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TIPS FOR SMOOTHER H4P TRANSACTIONS PG. 28 BANKRUPTCY AND HECMS PG. 32 +STEVE McCLELLAN SITS DOWN IN OUR HOT SEAT PG. 18
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THE
REVERSE August 2014
review
The Boomer Years The second-largest generation in American history is approaching their later years on their own terms.
Lighting your way in Reverse.
The Reverse Review August 2014
s s s s
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For further information, contact: Ralph Rosynek 281-404-7970 Email: rrosynek@rmsnav.com
Where “above and beyond” is standard operating procedure At Urban Financial of America, LLC (UFA), we go the distance for our wholesale partners and their customers. When you work with us, you’ll have the advantage of our competitive pricing and best-in-class operational support. Plus access to customizable marketing materials, a robust training program, powerful origination software, and an online portal that puts your most important business resources at your fingertips.
Let us help you take your business to the next level. To learn more: • Call 855-77-URBAN (855-778-7226) • Explore our wholesale & correspondent portal: ufawholesale.com
* Since December 2011. Based on trailing 12 months’ endorsement volume. Source: Reverse Market Insight. For mortgage professional use only, not to distributed to the general public. NMLS ID# 2285. Corporate Office: 8909 South Yale Avenue, Tulsa, OK 74137. ©2014 Urban Financial of America, LLC. All Rights Reserved. CALIFORNIA BUSINESS NAME: URBAN FINANCIAL GROUP OF AMERICA, LLC. NEBRASKA BUSINESS NAME: REVERSE IT! LLC. UFA58 [Exp 03/2015] reversereview.com
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The Reverse Review August 2014
From the editor l
A note from jessica guerin
Have you ever been asked
in a social setting what you do for a living? When you tell people that you work in the reverse mortgage industry, do they wince? Do they launch into a debate with you about the value of the product? Do they enthusiastically recite erroneous beliefs about reverse mortgages, despite the fact that they can’t really define them? Or, do they simply offer an uncomfortable smile and change the topic a bit too quickly? Unfortunately, these scenarios are not uncommon for those who work in this space. While the product has come a long way in the past 30 years, it admittedly has a ways to go before the public recognizes the important role it can play in one’s financial future.
Senior Publisher Reza Jahangiri
Publisher
Erik Richard
Editor-in-Chief Jessica Guerin
Creative Director Traci Knight
Editorial Assistant LAUREN DANIELS
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
Editor-in-Chief
Editorial Content email : jessica@reversereview.com
{ Jessica Guerin }
Want to contribute to the conversation? Contact jessica@reversereview.com.
© 2014 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 this issue or comment online for a chance to see your perspective in print.
So next time you’re at a cocktail party and someone asks you what you do, tell them proudly that you work in the reverse mortgage industry. Relay the facts that we’ve provided, tell them how useful home equity can be in retirement, and turn them into believers.
Meet the Team
t ay ec st onn c
Feedback
In this month’s issue, we take a look at the facts surrounding the reason why so many financial professionals and retirement experts believe that reverse mortgages will become an essential tool for the boomer generation. We dig up stats that highlight the fact that so many Americans are approaching retirement with lots of vigor but little in the way of savings. Our feature story shows that in this economic climate, seniors are bound to get smart about leveraging their assets—and for many, their greatest asset is their home equity.
FACEBOOK AND LINKEDIN
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28 | Underwriting
In this issue...
TIPS FOR SMOOTHER H4P TRANSACTIONS PG. 28 BANKRUPTCY AND HECMS PG. 32 +STEVE McCLELLAN SITS DOWN IN OUR HOT SEAT PG. 18
HE REVERSE REV IE W
HECM for Purchase: Tips for BNYTransactions Mellon’s Smoother
22 david heilman
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Michael Gordon Three simple steps for an easier loan VE
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Originating
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30 | Servicing Assignments to HUD, Part II: Reasons, Processes and Purpose
THE
REVERSE What happens when a loan reaches 98 percent of its maximum claim amoun Jason Perez
09 | Movers and Shakers
The latest developments in companies across the reverse space
AUGUST 2014
11 | Industry News
Headlining stories of the past month Reverse Mortgage Daily
12 | Report
June’s Top Lenders Report and HECM endorsement stats through May Reverse Market Insight
14 | NRMLA News
Read about the association’s current initiatives.
17 | Roundup
A collection of recent facts and surveys affecting the reverse market
32 | Legal Bankruptcy Basics
review
Alexander J. Chaudhry
Steve McClellan
34 | HMBS
20 | Originating Know and Become Known Education and community building Bob Tranchell
27 | Originating The No. 1 Fear in the United States
Originating
A primer on the meanings and consequences of the legal status
18 | Hot Seat President of Urban Financial of America
25 mike suits
A Whole Lot of Nothing The current quiet period is not-soquiet after all. Darren Stumberger
42 richard wills
36 | Spotlight Don’t Call It a Comeback
Last Word
BNY Mellon returns to the reverse mortgage business with an eye for the future. Lauren Daniels
Learn how to ease the top anxiety of America’s seniors.
The Boomer Years Marty Bell
Michele Kole
FEATURE
38 | The Boomer Years
The second-largest generation in American history is approaching their later years on their own terms.
@
Want the online version? reversereview.com/magazine
Lauren Daniels august 2014 W IE
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HE REVERSE REV IE W
THE
TIPS FOR SMOOTHER H4P TRANSACTIONS PG. 28 BANKRUPTCY AND HECMS PG. 32
+STEVE McCLELLAN SITS DOWN IN OUR HOT SEAT PG. 18
W THE RE REVIE VE
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cover WT VIE RE
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An inside look at the retirement preparedness of baby boomers
SE
“Baby boomers are redefining retirement based on their numbers alone. These nearly 80 million Americans, born between 1946 and 1964, have experienced major shifts in culture and politics. Boomers are also the first generation to reach retirement following the seismic changes in how seniors plan and pay for their later years.
THE
REVERSE AUGUST 2014
review
The Boomer Years The second-largest generation in American history is approaching their later years on their own terms.
The second-largest generation in American history is approaching their later years on their own terms.
reversereview.com
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The Reverse Review August 2014
Contributors
John K. Lunde
Marty Bell
J ohn K . L unde
Ma rty B e ll
s te ve mcc lellan
12 | Report 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
14 | NRMLA News g Marty Bell is NRMLA’s senior vice president of communications and marketing. This is Bell’s professional Act III after careers in books, journalism and the Broadway theater. Bell is the author of two novels and four nonfiction books, and his writing has appeared in publications including Playboy and New York magazine. Bell wrote and produced the awardwinning documentary film The Boys of Summer and produced 15 Broadway shows (including Ragtime, Fosse and Dirty Rotten Scoundrels) that won 27 Tony Awards.
18 | Hot Seat g Steve McClellan is the president of Urban Financial of America. He has more than 30 years of finance and financial services experience, and has served at the executive level at Bank of America, Wells Fargo, TRC, HomeBanc and Generation Mortgage. His experience includes leading financial services organizations and being a public company CFO. McClellan holds a B.S. from the University of Houston and an MBA from the University of Texas.
b ob t r a nche ll
d avi d h e i lman
mi ke s u i ts
20 | Know and Become Known g Bob Tranchell is the director of reverse mortgages for Total Mortgage Services LLC. Tranchell spent 18 years in the ministry, many of them overseas in developing nations, and has helped build orphanages and create programs serving orphans and seniors. He has a passion for his work because he has seen time and time again how home equity management allows his clients the quality of life, security and stability they deserve.
22 | Who Moved My HECM? g David Heilman is responsible for recruiting, training, and overseeing all reverse mortgage originations for Franklin Funding in South Carolina, North Carolina and Georgia. He focuses on building relationships with financial and real estate professionals, senior service providers and other community influencers. Heilman began his career in health care before earning an MBA from Southern Wesleyan University and entering the reverse industry in 2007. He is vice chair of the South Carolina Aging in Place Coalition and a board member of the Mortgage Lenders Association of Greater Charleston.
25 | Reverse Mortgages: The Time is Now g Mike Suits is the reverse mortgage division manager for 360 Mortgage Group LLC, a privately owned mortgage banker with a primary focus on third-party origination. The reverse mortgage division, which is currently licensed for reverse mortgage loans in 35 states and the District of Columbia, has a growing retail branch network as well as wholesale and insidedirect sales channels. 512.418.6011 msuits@360mtg.com
mi chel e k ol e
br i tan y lu th
Ja s on p e rez
27 | The No. 1 Fear in the United States g Michele Kole is a reverse mortgage specialist with Golden Equity Mortgage, the reverse mortgage division of Land Home Financial Services. With more than 25 years of experience as a lending professional in San Diego, Kole transitioned from forward to reverse lending after her parents’ lives were dramatically changed by a reverse mortgage.
28 | HECM for Purchase: Tips for a Smoother Transaction g Britany Luth is the vice president of operations for Urban Financial of America, based in Tulsa, Oklahoma. She oversees Urban’s wholesale operations and underwriting team and has Direct Endorsement underwriting authority. Prior to joining Urban more than seven years ago, Luth managed a nationwide title company. She obtained a B.S. in business management with a minor in marketing from Oklahoma State University.
30 | Assignments to to HUD, Part II: Reasons, Processes and Purpose g Jason Perez serves as vice president of Loan Administration at Celink. He has managed many different servicing functions, including default and foreclosure operations, new loan boarding and assignments to HUD. He has been a part of Celink’s major growth and has helped navigate his servicing team through many program changes. In his spare time he is an avid cricket player, lacrosse coach, yo-yo instructor and self-proclaimed (retired) rock-and-roll frontman.
Steve McMlellan
Bob Tranchell
David Heilman
Mike Suits
Michele Kole
Britany Luth
Jason Perez
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Contributors
Alexander J. Chaudhry
Megan Hafenstein
Darren Stumberger
A l ex a nder J . C ha udhry
Me gan Haf e n s te i n
Dar r e n Stu mbe r ge r
32 | Bankruptcy Basics 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 | Understanding Vesting Scenarios g Megan Hafenstein is the vice president of business development 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.
34 | A Whole Lot of Nothing 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
Richard Wills
Be a part of the conversation.
-
Ri c h ard Will s 42 | Changing the Perception Problem g Richard Wills is the coowner of Retirement Life Funding, LLC. A licensed attorney, Wills was a law professor at George Washington University and has conducted legal and consumer seminars for the Maryland Bar Association, Neighborhood Legal Services and various other associations. A member of NRMLA and NAMB, Wills volunteers at the Baltimore Bar Association’s Senior Legal Aid Office Do yo and is currently have wu working on an it take hat academic project s? about financial literacy.
There’s no such thing as a stupid idea. What do you want us to write about? Tell us! info@reversereview.com
A nationwide title and settlement company servicing the reverse mortgage industry.
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Our dedicated team of professionals has the experience and knowledge to smoothly close reverse transactions. Through years of experience, FNC has gained valuable knowledge by building strong relationships with reverse mortgage lenders and brokers, as well as the borrowers we service. We firmly believe that our clients deserve the best treatment, and that is why FNC is where reverse mortgages take center stage.
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nu62
The Reverse Review August 2014
SM
IS MAKING HEADLINES.
“... nu62 ... shows how to use home equity strategically to meet long-term financial goals .” – NEW YORK TIMES SM
1
“Generation’s nu62.com allows advisors to run different scenarios to determine what each decision could mean to a borrower .” – FINANCIAL ADVISOR MAGAZINE 2
nu62 demonstrates the strategic value of conversion mortgages, and it’s got the media talking. To read more articles about nu62 and to learn more, please contact SM
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us at 1.800.697.7503 or visit us at www.nu62.com/rr2.
