Increasing demographics is putting pressure on funding.” reversereview . com
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The Reverse Review June 2016
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“If you want to work the same number of years your parents did, fine, but you’ll have to accept a lower standard of living,” he says. “If you want to have the same standard of living as your parents, you can have 12 years of retirement—they only had 10—but you have to work 48 years, not 40.” Basically, Merton says it boils down to this: “You either have to work longer or accept a lower standard of living. What you can’t do is work the same number of years as your parents, live longer and enjoy the same standard of living. That’s not feasible.” F INDI N G A S OL U T I ON For those who can’t work longer or save more, Merton draws attention to another solution. “There is one more thing we can do to try to address the challenge, and that is to take the assets people have and get more benefits from those assets. Now, I don’t mean get higher returns; we’re already trying to get the highest returns on our investments that we can for the level of risk, we can’t just dial up the return… So how do we get more from the assets? Well, we use them differently and we develop tools that are efficient for doing that.” One specific asset that needs to be tapped, says Merton, is the house. “There’s no magic potion here. For working middle-class people, the biggest asset they have is not their retirement pension, it’s their house. And it’s typically the only major asset they have, but it is big. I’m talking about the house they want to live in in retirement.” Merton says we need to start thinking about the house differently, viewing it as an asset rather than treating it as part of our legacy. “The house is like an annuity: It provides the housing you need for as many years as you need it,” he says, adding that the idea of leaving the house as a bequest is flawed. “In our society, and even in Asian societies that are transforming from agrarian to industrial, the children don’t move into the house. No matter how precious the house is, how sacred, in any culture,
“The house is like an annuity: It provides the housing you need for as many years as you need it.” in the end when you don’t need it anymore, it’s going to get sold, and that makes it a financial asset. So it’s an annuity while the retiree needs it, and then it becomes just a financial asset.” OV E RCOM IN G O B STAC LES While Merton praises the concept of a reverse mortgage, he takes issue with the name itself, which he says has hindered the product’s acceptance. “I hate the name. First of all, it’s misleading because saying it’s a mortgage makes it sound like it’s a loan. But with reverse mortgages, you don’t pay anything as long as you stay in the house. So it’s a very different animal. It also sounds like you’re leveraging your house.” Merton points out that other countries with similar equity conversion programs have much better names. “In England they call it equity release, that’s a little more neutral. I like the Korean name; they call it a home pension. It’s more descriptive. The house itself provides you a pension, and the home pension allows you to take some of the value from the house to provide you additional pension. It doesn’t say anything about a mortgage or imply that you may owe money.” Merton admits that confusion about the product is problematic, and says the HECM program as it currently stands may need some tweaking to help the product reach its full potential. “We also have to educate people as to the proper use of them and in general make them much more efficient,” he says. “You hear some people say reverse mortgages are bad, but I think what they may mean is the way that they are currently being produced and sold, and the cost associated with them, is not a good example of the product,” he says. “I think that’s what they mean, but people hear it as, ‘Reverse mortgages are not a good idea and we should ban
them.’ I say that a reverse mortgage is a good idea, but maybe we need to fix the design a bit. Let’s fix it if we need to, but don’t get rid of it.” Merton says making product improvements, which have already taken place with recent changes from HUD, is a large but feasible undertaking. “It’s going to require a lot of hard work and innovation, which we know how to do. It’s a simple engineering problem,” he says, adding that he doesn’t believe a government-sponsored program is the right way to go. “There’s going to be a need to find wide-based funding sources, and I don’t believe government is the answer. HECMs are about the only reverse mortgages out there, and it’s a government plan, but government balance sheets just aren’t big enough,” he says. “We have to find very efficient ways to provide the funds for the reverse mortgages, but we can do it.” G LO BA L AC C EP TA N C E Merton predicts that home equity conversion—whether it’s called a home pension, an equity release or a reverse mortgage—is going to be a crucial part of solving the retirement income problem. “I believe it is going to be essential for a good retirement around the world. In Asia, they are paying a lot of attention to it, they are working on it. There is a lot of interest in developing it in many countries. Even in Colombia and Latin America, where they don’t have a reverse mortgage, they are very interested in finding out about it.” “Sooner or later, to have a decent retirement, a number of people are going to have to tap into this. It’s not a matter of choice. This is going to be an essential part of the foundation for funding retirement around the world.”n
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The Reverse Review June 2016
LAST WORD
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REFLECT
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Reverse Mortgages: Much More Than Just Business By Cheryl McGrath
Spiritual awareness: My dad was a religious man, but that is not necessarily a requirement for successful aging. While spirituality is defined by each person individually, I think it’s quite common for older adults to have a religious or spiritual side. And in my father’s case, he was fulfilled by his faith. There is one very important foundational element to help achieve all of the above in one’s life, and that is financial stability. If a person has a sense of financial well-being, they can more easily focus on maintaining these four essential pillars and, in the process, enjoy life without financial worry.
Why we should feel passionate about the work we do Sometimes I think it’s important to point out why we do what we do. I believe in the theory of “successful aging,” and while the term is surely not mine, the four pillars that I believe make up this formula are. I had the privilege of having an older-than-most father, meaning he was 61 when I was born. I’ll be 40 this year, so you can do the math. While most people his age were slowing down, less able to enjoy activities, or dealing with health issues, he was just ramping up for the second half of life with young children again (my older brother is four years my senior). Anyway, I noticed as a child that my dad had four consistent things in his life, things that made him happy and helped him to continually grow as a person. While I gleaned this idea from my dad, I was able to further explore these concepts in my gerontology classes during college:
Social stimulation: He was a part of church groups and bowling leagues, coached T-ball, had many friends and volunteered. All these things were with people he loved being around. And through them he developed a strong sense of community. Mental stimulation: He read the newspaper every morning, loved maps, got into stamp collecting and learned everything he could about that, played Scrabble and traveled to new places. Physical activity: My dad was a drapery maker and installer by trade, so he was physically active on a daily basis, climbing up and down ladders, crafting interiors. He golfed once a week, swam with us in the pool, coached sports teams and bowled. He loved moving and doing things and, until his knees really failed him, was active for most of his life. Recovering from a hospital stint, we used to time him as he took a lap around the living room and kitchen with his walker.
“I have built a career that has helped me touch lives, including my mother’s. By obtaining a reverse mortgage and enjoying the financial security that comes with it, my clients are able to focus on living meaningful, fulfilling lives as they age.” 30 | TRR
My first attempt at a career after college was a mobile senior fitness business, but I soon came to realize that in order to move out of my parents’ home, I needed a real job! I was desperate to find work that meant something to me, and when I finally stumbled across reverse mortgages, I knew this was it. I began originating for Financial Freedom in 2002 and worked in that position for four and a half years before switching to the wholesale side of the business in 2007. I have built a career that has helped me touch lives, including my mother’s. By obtaining a reverse mortgage and enjoying the financial security that comes with it, my clients are able to focus on living meaningful, fulfilling lives as they age. I’m sure each and every reverse mortgage professional—processors, head underwriters, LOs and CEOs—has their own reason for doing what they do. This business has a way of inciting passion in people. For many, the world of reverse mortgages is more than just a business. It’s a valuable service we provide for older members of our communities who deserve to spend their later years enjoying an active and fulfilling life, firmly focused on the four pillars of successful aging. n
You are their face of
freedom.
A reverse mortgage can be the difference between financial stress and financial freedom. Give your reverse mortgage holders the service they deserve with Celink. celink.com | (844) 228-2101 reversereview . com
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The Reverse Review June 2016
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