1 2
Lisa Prevost, “Retiring on the House,” The New York Times, February 16, 2014 Karen Demasters, “Advisors Need Reverse Mortgage Knowledge, Says Lender,” Financial Advisor Magazine, April 23, 2014
This material is not provided by, nor is it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA).
|
©2014 Generation Mortgage Company. 3565 Piedmont Rd. NE, 3 Piedmont Center, Suite 300, Atlanta, GA 30305. NMLS ID #1319, www.nmlsconsumeraccess.org. All rights reserved. nu62 is a 8 TRR service mark of Generation Mortgage Company. Patent Pending. For state(s) licensing and restrictions, visit www.generationmortgage.com/statelegalese and www.nu62.com
Movers & Shakers Read about the latest developments in companies across the reverse space.
Hav e a c o mpa n y u p dat e y o u wou ld lik e t o s e e p u b l i s h e d?
Landmark Network Announces Addition of Gloria Betancourt as Senior Vice President of National Sales Landmark Network Inc. announced the addition of Gloria Betancourt to its sales team as a senior vice president of national sales. In this role, Betancourt will be responsible for corporate sales growth for Landmark Network within the forward and reverse mortgage spaces. She brings more than 17 years of retail banking experience to the company, previously serving as branch manager for TCF Bank, AVS Bank and Wells Fargo. Her experience spans roles including personal banker, loan officer and collections, all with a decided emphasis on excellent customer service. She transitioned into mortgage lending in 2008, when she joined Urban Financial of America LLC as an account executive. She has also worked with other well-known reverse mortgage lenders such as RMS, Moneyhouse and MCM Holdings Inc. “I am very excited to tackle this new challenge and join one of the top AMCs in the industry. I am looking forward to taking excellent care of our current client base while helping Landmark grow by utilizing the knowledge I have amassed over the years, especially of the loan origination process,” Betancourt said of joining the company.
Urban Financial of America Now Offers Reverse Mortgages in Hawaii Urban Financial of America (UFA), consistently ranked as the nation’s top wholesale reverse mortgage lender, is now licensed to conduct its retail and wholesale reverse mortgage business in the state of Hawaii. Homeowners in Hawaii can contact UFA directly to work with a licensed reverse mortgage specialist. “UFA is pleased to bring a new reverse mortgage option to
Email it to Jessica@reversereview.com.
Hawaii,” said Steve McClellan, president of UFA. “Our underwriting team and locally based account executive have a deep understanding of the valuations, environmental zoning, landscaping requirements and other unique aspects of the Hawaii real estate market, as well as the needs of brokers and correspondent lenders. With our years of expertise, reputation for making the process easy, and our highly competitive pricing as one of the largest GNMA issuers, UFA is an excellent partner not only for Hawaii’s current reverse mortgage providers but also for forward mortgage companies looking to expand into the reverse mortgage business.”
Generation Mortgage Company Revamps Sales Team, Adds Two Leadership Roles Generation Mortgage Company reorganized its sales team, appointing Matthew Gregory as vice president of retail sales and Stephen Resch as vice president of wholesale sales. Gregory spent the past three years as Generation’s director of retail sales. Prior to joining Generation Mortgage, Gregory gained substantial mortgage industry experience with Nationwide Mortgage Services, The Lending Center and Ameriquest Mortgage Company. Resch previously held the role of wholesale account executive at Generation. With more than 35 years in sales, management and business development, he worked with Financial Freedom Senior Funding Corporation prior to joining the company.
Reverse Mortgage Funding Introduces New Product, HECM Annual Reverse Mortgage Funding added a new product to its portfolio, HECM Annual. The product complements the company’s existing product lines, increasing the range
available to best meet customers’ needs. The HECM Annual is similar to RMF’s innovative HECM Max5, introduced in July. Both loans have a 5 percent interest rate cap. The HECM Annual applies that 5 percent rate cap to the company’s first annually adjusting HECM. The HECM Annual interest rate is tied to the One-Year LIBOR Index and has a lifetime cap of 5 percent above the initial rate. The loan also features a 2 percent “interval cap,” ensuring that the rate will neither increase nor decrease by more than 2 percent in any given year. With the HECM Annual, all payment plans are available. As with other variable rate HECM loans, borrowers can choose a lump sum draw, line of credit, monthly payment or a combination of these. The HECM Annual is an openended loan with no minimum initial draw that has a 5 percent lifetime cap over the initial interest rate, which is based on the One-Year LIBOR Index.
Maverick Funding Adds Cecilia Delgado to Reverse Mortgage Network Wholesale Operation Reverse mortgage origination expert Cecilia Delgado joined Maverick Funding Corp. as wholesale account executive for its Reverse Mortgage Network western region. With 24 years of mortgage experience, including 10 with HUD’s HECM program, Delgado has served as a loan originator, a broker/owner, and now in the wholesale channel. She is deeply committed to the industry. “The HECM reverse mortgage is a potent financial tool when properly understood and applied,” says Delgado. “That’s why training is my passion, both to benefit the borrower and to ensure the success of lenders that care enough to offer the option.” Previously, she worked with HighTech Lending, Cherry Creek Mortgage Company and Security One Lending.
reversereview.com
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The Reverse Review August 2014
10
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Industry News
August 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.MBA: New HUD Secretary Will Help Boost Housing Recovery
The U.S. Senate confirmed Texas Mayor Julián Castro as the new secretary of the Department of Housing and Urban Development. Castro replaces former HUD Secretary Shaun Donovan, who, after five years in the position, is nominated to lead the Office of Management and Budget. The move is part of a larger reshuffling of Democrat cabinet members. “With Castro becoming the next HUD secretary, and Shaun Donovan soon to become the new director of OMB, the [Obama] administration will be well positioned to address the important housing policy issues,” MBA President and CEO David H. Stevens said in a written statement. // July 9, 2014
2.Retail Still Outperforming
Wholesale in Reverse Mortgage Volume
Reverse mortgage retail volume continues to outpace the wholesale/broker industry, with a 12.2 percent increase in May for the retail side, while wholesale/broker volume saw limited growth of 2 percent, the latest Reverse Market Insight (RMI) report showed. Total endorsement growth rose by 7.8 percent in May. According to RMI President John K. Lunde, the better performance of retail is consistent with trends over the past several years. In April, retail showed a modest 0.2 percent gain, but the small increase far outpaced wholesale’s nearly 20 percent decrease in volume. // July 27, 2014
3.FHA Extends Lender
Recertification Deadlines
Due to issues relating to the Lender Electronic Access Portal 3.0 system, the Federal Housing Administration will extend its timelines for lender recertification for qualifying Title I and Title II lenders and mortgagees. Extensions are available for Title I and Title II lenders and mortgagees with fiscal years ending December 31, 2013; January 31, 2014; February 28, 2014; and March 31, 2014. The problems experienced by the LEAP 3.0 system will be addressed immediately. In a note to lenders, the agency explained, “FHA is working diligently to resolve these issues so that LEAP may operate at its full capacity as quickly as possible.” // July 6, 2014
4.Ginnie Mae Set to Go Electronic for Issuer Applications
Beginning September 1, 2014, Ginnie Mae will transition to an electronic-only Application Connection system. At that time, applicants must submit issuer applications via the portal. After July 31, 2014, paper applications will no longer be accepted. Ginnie Mae joins other government agencies, including the Department of Housing and Urban Development, in eliminating paper applications to streamline the process and reduce waste. The change will also make the process more transparent for applicants. Tutorials and additional resource guides are available on Ginnie Mae’s website. // July 23, 2014
5.Forbes: New Rules Improve Reverse Mortgages
In a recent article, Forbes magazine examined the impact of the new rules non-borrowing spouses will be subject to beginning in August. The changes ensure surviving
spouses who are not named on the home title will not lose the home once the borrowing spouse passes away. Consumer advocates praised the changes, citing the peace of mind they will provide borrowers. The new rules could positively influence the perception of reverse mortgages overall, according to the article. “Historically, people have looked at them as a loan of last resort,” National Reverse Mortgage Lenders Association President and CEO Peter Bell told the magazine. “But increasingly, we’re seeing financial planners publish strategies that show if you deploy a reverse mortgage early as a standby line of credit so you won’t be forced to sell other assets if you need cash, you can manage your wealth more effectively.” // July 21, 2014
6.Lending Uncertainty Looms as Dodd-Frank Price Tag Tops $21.8 Billion
Marking its fifth anniversary, the muchdebated Dodd-Frank Act has reached a total of $21.8 billion in cost, with roughly onequarter of the law still left to be processed; a report from the American Action Forum finds. The report, from the center-right policy change research and analysis institute, raises issues of high compliance costs and added personal expense. The act has produced extreme volumes of paperwork, to the tune of 60.7 million “paperwork burden hours,” or the equivalent of 30,370 employees working full time to complete annual paperwork. A survey of lenders by the American Bankers Association found twothirds of respondents would limit lending because of the ability-to-repay/qualified mortgage rule as defined under DoddFrank. The rule necessitates lenders make a “reasonable, good-faith determination” that prospective borrowers have the ability to repay their loans. // July 16, 2014 reversereview.com
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The Reverse Review August 2014
Stats June 2014
Top Lenders Report
American Advisors Group
One Reverse Mortgage
S1L / RMS
Endorsement
Endorsement
12345 1,382
12
396
Endorsement
316
Urban Liberty Financial of Home America Equity
Endorsement
265
Endorsement
248
Lender
Endorsements
Lender
Endorsements
PROFICIO MORTGAGE VENTURES LLC
148
MLD MORTGAGE
11
LIVE WELL FINANCIAL INC
111
MORTGAGE SERVICES III LLC
11
GENERATION MORTGAGE COMPANY
108
MAS ASSOCIATES LLC
11
MAVERICK FUNDING CORP
90
GEORGETOWN MORTGAGE
11
REVERSE MORTGAGE FUNDING LLC
80
UNIVERSAL LENDING CORPORATION
11
NET EQUITY FINANCIAL INC
62
PEOPLES BANK
9
FIRSTBANK
58
DOLLAR BANK FSB
9
UNITED NORTHERN MORTGAGE BANKERS 55
FULTON BANK
8
ASSOCIATED MORTGAGE BANKERS INC
48
BERKSHIRE BANK
8
MCM HOLDINGS INC
47
GUARANTEED RATE INC
8
SUN WEST MORTGAGE CO INC
40
HOMEOWNERS MORTGAGE ENTERPRISE
8
HIGH TECH LENDING INC
36
THE FEDERAL SAVINGS BANK
8
NATIONWIDE EQUITIES CORPORATION
34
SUCCESS MORTGAGE PARTNERS INC
8
CHERRY CREEK MORTGAGE CO INC
33
WHOLESALE CAPITAL CORP
8
ADVISORS MORTGAGE GROUP LLC
32
ATLANTIC PACIFIC MORTGAGE CORP
7
FIRSTAR BANK
28
BANK OF NORTH CAROLINA
7
OPEN MORTGAGE LLC
27
AMERICAN LIBERTY MORTGAGE INC
7
TOWNEBANK
27
AMERICA’S MORTGAGE RESOURCE Reverse Market Insight - Logo
6
M & T BANK
25
PLAZA HOME MORTGAGE INC
23
UNITED SOUTHWEST MORTGAGE CO
21
MONEY HOUSE INC
20
GMFS LLC
18
NORTH AMERICAN SAVINGS BANK
17
SENIOR MORTGAGE BANKERS INC
17
SUN AMERICAN MORTGAGE CO
16
MORTGAGESHOP LLC
16
TOP FLITE FINANCIAL INC
15
NATIONSTAR MORTGAGE LLC
14
AMERICAN PACIFIC MORTGAGE
14
ATLANTIC BAY MORTGAGE GROUP LLC
13
FRANKLIN FIRST FINANCIAL LTD
13
AMERICAN NATIONWIDE MORTGAGE CO
11
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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 May 2014 INDUSTRY SUMMARY
Trailing Twelve Month Endorsements
RETAIL UNITS
Retail Endorsement Growth
6,000
12.24%
Wholesale Endorsement Growth
4,000
1.99%
2,000
Total Endorsement Growth
7.8%
0 6 7 8 9 10 11 12 1 2 3 4 5 Retail
*Figures above reflect change from prior month
Wholesale *Numbers represent months
CHG%
WHOLESALE
TOTAL
UNITS
CHG%
UNITS
CHG%
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%
Dec
2,594
-5.12%
Jan
2,789
7.52%
2,265 39.04%
5,054 19.68%
Feb
2,614
-6.27%
2,545 12.36%
5,159
Mar
2,358
-9.79%
2,256 -11.36%
4,614 -10.56%
Apr
2,362
0.17%
1,806 -19.95%
4,168
-9.67%
May
2,651 12.24%
1.99%
4,493
7.8%
4,223
-16.5%
1,629
1,842
-7.33%
4,685 11.92%
1,951 16.41%
32,706
TOT
4,186
-5.95%
1,676
24,846
-9.86% 2.08%
57,552
{ FIGURE } 70%
Fixed Rate Percentage
60% 50% 40% 30% 20% 5/1/14
4/1/14
3/1/14
2/1/14
12/1/13 11/1/13
1/1/14
11/1/13 10/1/13
10/1/13
9/1/13
8/1/13
7/1/13
5/1/13 3/1/13
6/1/13
4/1/13
3/1/13
2/1/13
1/1/13
10/1/12
9/1/12
Fixed
ARM
$1,200.0 $1000.0 $800.0 $600.0 $400.0 $200.0
4/1/14
3/1/14
2/1/14
1/1/14
12/1/13
9/1/13
8/1/13
7/1/13
6/1/13
5/1/13
4/1/13
1/1/13
12/1/12
11/1/12
9/1/12
10/1/12
8/1/12
7/1/12
6/1/12
$0 5/1/12
in the millions
initial principal limits
hecm endorsement
02
2/1/13
{ FIGURE }
8/1/12
7/1/12
6/1/12
10% 5/1/12
hecm endorsement trends
01
reversereview.com
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The Reverse Review August 2014
NRMLA News
On the Docket:
NRMLA Counsel Summarizes Recent HUD Changes In June, FHA released two new mortgagee letters—one addressing advertising outside the bounds of the program and the other addressing products not in keeping with the program’s mission of prolonging availability of a senior’s assets. We asked our attorneys, Jim Brodsky and Jim Milano of Weiner Brodsky Kider, to summarize the most essential points. Once you’ve read this summary, we highly recommend your read the mortgagee letters in their entirety.
FHA Releases a Mortgagee Letter that Makes Several HECM Policy Changes and Limits the Insurability of Fixed Interest Rate Products Under the HECM Program →
3 All other HECM program and property
On June 18, FHA released ML 2014-11 under the authority granted to HUD in the Reverse Mortgage Stabilization Act of 2013 to amend the FHA HECM program. The letter announces several policy changes to the program and limits the insurability of fixed interest rate loans to mortgages with the single disbursement lump sum payment option. As stated in ML 201411, the HECM fixed-rate product changes eliminate potential hedging and interestrate risk associated with post-closing future draw features on fixed-rate HECMs. These changes also align FHA’s policy with Ginnie Mae’s recent announcement that fixed-rate HECMs with future draws are ineligible for GNMA-guaranteed HMBS securities.
In addition, as stated in ML 2014-11, “FHA only permits a mortgagee to order a purchase transaction FHA case number in FHA Connection for a mortgage on a property that has been issued a Certificate of Occupancy and the required HECM counseling has been completed.” To avoid any negative impact on a HECM mortgagor who had previously entered into a bona fide sales contract and made an earnest money deposit on a property before the effective date of ML 2014-11, FHA will allow HECM mortgagees to request a purchase transaction FHA case number with a fixed interest rate where:
The HECM policy changes made by ML 2014-11 include, but are not limited to: →L imiting FHA insurance to fixedrate HECMs that provide for a single, full draw to be made at loan closing and do not provide for future advances to the mortgagor under any circumstances → Eliminating the availability of the singledisbursement lump sum payment option for adjustable interest-rate HECMs →C hanges to unused repair set-aside funds for fixed-rate HECMs → FHA Connection updates →R emoving the requirement to use a 14
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HECM Second Security Instrument and HECM Second Note for fixed interest rate HECMs In addition, ML 2014-11 provides two sets of revised model fixed interest rate HECM loan documents. The first set of documents is for HECMs with FHA case numbers assigned on or before August 3, which mortgagees may use to update fixed interest rate loan documents for new mortgages and pending mortgages that did not close prior to the effective date of ML 2014-11. The second set of documents is for HECMs with FHA case numbers assigned on or after the effective date of ML 2014-07, which mortgagees must begin using on or after that letter’s effective date of August 4. FHA will allow “pipeline” fixed-rate, future-draw HECMs to close if certain requirements are met. When a mortgagee has initiated the origination of a fixed interest rate traditional or refinance HECM transaction that allows the mortgagor to access the loan proceeds after loan closing, but did not close on or before the effective date of ML 2014-11, the mortgagee must ensure the following requirements are met for the mortgage to be eligible for FHA insurance:
1 The case number was requested on or before July 2, 2014.
2 HUD systems will reflect the
mortgagor’s payment option of either term, tenure, line of credit, modified term or modified tenure.
eligibility requirements are met.
4 The loan closing is completed on or before September 30.
1 The mortgagee requests the case number on or before July 2.
2 The mortgagee obtains a copy of the mortgagor’s bona fide sales contract and evidence of the earnest money deposit that were executed and paid by the mortgagor before June 18.
3 HUD’s systems will reflect the
mortgagor’s payment options of either term, tenure, line of credit, modified term or modified tenure.
4 The required HECM counseling will
be completed prior to the date of loan closing.
5 The Certificate of Occupancy will be
issued prior to the date of loan closing
6 These mortgages comply with
existing FHA case number expiration requirements.
NRMLA News
The following information has also been provided by Jim Brodsky. As a response to an order from the judge in two current lawsuits filed on behalf of non-borrowing spouses who faced foreclosure, FHA is currently providing HECM mortgagees in certain situations an indefinite extension of time in which to begin legal action to commence foreclosure. As per a Notice of Information issued on June 25, the mortgagee may elect to take such an extension in any circumstances in which the mortgagee believes the following criteria are or reasonably can be met: 3 The non-borrowing spouse would have had a PLF
greater than or equal to the PLF of the HECM borrower spouse, or the non-borrowing spouse’s PLF would have resulted in a current principal limit that is greater than the current unpaid principal balance, provided that the maximum claim amount is not exceeded.
FHA Releases a Mortgagee Letter Reminding HECM Mortgagees of FHA’s Prohibition on Misleading or Deceptive Advertisements and Restricting a Mortgagor’s Freedom to Choose a HECM On June 18, FHA released ML 2014-10 reminding HECM mortgagees of requirements prohibiting misleading or deceptive advertising and clarifying that the prohibition extends to descriptions of FHA HECM programs. ML 2014-10 also reminds HECM mortgagees of the full extent of a mortgagor’s choice in selecting a HECM program and FHA’s prohibition on restricting such choice. In addition, pursuant to ML 2014-10, all advertisements or marketing materials used in connection with the HECM program for the purpose of describing and illustrating to the public the types of loan products offered by the mortgagee must include a disclaimer that clearly informs the public that such materials are not from HUD or FHA and the document was not approved by a government agency. This disclaimer must be displayed in a conspicuous location. As provided in ML 2014-10, failure to follow these requirements may result in sanctions, including civil money penalties or administrative action against any person, party, company, firm, partnership or business, including non-FHAapproved institutions and individuals.
3 The non-borrowing spouse was legally married to
the HECM mortgagor at the time of origination and remained married throughout the HECM mortgagor’s life. 3 The non-borrowing spouse has title to the property or
a legal right to remain in the property. 3 The HECM is not in default for any other reason. 3 There are no allegations or claims that would invalidate
the HECM or any such allegations or claims have been judicially resolved in favor of the mortgagee. 3 The property securing the HECM has not been sold to
a third party. The request for extension is currently at the mortgagee’s discretion and FHA will not deny any request if the mortgagee believes the criteria have been met. This action, a response to the Plunkett et al v. Donovan and Bennett et al v. Donovan cases now before the District Court in the District of Columbia, provides FHA with time to reconsider its current policies with regard to non-borrowing spouses.
The Extreme Summit: New Reverse Mortgage Pilot Launches in Three Cities The New Reverse Mortgage Educational Campaign (formerly known as the Extreme Summit) launched July 7 in Denver, Seattle and Philadelphia with the “Smart Choice” television commercial running within a 50-mile radius of each city. In the weeks before the launch, more than 200 NRMLA members participated in preparatory sessions in each test market and on a national webinar to which all members were invited. The intent of the campaign is to broaden the understanding of reverse mortgages among aging Americans and their families, explain how recent changes to the HECM program make the reverse mortgage a “new” product, and demonstrate the large variety of ways people utilize reverse mortgages to supplement retirement.
You can learn a lot more about the campaign and its message at newreversemortgage.org. reversereview.com
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NEWS FROM NRMLA
FHA Issues Indefinite Timeframe Extensions on Certain Foreclosures
brought to you BY MARTY BELL: national reverse mortgage lenders association
The Reverse Review August 2014
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© 2014 Liberty Home Equity Solutions, Inc. 10951 White Rock Road, Suite 200, Rancho Cordova, CA 95670. NMLS # 3313 www.nmlsconsumeracces.org, (800) 218-1415. For a complete list of licenses, visit www.libertyhomeequity.com/licensesnmls 16
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Roundup Here is a look at the latest
news and stats
affecting the market. m o ne y matters
Americans struggling to afford their mortgages
A recent study by Hart Research Associates finds 52 percent of Americans are making sacrifices in order to cover their rent or mortgage. Homeowners are facing tough decisions such as delaying retirement saving, finding additional work and reducing health care spending to locate the needed income to pay for their homes.
this m o nth
{
Get up-to-date retirement facts, home price stats, senior trends and HECM market developments in The Reverse Review’s monthly Roundup.
in the news
Aging population to double by 2050. The population of Americans age 65 and older is expected to increase dramatically in 48 years, according to reports released last month from the U.S. Census Bureau.
“The United States is projected
to age significantly over this period, with 20 percent of its population age 65 and over by
2030. Changes in the age structure of the U.S. population will have implications for health care services and providers, national and local policymakers, and businesses seeking to anticipate the influence that this population may have on their services, family structure and the American landscape.” –U.S. Census Bureau
t o d ay ’s tren d s
South Dakota climbs to top of list of best places to retire. H o m e t o M o u n t R u s h m o re , S o u t h D a k o t a j u m p e d f ro m t h i rd p l a c e t o c l a i m t h e t o p spot in the rankings of the b e s t p l a c e s t o re t i re c o m p l i e d by BankRate. The findings consider factors including cost of living and access to h e a l t h c a re . R o u n d i n g o u t the top five: Colorado, Utah, North Dakota and Wyoming; at the bottom Hawaii, Arkansas, A l a s k a a n d We s t V i r g i n i a w i t h N e w Yo r k i n c o m i n g i n l a s t place.
N umber C runch
30%
The CFPB estimates that 30 percent of all homeowners 70 and older have mortgages to pay off.
special report
HUD Releases New PLF Tables
HUD has released revised PLF tables in response to its recent policy regarding to non-borrowing spouses. The new tables account for nonborrowing spouses who may be younger than the loan’s qualifying age of 62; previous tables assumed that all homeowners party to the loan were at least 62 years old. Mortgagee Letter 2014-12 includes tables with PLFs for borrowers with non-borrowing spouses age 18 to 61 and makes the loan more sensitive
to interest rates. Under the revised table, older borrowers can receive more proceeds in a lower interest rate environment, but when interest rates are high, borrowers will receive less. “The new PLFs increase the sensitivity of the HECM program to interest rate movements, reducing the amount of money younger borrowers can get at the lowest rates but more dramatically reducing available principal limit for those same ages as rates go higher,” says Reverse Market Insight’s John
Lunde. “For older borrowers, there is a greater amount of principal limit available at the lowest rates (where we’re currently operating), but that increase shrinks or goes away entirely for those borrowers as rates rise.” The change comes just weeks after HUD announced that the non-borrowing spouses of reverse mortgage borrowers will be allowed to remain in their homes after the borrower passes away under certain terms and conditions.
portal.hud.gov/hudportal/HUD?src=/ program_offices/housing/sfh/hecm/hecmhomelenders
Visit HUD’s website to view the new PLFs.
reversereview.com
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The Reverse Review August 2014
the
THE
REVERSE
hot
review
seat
august 2014
Steve
From his first job and favorite book to his thoughts about the future of the reverse mortgage market, we get the personal and professional facts from urban financial of america President
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Steve McClellan, president of Urban Financial of America, in this month’s edition of The Hot Seat.
P E R SO N A L
Professional
> Ten
> People
> My >
years from now I will be retired. first car was a 1967 Chevy Impala.
If I could meet anyone, past or present, it would be John Wayne.
> When
I was younger I wanted to be a
Navy fighter pilot. > I
can’t go without a good cup of coffee.
> When >
I was a kid I lived in Hawaii.
should seek a career in the
reverse mortgage industry because you can get paid to make a difference in the lives of seniors. > The
most fascinating thing about the
reverse mortgage industry is the people
> I
am optimistic about the reverse
mortgage industry because the
I’ll never forget the good bosses I have
underlying demographics and financial
had.
needs will ultimately create a large business segment.
first job was as a lifeguard.
> My
parents taught me how to work hard.
> My
favorite time of the day is sunset.
reverse mortgages by making sure we
> My
iPod go-to is mostly country.
think about doing the right thing for the
I’ve never skydived.
> I
always thank people in uniform for their
service. > The
best lesson I’ve ever learned was
I lived in Hawaii.
in it. I love the diversity of the group.
> My
>
when i was a kid
> Reverse
mortgage professionals
can best support the public image of
long run and always, always do the right thing by the customer. > The
ideal characteristics of leaders in
the industry are integrity, empathy and vision.
that I learn more when I listen than when I talk. > The
worst purchase I’ve ever made
was a Saab. > The
best purchase I’ve ever made was
If I could time travel, I would go to the Abe Lincoln White House.
a 1980 Nissan 280ZX. > My
favorite book is Lonesome Dove by
Larry McMurtry. >
If I could trade places with someone for a day, I would choose Bret Baier.
> If
I could time travel, I would go to the
Abe Lincoln White House.
“I am optimistic about the reverse mortgage industry because the underlying demographics and financial needs will ultimately create a large business segment.”
The most fascinating thing about the reverse mortgage industry is the people in it. I love the diversity of the group. reversereview.com
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The Reverse Review August 2014
ADVANCE
originating Know and Become Known By Bob Tranchell
changes from lenders, the FHA and the CFPB, we simply get distracted. The problem is that while we are distracted, an inaccurate article in The New York Times becomes a grandstand moment for congressional representatives, and the inaccuracy is given greater credence and more attention. It is a cycle that can only be prevented when our industry has many effective and wellknown advocates. To become one of these, all of us must put in the time to know and become known. To Know: Improving Your Personal Knowledge
I
n the June issue of TRR, I wrote about the need for personal integrity in the origination of reverse mortgages. In this followup piece, I want to discuss the idea of promoting the integrity of our industry as a whole. That promotion requires reverse professionals to develop a solid understanding of the power of our product and to refine our ability to thoughtfully articulate that knowledge. It would prove tremendously beneficial to our industry if every mortgage originator out there took on a challenge I call “know
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and become known.” “To know” requires professionals to study up on the product, improve their understanding of its place in a senior’s greater retirement plan and enhance their ability to educate others about it. “To become known” requires one to take this newfound knowledge and use it to connect with senior consumers and the professionals who advise them in order to expand their network and spread the word about the value of the HECM. Speak to anyone in the industry and you will
learn the No. 1 challenge we face is education. The statistic that we have only penetrated 2 percent of the market is constantly noted. We get rightly irritated when The New York Times, CNBC, Forbes or Motley Fool print an article that is inherently false, or worse, when a congressman makes a statement or issues a report about reverse mortgages that is inaccurate or anecdotal. A call to educate has been issued and we all agree, but few actually do anything significantly different to help the mission. We are so busy navigating constant
I recently challenged myself with a series of questions: 4How well do I know this industry? 4What am I personally doing to help educate others about this industry? 4How well do I relate to other professionals who work in the service of seniors? 4How well can I articulate the pros and cons of a reverse when speaking to those in other industries? Realizing that my answers left room for improvement, I embarked on a six-month quest to educate myself not
originating
To Become Known: Expanding Your Network
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spotlight
reversereview.com
hmbs
The more we educate others, the more we will overcome our industry’s problems and the media’s bias. Let’s all know and become known! x
*
title tip
In my last article, I wrote about sitting at the kitchen table and watching a senior’s reaction when they see what a reverse can do. Since I started my question to become known, I have had new opportunities to enjoy the reactions of others. I have done a radio show and have taught a fourcredit CPE class for CPAs. I have done numerous presentations to many in the financial industry.
Through my efforts, I have learned of a new, equally exciting experience: sitting at a conference table and watching the reaction of those I educate about reverse mortgages. I think their jaws drop a little further than the seniors’. Has it helped my business? Absolutely! Has it had an impact on the industry? I’d like to think so. Imagine what can happen if just a quarter of us in the industry did the same thing. I can sum up the impact by sharing survey results from my CPE class. Before the class began, 90 percent of those attending were not comfortable recommending reverse mortgages for their clients, and 30 percent of them strongly disagreed with the concept. After the class, 70 percent agreed with recommending a reverse, and the remaining 30 percent were neutral. Not one of them said they still disagreed with the product; one CPA said his response changed from “No Way!” to “A lot of possibilities!”
legal
We have seen some fantastic, positive articles in the press lately, but how many of us have read the recent academic articles, such as “The Stand by Reverse” or “The 6% Rule,” and can articulate
the value in them? Are we content with simply reading the Reverse Mortgage Daily synopses without understanding the details that are so carefully extolled in the articles? How many of us have a plan to educate CFPs, CPAs, Realtors, geriatric care managers and estate attorneys? How many of those professionals do you have in your network? Our industry is still young by many standards, and we have an enormous uphill task to overcome the misconceptions out there. I would encourage every reverse mortgage professional to immerse themselves in this field. Don’t dabble in the industry; know it well and be able to articulate its benefits to both seniors and other professionals who serve them.
servicing
The next part of my quest was to become known. This is going to be an ongoing task, as it is an uphill climb, but I believe it to be essential to my personal business and to our industry. It seems to me that we have a problem when it comes to media coverage on reverse mortgages; there are not many known reverse experts that media outlets turn to. It is not uncommon for media outlets to quote CFPs who get to comment—not because they are experts on reverse mortgages, but because they have established themselves as a source for financial reporters. It is my goal to ensure that when The New York Times or any other national or local media outlet runs a story on reverse mortgages, they are able to locate and seek input from numerous HECM experts. But for the most part, experts in our industry are not visible at that level. We have to get better—as loan officers, branch managers, account executives, etc.—at making ourselves known to the media so there is a fair balance in coverage about the product.
“How many of us have a plan to educate CFPs, CPAs, Realtors, geriatric care managers and estate attorneys? How many of those professionals do you have in your network? Our industry is still young by many standards, and we have an enormous uphill task to overcome the misconceptions out there. I would encourage every reverse mortgage professional to immerse themselves in this field.”
underwriting
I made it my goal to spend 30 minutes a day researching our industry and everything connected to it. I studied the history of reverse mortgages and read everything I could find, from Ken Scholen’s Retirement Income on the House to recent articles by financial planners espousing the value of a reverse in portfolio management. I met with financial planners, estate attorneys and CPAs, asking for their input on how to communicate the value of a reverse. I learned some of their industries’ fears and even prohibitions with regard to suggesting using reverse mortgages. I realized that in order to be able to teach others, I would have to have a broad understanding of our product and the perceptions others had about it. As I went, I made notes and tried to identify key points that would be important to communicate to others who wanted to learn about HECMs. I read articles about baby boomers and the “sandwich generation” (ages 40-60), and as I read, I confirmed the acute need
for reverses and value they offer.
originating
just about our product, but also about the professionals who would see the value in recommending a reverse mortgage to their clients. I spoke with CPAs, CFPs, estate planners, Realtors, geriatric care managers and certified dementia practitioners. It was a challenging, interesting and valuable six months and the results have been exciting and invigorating.
The Reverse Review August 2014
originating
Who Moved My HECM? By David Heilman
Want to see more stories like this? Visit reversereview.com.
“
O
ut with the old, in with the new.” We have all heard that phrase before, most often around the New Year as we make a pledge to eat better, exercise more or finally quit that pesky habit. “Turn over a new leaf” is another one, and both could be used to describe what many of us are experiencing as we try to navigate our way through the changing reverse mortgage market. Sure, it may seem like we have experienced nothing but change since the program’s inception, but this time the changes have given rise to a new product (or, as I like to say, a new solution) for those facing retirement. Winston Churchill may have said it best: “To improve is to change; to be perfect is to change often.” Well, we are certainly changing often, and hopefully it will lead to a perfect solution for many retired Americans. All that being said, can we simply blame low industry volumes on product change? Personally, I think not, because after all, how many consumers know about these changes and are therefore not inquiring about the product? Or better yet, how many are inquiring but are not able to qualify now due to lower principal limit factors? In my experience, not enough to account for the substantial dip in volume. Maybe the problem is that we have too many things changing at once, creating what one might call a perfect storm. After all, not only has the product changed, but the prospects have also changed, the message has changed, the referral partners have changed and our top industry leaders have changed—all within the last 24 months.
22
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Last week I met with a nice couple in their late 70s who owned their home free and clear. Their daughter was at the house and they asked if I would come and meet with the three of them. Many of us have experienced this exact scenario and I am always pleased when the adult children want to be involved in the discussion. As you might expect, I was asked to have a seat at the kitchen table and a minute didn’t pass before I was asked if I would like some tea or water. We had a great talk and all parties left the consultation feeling confident that this was the exact solution for them. They could now afford to replace the HVAC and the roof, and they would have the funds to bring services into the home as they aged and their needs changed. As I was driving back to the office, I had a moment to reflect and realized quickly that the days of sitting around the kitchen table “planning” to age in place and using a HECM to achieve that goal are numbered. Our prospects have changed. Now, our consultations are more likely to start and finish with, “Email me something.” Our message has also changed. When I started in this industry more than seven years ago, we used phrases such as “low cash flow,” “challenges paying your mortgage” and “loss of income” to describe someone who might be a good candidate. Today, and certainly as Financial Assessment comes into play, our message is much different. I’m not placing blame on anyone and I’m certainly not suggesting we need to service only the needs-based, but our message now is primarily, “The HECM is a planning tool.” Many
originating
“Now is the time to embrace the many changes.”
who hear our message feel it isn’t for them because maybe they’re not struggling enough financially at the moment. Sure, we may see them down the road, but will we be able to help them then?
servicing
So what does all of this mean for us, the originators, who are in the field all day planting seeds? Will they finally sprout and will we be here to harvest? I say yes! Many of us were in this industry before the major national banks and insurance companies entered the space, and we are still here today. So now is the time for us to embrace the many changes and hopefully, to paraphrase Churchill, our constant evolution will lead to perfection.x
*
underwriting
Lastly, our industry has experienced a change of the guard at the top. We are all familiar with the exits of Bank of America, Wells Fargo and MetLife, not to mention Financial Freedom, but how big of an impact those exits would have was, in my opinion, downplayed by many originators. It was nice to pick up some of the volume once they started bowing out, but now those leads have dried up and the overall awareness they collectively brought to the industry has dissipated. Sure, the industry still has a TV presence, but we no longer have a nationwide branch presence by two major banking institutions and a well-known and respected insurance giant. I believe this has also impacted our volume.
originating legal
Another change to the program is the people with whom we are trying to align ourselves. While many of us have always worked on building relationships with financial planners, the HECM was mainly a loan of last resort in the past and not something we necessarily built into a client’s overall retirement picture. With the help of recent academic research the tide seems to be turning, but we still have a long way to go. While the financial planning community might not be a totally new referral base, the manner in which we are currently positioning our solution is. It has been my experience that this group likes controlling the conversation with their clients and protecting them, which is understandable, but can you imagine a HECM proposal being presented by someone just reviewing a comparison or amortization for the first time? What if you aren’t in the meeting or a part of the conversation and the advisor immediately gets objections or pushback and you can’t confidently address the client’s concerns? Do you think they will bring up the subject again? Of course not. So we have to get into these conversations and not sell the client but educate
them, or just be there to answer their questions. Realtors are also part of the mix now, and once again it becomes an educational mission for all of us to evangelize the H4P and how it can have a major impact on those looking to downsize or move closer to family.
title tip hmbs spotlight
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The Reverse Review August 2014
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originating
Reverse Mortgages: The Time Is Now By Mike Suits
substantial monthly payments.
The reverse mortgage industry has been tarnished by the events
reversereview.com
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spotlight
The Opportunity
As an industry, our focus must be on the future rather than the past. There are still more challenges to come for reverse mortgage originators, yet the problem the reverse mortgage product solves is real and growing. For those committed to serving customer needs through education and long-term planning, the future is bright. The time is now for the reverse mortgage to claim its role as an important and necessary financial planning tool. x
hmbs
Not surprisingly, with stricter rules in place and an exploding market of eligible customers, new investors— proprietary investors—are emerging to offer new products. While the HECMs are the dominant reverse mortgage option today, the future will likely include many additional options.
title tip
The problem is that home equity is an illiquid asset, meaning it is difficult to turn into cash. Traditional methods of liquidating home equity are to sell a home or to use a forward mortgage and take cash out. For retirees who wish to remain in their homes, selling is not a viable option. While they may gain access to the equity, they lose their homes and must find a new—and possibly more expensive—place to live. Alternatively, forward mortgages require qualification, which for nonworking, income-limited retirees is a significant challenge requiring
There are 72 million people in the baby boom generation (1946-1964). Every day, 11,000 people in the in the U.S. turn 62 years old and become eligible for a reverse mortgage. Sixty-six hundred homeowners per day for the next 19 years with most of their assets tied up in home equity is a market that cannot be ignored.
Long-term planning focus: Financial and the health care challenges that often emerge during retirement require significant advanced planning in order to be navigated successfully. The most successful reverse mortgage originators will develop alliances with financial advisory organizations and community groups working with prospective future customers, in addition to those customers with immediate needs.
legal
The Problem
In 2014, approximately 65 percent of Americans own their own homes. For the median U.S. homeowner, home equity represents 62 percent of their net worth. More than 35 percent of retired Americans, rely on Social Security payments to provide more than 90 percent of their income. In fact, for two-thirds of Americans Social Security represents more than half of their income. The result is that millions of retired homeowners with significant home equity and fixed incomes are unable to meet their daily financial needs, let alone achieve a better quality of life.
Education focus: Nontraditional products sold to consumers at vulnerable stages in their lives must be sold in a consultative manner. This means originators must develop educational resources and spend the time necessary to develop a full understanding of features, benefits and risks by prospective borrowers, their financial advisors and family members. Traditional sales techniques may appear “pushy” and the sales cycle that works in forward mortgage origination does not apply.
servicing
T
he reverse mortgage industry has undergone a transformation over the past several years as the U.S. economy faced disruption and the financial services sector was restructured. Every part of the consumer financial services industry has been examined, re-examined and rebuilt to ensure that past mistakes that allowed inappropriate products to be sold on both Main Street and Wall Street are never repeated. As painful as this process has been for industry professionals and consumers alike, the end result is positive: Reverse mortgages continue to offer essential financial planning benefits to millions of American consumers and are now easier to understand and evaluate than ever before.
Those who succeed in the years ahead will exhibit the following characteristics:
underwriting
The Market
*
originating
Reverse mortgages are needed to unlock illiquid home equity and improve the lives of tens of millions of baby boomers over the next two decades.
of the past. Yet, with improved regulation and a rising need there is an unprecedented opportunity for consumer-oriented originators to excel.
The Reverse Review August 2014
“
“ >> Nationwide title and settlement experts
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The No. 1 Fear in the United States By Michele Kole
* Using this source of tax-free cash rather than drawing down the homeowner’s portfolio in a bad market, thereby preserving the longevity of assets * Postponing access to Social Security until a later date when the payout will be greater and temporarily meeting cash-flow needs with the HECM line of credit
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* Using the HECM as a line of credit for funding future health care needs, like in-home care, buying long-term care insurance and establishing an emergency fund
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The stability and preservation of this valuable financial tool for generations to come is important to everyone who cares about aging Americans, especially since most of us will be joining them. As HECM professionals, we will continue to do our part to take away the fear of running out of money before one dies!x
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We are at a great place and time in our industry. Increasing acceptance among other professionals such as estate planners and financial advisors enables us to settle the fears of running out of money for the boomers and squelch the reverse mortgage myths that prevail among older seniors. The changes in the HECM that occurred October 1, 2013, give us the opportunity to promote the HECM as a completely new reverse mortgage! The older seniors like to hear that this reverse mortgage not only preserves more home equity for their heirs, but also reduces loan costs for many of them. The boomers (who plan to live forever) readily tap their housing wealth and are delighted with a secure source of funds that lasts their extended lifetime.
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Because of its many valuable uses, baby boomers are increasingly accepting the use of a HECM to tap into a portion of their housing wealth to fund retirement. As reverse mortgage professionals, it’s our job to help seniors explore the options available through the use of this valuable tool and eliminate fears about affording retirement.
reversereview.com
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Although investment portfolios are depleted and savings are down, there is a bright spot. Recent homeownership statistics report a growing area of untapped wealth. Home equity is increasing across the nation as real estate regains its value, and we call that “housing wealth.” In fact, housing wealth is now considered a resource that can be used to strengthen and preserve the longevity of assets by many financial planners, potentially making it possible for baby boomers to have the financial resources necessary to retire and enjoy their golden years. “Recent homeownership In previous generations, statistics report housing wealth was the family a growing area of inheritance and considered untapped wealth. sacred. It was expected that Home equity is increasing across parents would leave the home, the nation as real free of any mortgage, to their estate regains children. People routinely its value, and we had sufficient assets for their call that ‘housing retirement years—not only wealth.’ In fact, housing wealth is their homes but also savings, now considered a and a pension from the job they resource that can be worked for 40 years. Passing used to strengthen cash assets plus the family home and preserve the to the next generation was the longevity of assets by many financial standard. planners, potentially making it possible However, attitudes are changing for baby boomers rapidly as a new wave of retirees to have the financial cannot afford to follow in those resources necessary footsteps. For baby boomers with to retire and enjoy little savings and no pension their golden years.”
Recent changes to the HECM program have enhanced its legitimacy with financial advisors as an important weapon in their arsenal. When a homeowner has sufficient home equity, the HECM can be extremely versatile. As part of a viable retirement planning strategy, a financial advisor can recommend:
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Who’s afraid of entering their golden years most? Baby boomers, who are turning 65 at the rate of 10,000 per day and have experienced unprecedented losses in their retirement savings and a decline in their overall wealth due to the recent economic meltdown. In fact, many boomers do not plan on retiring anytime soon, determined to acquire enough money to maintain the lifestyle to which they’ve grown accustomed. Does this mean we’ll be seeing 90-year-old executives, salespeople or office workers? Or is there another solution?
from a longtime job, their only asset may be their home. Funding retirement now requires a new approach.
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hy are so many of us approaching our retirement years with such trepidation? It’s pretty simple: The No. 1 fear in the United States is running out of money before we die. This seems to have just recently replaced the age-old fear of death itself.
The Reverse Review August 2014
EDUCATE
underwriting HECM for Purchase: Tips for Smoother Transactions By Britany Luth
H
ECM for Purchase loans have come a long way from relative obscurity when initially released in 2009 to gaining continued momentum today. With the recent introduction of HECM for Purchase transactions in Texas, they do not appear to be slowing down anytime soon. As experienced HECM for Purchase professionals know, it’s a niche product that comes with unique differences that separate it from both standard HECM transactions and forward purchase loans. Knowing the key differences and the questions to ask up front can result in a much smoother and faster loan process for all parties involved.
Some examples of acceptable sources of funds are: ( Savings or checking accounts (G ift letter and proof of donor’s ability to gift funds ( Stocks, bonds and mutual funds ( Retirement accounts, IRAs, 401(k)s ( Real estate proceeds (F unds from life insurance policies that were not borrowed
Step One: Information Gathering
Step Two: Setting Expectations
The first step of the process should be spent gathering information from the borrowers. The borrower should be questioned about their income, assets and other properties to determine whether they have the income to qualify, and if they have the funds
Next, it’s important to make sure that all parties are aware that processing a HECM for Purchase is different in some aspects than forward purchase or standard HECM transactions. Because of the nuances, expected turn times for the entire process may be 30 to 45 days
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necessary to bring to closing. “Borrowers who plan on retaining their existing residence and moving into their new home after they close will need to qualify for the ability to pay the mortgage on the retained residence as well as the taxes, insurance and HOA dues (if applicable) on both properties.”
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helpful references
1. HUD Mortgagee Letter 2009-11
2. HUD Mortgagee Letter 2008-33
or longer, requiring a longer period to close in the Purchase contract. Some key differences between HECM for Purchase transactions, forward and standard transactions are: Repairs ( FHA-required repairs must be completed at the seller’s expense. There are no repair escrows on HECM for Purchase transactions, so all repairs required to meet FHA guidelines must be completed prior to closing by the seller. Seller and Lender Concessions ( Unlike forward FHA loans, FHA does not allow any seller or lender concessions. This includes customary charges that are normally paid on behalf of the borrower/buyer by the seller, including fees such as owner’s title insurance, repair inspections, pest inspections, home warranties, etc. FHA views personal property in the same manner. Furnishings or other personal property that will be part of the sale must be reduced dollar for dollar from the sales price. New Construction ( For HECM for Purchase transactions, FHA requires the Certificate of Occupancy (CO) or equivalent from the local authority be issued prior to the loan application, counseling session or any services being ordered. Therefore, no part of the loan may proceed until this form is issued. FHA Property Flipping Requirements ( FHA flipping guidelines may restrict the sale of a property within certain
3. HUD Handbook 4155.2 Chapter 4.7
Below is a list of suggested steps to help ensure the successful origination of a HECM for Purchase transaction. This is not all-inclusive, underwriting but presents a starting point for potential questions to ask and issues to be aware of.
HECM for Purchase Checklist Gathering Information Question the borrowers on these items and compare the answers to your lender’s guidelines.
If retaining other property, what are your mortgage, taxes, insurance and homeowner’s association (HOA) fees on the current property? What is the source of your income and how much income do you receive?
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Will you be occupying the home as your primary residence for the majority of the year?
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Communicate these expectations with Realtors, borrowers and sellers during the contract negotiation phase.
FHA-required repairs must be resolved prior to closing at the seller’s expense.
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FHA flipping guidelines may restrict the sale of a property within certain time frames. (Ref. 4155.2 Ch. 4.7)
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The Amendatory/Escape clause must accompany the sales contract and be signed by all parties.
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Additional Inspections may be required at the appraiser or lender’s discretion.
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The amount of funds to close may increase at closing if any fees change during the loan process. Note: All fee increases are capped by RESPA (the Real Estate Settlement and Procedures Act) tolerances to protect the borrower from large increases.
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Scheduling timelines are often tight and should be monitored closely throughout the loan process.
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The borrowers must occupy the property being purchased within 60 days of closing. Ensure that the borrower intends to move into the property as their primary residence within the required timeframes.
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Amendatory/Escape Clause ( The Amendatory/Escape Clause should accompany the sales contract and be signed by all parties. Inspections ( The lender or appraiser may require additional inspections not opted for by the buyer/borrower.
Occupancy Post-Closing ( The lender must certify to HUD that the borrower will occupy the property as their primary residence within 60 days of closing, or the loan will be at risk for rejection of insurance. Many borrowers intend to delay move-in until a particular time after closing to allow time for renovation or for pre-planned trips. It is important to ensure the borrowers are aware of the timelines so they are not faced with any issues post-closing. Keeping these things in mind, asking the appropriate questions and communicating expectations will ensure all parties involved have a great loan experience. x
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Value may change due to a lower appraised value or an adjustment by the underwriter after the contract is signed.
c
Occupancy ( The real estate agent and loan officer should both be confident that the home to be purchased will in fact be the primary residence of the borrower once the sale is finalized in order to conform to HECM requirements and not face breach of terms from the outset. If there are any questions to this fact, all involved should be prepared for additional diligence in the loan review process.
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For new construction properties, the Certificate of Occupancy or equivalent must be issued by the local authority prior to application, counseling or services ordered.
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Neither seller nor lender concessions are allowed. Buyers must pay for all closing costs typically associated with purchasing a property and obtaining financing.
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Scheduling ( HECM for Purchase borrowers are typically under a deadline to close, either due to the contract closing date requirement or a concurrent closing on an existing residence. So it’s important that deadlines be carefully observed during the process to ensure the closing can be scheduled on time. Additionally, keep in mind that closings scheduled for late in the day may delay funding to the following day if wires are sent after the bank’s cutoff times.
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Expected turn times for the process may be 30 to 45 days or longer.
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Appraised Values ( After the contract has been negotiated and a sales price has been agreed upon, it is difficult to go back to the buyers and sellers when the appraised value comes in lower or the appraised value is not supported. So, it is important to communicate to all parties—up front—the potential for changes in value/sales price, so there are no surprises during the processing and underwriting phase.
At that point, additional proof of funds may be required if the amount they have to bring to closing is more than was originally documented.
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Communicate Expectations and Contract Negotiation
Even though the process is similar for forward purchase transactions, some other things to keep in mind are:
Proof of Funds ( Sometimes, the amount of funds the borrower is required to bring to closing may increase once final fees are entered. (For example, estimated fees initially disclosed on the Good Faith Estimate may increase as a result of additional inspections that are requested by the borrower, appraiser or underwriter, or title insurance may increase due to a higher appraised value.)
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How are you planning on bringing your required funds to close? You must be able to source the funds per Federal Housing Administration guidelines.
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Step Three: Lastly, once the loan is ready for closing and beyond, there are some final steps to take into account:
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How many properties do you own, what is the use for these properties, and do you plan on retaining any of them?
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timeframes. A temporary waiver has been established for forward FHA loans; however, that waiver does not apply to HECM transactions. A HECM borrower may not purchase a property that was acquired by the seller in the previous 90 days or less. For properties that were acquired between 91 days and 12 months prior, a second appraisal may be required. A second appraisal will always be required if the prior sale was between 91 and 180 days earlier and the current purchase price exceeds 100 percent of the prior purchase price.
The Reverse Review August 2014
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Assignments to HUD, Part II: Reasons, Processes and Purpose By Jason Perez
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e know HUD’s importance to the industry, but this isn’t the most provocative or scintillating topic. When I asked my wife if she enjoyed reading Part I she replied, “That’s nice, honey!” Though she’s an industry outsider, I’m pretty sure you haven’t waited for this second installment as eagerly as the last episode of Game of Thrones or the premiere of True Blood. The similarity between the drama in those shows and the assignment to HUD process would be a huge stretch. However, I promise to make this second installment as understandable (and exciting?) as possible. Let’s continue. To review, there are different criteria loans must meet to be eligible for assignment to HUD, and this criteria is reviewed several times as the loan balance approaches the critical threshold of 98 percent of the maximum claim amount. Once final review is complete and everything is in place, loans can be submitted to HUD for approval to be assigned. This process is completed within the HERMIT servicing system. Loans can be submitted as early as 97.5 percent MCA, but cannot be approved until they reach 98 percent.
First, servicers must upload a submission packet into HERMIT, which includes:
In this second installment on the process of making assignments to HUD, I will focus on loans eligible for assignment and the process of assignment within HUD’s servicing software, HERMIT (Home Equity Reverse Mortgage Information Technology).
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3 A full loan balance history 3 The most current Occupancy Certificate
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S1L’s Funding Longevity Task Force
3 A copy of the “Letter Notifying the Borrower of Assignment” (a required notification to the borrower that their loan may be assigned to HUD in the near future)
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BUILDING A POWERFUL ONLINE PRESENCE PG. 27 A HISTORY OF HMBS ISSUANCE PG. 29 +JIM MILANO SITS DOWN IN OUR HOT SEAT PG. 16
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3 A copy of the “Letter of Intent to Assign” (a notification to HUD of the intent to assign the loan to them)
3 The First Note & Recorded Mortgage (including applicable assignments) 3 The final title policy 3 Any subordination documentation (if applicable) 3 The Second Note & Recorded Mortgage 3 The loan application 3 The HUD-1 Settlement Statement 3 The appraisal report
3 A verification that taxes and insurance are current
3 The most current flood certificate
3 A copy of the most current payment plan
3 A draft of the proposed assignment to HUD (which would be recorded in the land records once the assignment is approved)
3 Proof that the loan was insured by HUD
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title tip
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?
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The entire process is not easy or simple. It may not qualify as high drama, but this very intense and complicated procedure requires great attention to loan details as well as a broad knowledge of the reverse mortgage product and processes. You need a safe and experienced driver to transport loans for assignment to HUD. As I told my wife, Celink is the John Snow of assignments to HUD for our clients. Jon Snow’s reply? “That’s nice, honey.” x
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Everything can be in place and ready to go, and then the last surviving borrower passes away or the loan goes into default for another reason. Either of these makes for a loan that may no longer eligible for assignment.
When the loan is approved for assignment, HUD’s servicing contractor grants a “Claim Type-22 Preliminary Title Approval.” This is the equivalent of seeing the finish line at the end of a long journey. This last step requires overnight delivery of the original first note to HUD. The delivery information is uploaded into HERMIT, and upon receipt, the final timeline step is triggered, allowing the servicer to file the claim with HUD. The process is then officially completed, with HUD taking over the servicing of the loan once the claim is paid to the lender.
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Approval is not guaranteed and can be denied even at this late stage of the process. If there’s drama to be found in the assignment to HUD process, it is here. HUD’s servicing contractor reviews the materials thoroughly to make sure everything is in place. During this review period, taxes can become delinquent, or the Occupancy Certificate or hazard insurance can expire. This places the assignment on “hold,” giving the loan servicer time to try to clear up these issues.
Some other uncommon reasons for a “hold” would be name change documents or other paperwork that specifically relate to the condition of that particular loan. If for any reason the packet is determined to be out of compliance or missing anything, or the “hold” cannot be remedied, then the assignment is denied. This isn’t a one-time-only opportunity. The entire HERMIT submission can start over for review if at a later time the “hold” issue is resolved. The reason so much work is done beforehand is that HUD will only pay up to 100 percent of MCA in a claim—and nothing more. If an issue takes a while to fix, it is much better know about it well ahead of time rather than at the end of this process in order to minimize or avoid any losses for the investor.
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Once this packet is uploaded into HERMIT, a claim timeline is opened, which provides the steps to be completed in order to finalize the assignment to HUD. HUD’s servicing contractor completes some of these steps and the loan servicer or sub-servicer will complete others. This timeline is the primary piece of communication between HUD’s contractor and the servicer/sub-servicer and, depending on any special circumstances with a given loan, this process can take from two days up to several months.
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The Reverse Review August 2014
PREPARE
legal Bankruptcy Basics By Alexander J. Chaudhry
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everse mortgage professionals know that many of their senior clients have experienced financial difficulties. Expensive medical bills, a poor investment or a life-changing event can hit anyone. A senior homeowner facing financial trouble, significant judgments or demands by creditors will sometimes seek bankruptcy protection. When a reverse mortgage origination occurs in a case where a property owner has gone through a previous bankruptcy proceeding, there is often confusion and misunderstanding concerning the discharge of the property owner’s debts. Senior homeowners may not fully understand how their bankruptcy impacts their debts. A reverse professional who understands basic bankruptcy procedure and the legal effect of a bankruptcy discharge can be better prepared to explain this confusing area of bankruptcy law to their clients. A familiar scenario often encountered during the loan origination process is the discovery of multiple judgment liens filed against a homeowner and the discovery that the same homeowner has been involved in a previous bankruptcy proceeding. An extremely common fact pattern is to find that the judgment liens were obtained and filed against the homeowner before the bankruptcy case was filed. The title report will show these pre-petition judgment liens as requirements that must be satisfied and released in order to provide clear title. When the title report and judgment liens are reviewed with the homeowner they may not fully understand the implications of their bankruptcy and what it means for their debts and may be confused by the term “discharge.” The main goal of a personal bankruptcy proceeding is to obtain relief from the bankrupt’s debts. A bankruptcy debtor may obtain a discharge of some or all of their debts if he or she meets certain statutory requirements of the Bankruptcy Code.
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However, there remains much confusion as to exactly what a discharge means. According to the Bankruptcy Code, a discharge “voids any judgment to the extent that such judgment is a determination of the personal liability of the debtor with respect to any [pre-petition] debt discharged” under the Bankruptcy Code. Because the code’s language states that a discharge “voids any judgment,” many people incorrectly assume that the effect of the discharge is to also “void” or “discharge” any judgment liens that attach to the debtor’s real property. Borrowers may incorrectly believe that they do not have to satisfy their judgment liens because they received a discharge for these debts in their bankruptcy case. However, it’s important to understand that the discharge only voids the judgment with respect to “the personal liability of the debtor.” Under the law, if a creditor obtains a valid judgment lien against a homeowner, that judgment makes the homeowner personally liable for the debt and also operates as a judgment lien against the homeowner’s real estate. Personal liability is also referred to as “in personam,” which is Latin and means “against a person.” When one has personal liability for a debt, a creditor with a valid judgment can use legal procedures like execution and levy, debt collectors or wage garnishments to recover the debt. There is also another Latin term, “in rem,” which means “against a thing.” A judgment lien that is properly perfected before the bankruptcy is filed also makes the homeowner’s real estate (thing) subject to the judgment lien. The creditor will have an in rem judgment lien against the homeowner’s real estate until the underlying debt is satisfied or the lien expires by operation of law. As mentioned above, a bankruptcy discharge eliminates the debtor’s personal liability for the debt, but it does not eliminate prepetition judgment liens. After the bankruptcy discharge, the homeowner is no longer
& Ter-mi-nolo-gy: In personam: A Latin term meaning “against a person,” involving or determining the personal rights and interests of the parties In rem : A Latin term meaning “against a thing,” involving or determining the status of a thing (property) and therefore the rights of persons generally with respect to that thing Bankruptcy discharge : A permanent order issued from the Bankruptcy Court releasing the debtor from personal liability for certain specified types of debts, thereby releasing the debtor from any legal obligation to pay any discharged debts.
UNDERSTAND
legal
Understanding Vesting Scenarios
By Megan Hafenstein
Every reverse mortgage transaction is unique, so it is important to be aware of different vesting scenarios. When working with senior borrowers, there are often trusts, powers of attorney, conservatorships and life estates involved. Here are some examples you may come across:
Type: Trust Vesting: John Smith and Jill Smith Trustees of the Smith Family Trust Dated 7/29/2011
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Signature John Smith, Trustee Signature
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Jill Smith, Trustee
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Type: Power of Attorney (POA) Vesting: John Smith [an unmarried man] Note: Attorney in Fact Susie Smith
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Signature John Smith by Susie Smith, Attorney in Fact hmbs
Type: Life Estate Vesting: John Smith, as to a life estate and Susie Smith as to the remainder
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In summary, a bankruptcy discharge operates to stop collections only as to the “personal liability” of the debtor, but it does not eliminate the actual debt nor does it remove any pre-bankruptcy liens properly filed against the debtor’s real estate. Thus, while a discharge prevents further personal actions against the discharged debtor, it does not eliminate the in rem judgment lien. Reverse professionals should understand and be prepared to explain to their clients that judgment liens properly obtained before their client’s bankruptcy case remain valid liens on their property and must be released in order to obtain the reverse mortgage. x
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When faced with this common scenario, a reverse professional should be able to explain to their senior client the difference between personal and property liability. Senior clients will likely be unfamiliar with the legal concepts of in personam or in rem liability and may have no understanding why pre-petition judgment liens need to be released. Homeowners may resist and have second thoughts about proceeding with the reverse mortgage when old debts that they believed were satisfied by their bankruptcy surface again. A well-educated loan officer can help to explain these legal concepts, thereby earning the client’s trust and confidence.
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personally required to repay any debts that were discharged and creditors are prohibited from taking any actions to collect the discharged debts. For instance, after a discharge a creditor could no longer call or write to the homeowner to demand payment and is also forbidden from attempting to garnish his or her wages. Telephone calls, written correspondence and all debt collection efforts must cease. However, even though the homeowner will no longer have personal liability for the debt, a valid judgment lien still operates as an in rem lien against the homeowner’s real estate. The pre-petition judgment lien will remain a lien on the property despite the bankruptcy discharge. Thus, although a discharge in bankruptcy removes the personal obligation to repay a debt, it does not discharge or remove the judgment lien securing the debt to the extent the lien constituted a valid judgment lien on the debtor’s real estate prior to the filing of the bankruptcy petition. After a discharge, a lien creditor retains their pre-petition lien on the property owned by the debtor. The creditor may not be able to enforce its lien, but that does not clear the lien from the homeowner’s real estate.
Signature John Smith, Life Tenant Signature Susie Smith, Remainderman
Type: Conservator Vesting: John Smith, Conservator of the estate of Jill Smith, Conservatee, pursuant to proceedings held in the ____ Court; Case # Signature John Smith, Conservator reversereview.com
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The Reverse Review August 2014
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Assess
A Whole Lot of Nothing By Darren Stumberger
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here’s a lot going on, although nothing is really happening. As most expected last fall, origination volumes in 2014 are down roughly 50 percent from 2013 levels. Driving the drop are reductions in principal limit factors and the shift to mostly LIBOR origination with capped balances in the first year. Given the decline in production, competition among originators and Ginnie Mae issuers has been fierce for wholesale, principal agent and correspondent business, causing profit margins to come under intense pressure. Undoubtedly, origination platforms with a high retail percentage have fared the best contrasted with those that rely on wholesale or correspondent business. Routinely in 2014, originators and issuers have had to bid through HMBS execution and include the embedded servicing value (mainly comprising future tail
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securitizations). This essentially means taking a loss upfront and then realizing some value in the future (typically 12 months at a minimum). I can assure you that not many originators would characterize 2014 as fun! In many instances, the only silver lining keeping origination platforms intact and able to operate without mass layoffs are the premiums earned on tail securitizations (i.e., securitizations of line-of-credit draws from prior vintages, MIP and the 36-basis-point servicing strip). HMBS spreads have grown steadily tighter in 2014, particularly in the second quarter. Floating rate and fixed rate tail trade at premiums ranging from 108 to 110, depending on the average life and coupon of the security. Interest rates have also dropped in 2014, which benefits pricing on fixedrate HMBS. If interest rates pick back up or HMBS spreads widen, it will put
immediate pressure on wholesale and correspondent aggregators. I expect the level of competition to remain high, as the supply of new originations remains depressed, a trend that will likely continue into 2015. Brokers and closed loan sellers will continue to enjoy the aggregators bidding aggressively, which puts Wall Street dealers in a similar position. There’s so little volume available compared with the buying capacity of Wall Street, spreads should stay fairly rangebound. On the capital markets side, spreads for the HECM 60 product are at alltime highs. Spread levels for fixed and floating HECM 60 paper are in the 30s and 40s, with dollar prices in the 109 to 112 range. Again, this is driven by the lack of supply and the fact that Wall Street dealers are scrambling for product. Most, if not all, HMBS is being securitized into HREMICs with BAML, Stifel, RBS, Nomura and Brean active in structuring new issue deals. In June, RMS led the issuance pack with more than $100 million issued; AAG came in second with just under $100 million. These two issuers comprised roughly 50 percent of the issuance market. Urban, Liberty, Nationstar, Generation, LiveWell and Plaza rounded out the other 50
“Given the recent increase in PLF’s, there is undoubtedly an opportunity for originators to refinance certain ages and MCAs. We’ll have to wait and see how successful and efficient the brokers and retail originators are in pursuing this. If we do see spikes in prepayments into later summer and fall, I do think it causes spreads to widen.”
secondary percent with a combined $425 million in issuance. Issuance is dominated by LIBOR with a 75- to 80-percent share. The breadth and depth of the investor community at these spread levels is fairly thin, and like we’ve seen in years past, most will stay on the sidelines and wait for a spread widening event.
The lower cap also creates a refinance opportunity in a higher inflation (HPA rising) scenario for IO holders. As the unpaid balance gets capped out into higher rates and as home prices appreciate, the borrower will be able to extract more money as their UPB isn’t moving with HPA anymore. It’s still early in this experiment and as I always say, “there aren’t bad bonds, just bad prices.” It may be that there’s additional price discovery as these assets are structured and sold into the marketplace; time will tell.
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Finally, there’s a good amount of progress being made to solve the true sale accounting issues that have plagued the sector since 2011 (although some might argue since 2008). I applaud HUD for spearheading an industry-wide effort to solve this once and for all. Seems like there’s a lot going on during a time when nothing is really happening! x
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I estimate the basket of investors sponsoring the sector will grow by 10 for each 25 basis point movement in spreads. A material increase in origination volumes and refinances and prepayments picking up in the late 2013 and 2014 HECM 60 originations would likely cause spreads to widen. Given the recent increase in PLF’s, there is undoubtedly an opportunity for originators to refinance certain ages and MCAs. We’ll have to wait and see how successful and efficient the brokers and retail originators are in pursuing this. If we do see spikes in prepayments into later summer and fall, I do think it causes spreads to widen.
In other developments, after the open-ended and underutilized fixed-rate experiment ground to a halt per HUD’s request, the next lab experiment has been a 5-percent lifetime cap LIBOR loan. Originators are offering both annual and monthly adjusting products. There are widely varying perceptions of value in these low cap ARMs and this difference in opinion is easily observed on originator rate sheets. Some price these very aggressively, others not so much. The low cap ARM is obviously attractive to the consumer, as it caps their home-equity erosion as interest rates rise in the future. From a capital markets perspective, the low cap ARM destroys much of the value proposition for investors in both the HREMIC floater and IO (interest only). Investors in the par priced floater are attracted to the 11 percent cap (the way most deals are structured) and enjoy a cash flow that contracts in (spread) duration as rates go higher.
I don’t often get reverse mortgage counseling,
title tip
but when I do, I choose QuickCert.
OPS@QUICKCERT.ORG Telephone counseling nationwide!
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888.383.8885
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The Reverse Review August 2014
spotlight article
Don’t Call It a Comeback B y L au r e n D an i e l s
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In month’sthis edition, we
as Micha k BNY Mell on el bette Gordon if ’s r the it’s s eco time a round nd .
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NY Mellon recently made headlines with the announcement it will re-enter the reverse mortgage business. Slated to launch later this year, Home Equity Retirement Solutions will purchase, securitize and service the loans, as well as provide advisory services to brokers, financial advisors and asset managers on how the reverse mortgage can be a component of successful retirement planning. The move makes BNY Mellon the only major bank to offer reverse mortgages and the first to reconsider the business segment most exited during the economic downturn of 2007 to 2009. While it remains unclear if other marquee names will follow, the announcement brought a lot of attention and other major banks will be watching to see what happens. Michael Gordon, managing director of nontraditional solutions and special situations for BNY Mellon Investment Management, spoke with The 36
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Reverse Review to discuss what motivated the renewed interest in the business, how recent changes and reforms to the program played a role, and where he thinks the program will be in the future. It has been seven years since BNY Mellon left the reverse space [BNY Mellon offered reverse mortgages through a partnership with EverBank from 1999 to 2007]. Why is right now the right moment to once again offer a reverse mortgage? MG // Re-entering the reverse mortgage business has a lot to do with the fact that baby boomers are starting to retire in strong numbers. They are retiring with more debt and increased burdens in terms of longevity risk. Older Americans are going to live for a long time, and they will need to fund those additional years. Being able to create a stream of income from home equity can be
very helpful in managing that risk. Home equity can play an important role in helping to bridge the gap between assets and retirement liability. A reverse mortgage is one tool among many, but it’s an important tool.
It sometimes feels like the only constant in the HECM program is change. Today’s reverse mortgage is different than the one offered by BNY in 2007. Did the recent program reforms influence the decision to return? MG // Yes. Recent reforms, particularly the 2013 Reverse Mortgage Stabilization Act and the subsequent mortgagee letters issued by the U.S. Department of Housing and Development, have improved the consumer protections of the program. These measures allow lenders to underwrite mortgages and support lenders providing loans to
spotlight article
“Home equity can play an important role in helping to bridge the gap between assets and retirement liability. A reverse mortgage is one tool among many, but it’s an important tool.” -Michael Gordon
hmbs
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spotlight
But it’s not going to be for everybody. There will be some people who should consider other options. There will be people who don’t need it;
MG // It’s hard to say, but I think reverse mortgages will play a much larger role in how people think about retirement than they do today. I know year-to-date volumes are lower than they were last year. I think that’s just a transition. The fundamentals remain the same: There is a large segment of boomers who have not saved enough for retirement. It’s got to be part of the holistic plan for retirement. Deciding how to fund retirement is not solved by one product, but reverse mortgages do contribute to the solution in a very productive way. x
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MG // We offer everything from pension plans and liability-driven investing to individual funds for both corporations and individuals.
Where do you see the reverse mortgage program in five years? What does the future hold?
legal
BNY Mellon is a top 10 retirement investment manager in the United States. How does Home Equity Retirement Solutions fit into its other retirement offerings?
MG // The process has already started. Program-wide changes such as having strong suitability rules and underwriting standards, including limits on how much people can withdraw and appropriate protections around non-borrowing spouses, show this. Resolving these issues will be incredibly important to getting the perception of the program to change. The stage has been set for a shift in opinion to happen. As people think about what their options for funding retirement are, I think the reverse mortgage will be something they see they need.
servicing
MG // Our focus is sustainable retirement and homeownership. We want to believe that after you’ve done a reverse transaction, you are better off. The changes to HECMs that were put in place allow us to offer these mortgages in a socially responsible way. We want to make sure that [choosing a reverse mortgage] is the right choice and will improve the situation of the borrower. That’s really important to us.
Reverse mortgages have suffered from bad press and negative perceptions of potential borrowers, even if they’ve had no contact with the product. How can these perceptions be altered?
There’s a big gap between people who have the product and people who don’t in terms of perception; the people who have the product typically are pretty happy with it. As the recent reforms take hold, that will become even truer. The results will lead to more acceptance within the marketplace as a whole.
underwriting
A new feature of Home Equity Retirement Solutions is a “suitability survey” for each borrower. Why is this step so important?
We’ve taken addressing U.S. retirement concerns seriously as an organization for many years. Home Equity Retirement Solutions is another tool that can play a role in helping address an individual’s needs to meet their retirement obligations.
originating
only the consumers who meet the standards. As a result, it is exciting and appealing to be able to offer reverse mortgages to our clients as part of a diverse portfolio.
they have enough liquid assets. The reverse mortgage isn’t the solution for them. But there is a set of folks who are going to need to access home equity in addition to their liquid assets to pay for retirement. That is a group that as an industry, we could do a great job serving them. As the program strengthens, I think it will naturally evolve in a way that makes the reputation of reverse mortgages more reputable.
Meet Michael Michael Gordon is managing director of nontraditional solutions and special situations for BNY Mellon Investment Management, and is responsible for leading the Home Equity Retirement Solutions business within the firm. Prior to joining BNY Mellon, Gordon spent the bulk of his career at New York Life Insurance Company. reversereview.com
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The Reverse Review August 2014
The Boomer Years The second-largest generation in American history is approaching their later years on their own terms.
B y L au r e n D an i e l s
B
aby boomers are redefining retirement based on their numbers alone. Research from the Joint Center for Housing Studies at Harvard University estimates the aging baby-boom generation will lift the number of households aged 65 and over by some 10.7 million over the next 10 years. These nearly 80 million Americans, born between 1946 and 1964, have experienced major shifts in culture and politics, from the assassination of John F. Kennedy to the introduction of the iPad. Boomers are also the first
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generation to reach retirement following the seismic changes in how seniors plan and pay for their later years. Previous generations enjoyed the comfort of defined employer-funded retirement savings. The plan was clear: Workers were rewarded for their loyalty with a pension and certainty of income during retirement. That’s no longer the case; the shift to employeefunded savings, such as 401(k) plans, transferred the burden of saving to the individual. “So many of the traditional pillars of retirement security have
dissolved, and nothing has risen to replace them,” says Ramsey Alwin, vice president of economic security at the National Council on Aging. “Not only have we not modernized or upgraded our systems and policies to reflect the new economic realities, [but] there are major systemic policy dinosaurs on top of a recession that wiped out what little people had saved up.” Boomers are facing retirement with little savings, no roadmap and lots of uncertainty.
The Great Recession hit retirees and soon-to-beretirees hard. And unlike younger generations, boomers have very little time to recover from their losses. Key assets including home equity, investment portfolios and employment opportunities all declined or evaporated completely—and that assumes seniors had begun planning for retirement at all when the recession began. “We know that about half of seniors are not prepared for retirement,” says Marty Bell, executive director of the National Aging in Place Council and senior VP of NRMLA. “The other half tried to be responsible, but the recession, the rising cost of college, or the need to support their parents and their children exhausted their savings. They might have been responsible and saved for retirement, but still find themselves unable to live the lifestyle they want in their golden years.” For most seniors, the bedrock of their retirementfunding plan is over their heads, literally. Housing equity is still the primary wealth driver for older Americans, despite sliding housing values due to the burst of the housing bubble. The average senior has $125,000 in equity in their home. Personal savings and funds from 401(k)s, IRAs or other accounts lag far behind. Sixty percent of seniors surveyed by the Employee Benefit Research Institute reported the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, as less than $25,000. This figure includes the 36 percent of respondents who said they have less than $1,000 saved. These limited savings will not support a senior household for one year, let alone 20 to 30 years. Responsibly accessing home equity will be essential to covering the gap, yet less than 30 percent of seniors saw drawing on home equity as a source of income in retirement, according to research from the Insured Retirement Institute.
Ramsey Alwin “Boomers never thought they would age. As a result, they are redefining retirement.”
Home equity may be the largest piece of the retirement funding puzzle, but many seniors are also retiring with outstanding mortgage liability. Roughly 40 percent of older homeowners had a mortgage in 2010. The average mortgage debt for older seniors was $130,515. To put it
another way, mortgage payments equal 16 percent of these seniors’ gross annual income. “More seniors retiring with mortgage debt is a disturbing trend,” Alwin says. “Lower- to moderate-income seniors are most at-risk. Many are living on the edge, one crisis away from plummeting into severe economic insecurity.” Their homes are their most lucrative asset and most boomers have no intention of leaving them. Less than 4 percent of people age 65 or older have plans to move within the next 12 months, according to a study by the Joint Center for Housing Studies. The desire to stay put stays constant; seniors tend to remain in their homes until they reach 85 years old, when moving in with family or to assisted care facilities becomes more common. The choice to age at home comes with consequences. “Older homeowners are more likely to have an older home with increased housing maintenance and repair costs. Older homeowners may not have the money available to cover bigticket items like roofs or structural repairs. Even if there aren’t major issues, there are costs for seniors associated with aging: they could be small, changing knobs and pulls; or large, installing lifts and total remodels,” says Daniel McCue, research director of the Joint Center for Housing Studies. Home-related debt is not the only drain on seniors’ finances. Overall debt is also on the rise. The Center for Retirement Research at Boston College found the number of seniors with outstanding debt grew from 48 percent in 1998 to 62 percent in 2010. Debt is often a deciding factor in retirement decisions; the same study found seniors with debt are more likely to continue working beyond retirement age.
“
For some seniors, especially the most economically endangered, working longer is a necessity. But for many, delaying retirement is not a must-do, but a want-todo. Expanding the focus of retirement planning to include a mix of savings and income, along with wellness, emotional well-being and financial health, appeals to boomers’ desire to stay young and active.
“
Hard Knocks
Retirement, Redefined The numbers may not paint a rosy picture, but baby boomers are not a group to accept the status quo. “You aren’t dealing with the greatest generation or the silent generation. Baby boomers have a different emotional predisposition to the concept of aging,” Alwin says. “Boomers never thought they would age. As a result, they are redefining retirement.” After their homes, the second-most valuable asset of boomers is the boomers themselves. Supported by increased longevity, the retirement age has increased by five years to 62 over the past two decades. For some seniors, especially the most economically endangered, working longer is a necessity. But for many, delaying retirement is not a must-do, but a want-to-do. Expanding the focus of retirement planning to include a mix of 8 reversereview.com
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The Reverse Review
baby boomers
August 2014
by the numbers
*
14%
Baby boomers make up 14 percent of the American population.
11%
Only 11 percent plan to stop working entirely upon retirement.
10,000
About the number of baby boomers who will turn 65 every day for the next 15 years
55 and older
$125,000
have less than $50,000 in savings.
The average equity a senior has in their home
10.7 MILLION
80 million
The number of households aged at 65 and over to increase over the next 10 years
36%
49 percent of seniors are concerned their savings will not be enough to support them.
For more information on the role of HECMs in retirement planning, visit reversereview.com.
{
2030
49%
The typical older homeowner household had housing equity more than twice its annual income.
The number of baby boomers
about 1 in 5 Americans will be older than 65.
53 percent of households are “at risk� of not having enough to maintain their living standards 40 | TRR in retirement.
[
Half of workers age
By
53%
[
The average age of retirement
36 percent of seniors expect to rely on Social Security as their primary source of income when they retire.
marty bell “It’s not about selling, but rather education.”
savings and income, along with wellness, emotional wellbeing and financial health, appeals to boomers’ desire to stay young and active.
It is up to reverse mortgage professionals to show seniors how the product fits into this holistic approach. It’s not about selling, but rather education, Bell notes. “Anyone who goes in and speaks with seniors needs to understand all of the options available—including reverse mortgages—and think of planning as creating a meal from a menu,” he adds. When it comes to how seniors are getting information about retirement planning, friends, family and community organizations are the most trusted sources. “There is information overload but when you look at what resonates, it is information from sources seniors trust,” Alwin says. “The challenge is getting the information in front of them at the right time in order
to influence the planning process.” Partnering with financial planners or advisors is an option, although Bell estimates only 8 to 10 percent of seniors are enlisting the help of planning professionals.
Looking Forward The baby boomer generation is a moving target. They will continue to reach retirement age at a rate of 10,000 per day for the next 15 years. The youngest, who are turning 50 this year, will again impact how seniors plan for retirement. Tech-savvier than their older counterparts, the reliance on friends and family as the primary source of planning and information will decrease as individual empowerment and choice become even more important. “For the future senior, smartphone apps and other online resources will be more important tools for education and outreach,” Alwin says. The tail end of the baby boomer generation also has greater losses to recover. They took more of a hit to equity, investments and income during the economic downturn. Those aged 50
Reverse Review readers help thousands of seniors find financial security.
to 60 experienced significant foreclosure rates and lost wages at a time when saving for retirement should have been at its peak, the consequences of which will continue to be seen. The hard-learned lessons of the economic downturn have given the younger boomers a distinct advantage that will influence future generations. They are taking retirement planning seriously and looking for ways to get prepared sooner. There is a perfect storm of opportunity for reverse mortgage professionals. Baby boomers are reaching retirement at record numbers. Changes in defined benefit programs and the economic events of 2007 to 2009 have left boomers feeling less than secure in their financial future. Recent and continuing changes to the HECM product leave it better positioned for reinvention as a retirement planning tool intended to aid in bridging the savings gap boomers face. The program can help to alleviate some of the financial burden by transforming the largest wealth driver for many seniors, their homes, into an accessible income for years to come.x
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The Reverse Review August 2014
EXAMINE
last word Changing the Perception Problem By Richard Wills
Want to comment on this article? Comment online at reversereview.com.
L
ast month during a marketing meeting on the expected growth of the HECM program, an electrician walked in from the adjoining room to inform me that he had completed his job, and then added, “I don’t want to butt in, but I overheard you talking about reverse mortgages and those reverse mortgages are bad news. I would stay away from them.”
inception of the program. The Extreme Summit has identified this issue and is working on alleviating the problem, but we cannot wait for the summit to come to a city near us. We must do much more now.
It was like a hard slap across our faces. Here was a person who as it turned out never had a reverse mortgage or never even knew anyone who actually had a reverse mortgage, yet he harbored such negative feelings about the program he felt it necessary to tell strangers to stay away from it.
Volunteer in the community where you work. Become an asset. When you volunteer, find a way to let the people around you know what you do for a living. It is much harder to have negative perceptions about a product if the person selling the product is an individual working to make the community a better place.
In the midst of the encouraging news surrounding the program, it is imperative we not forget that a substantial number of consumers still cling to negative misconceptions about reverse mortgages. These erroneous beliefs inhibit the HECM’s ability to become a popular, mainstream product. This problem has been with us basically since the 42
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We must become much more proactive in our work communities. We must grasp the opportunity to become a walking positive advertisement for our program.
Seek out influential members in your community who may possess negative concepts about the program. Introduce yourself. Talk with them. Listen to what they have to say. Hear their point of view. Offer to provide them with unbiased information about the program. Do not argue. Do not be confrontational.
I volunteer and receive tremendous satisfaction from working with Senior Legal Services. Through my volunteer work, I met two social workers who had negative impressions about reverse mortgages. After several friendly discussions, they are some of my biggest supporters. We as an industry must stop shooting ourselves in the foot. In the past, we have made critical mistakes that fostered negative impressions and provided the impetus for excessive regulations. This must stop. Currently, many reverse mortgage companies are aggressively recruiting forward mortgage loan originators who know little or nothing about the program. There are also reverse mortgage originators out there now who are not knowledgeable about different components of the program and cannot clearly explain it to others. Companies in this industry have the responsibility and must implement
procedures, programs, oversight and training to insure that the substantial majority of their reverse mortgage loan originators understand the product and have the ability to clearly explain it. Unleashing incompetent or marginally competent loan originators upon financial planners, real estate agents and the consumers themselves will have disastrous results. My ideas barely scratch the surface of this important topic. If you have more to add, please submit your concerns and ideas on this issue to The Reverse Review by emailing info@ reversereview.com. Perhaps, by engaging in a conversation about how to turn this perception problem around, we can collectively help propel the industry forward. x
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The Reverse Review August 2014
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