The Reverse Review July 2014 by The Reverse Review

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S1L’s Funding Longevity Task Force

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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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The Reverse Review July 2014

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* 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 July 2014

From the Editor With this month marking exactly 25 years since the Home Equity Conversion Mortgage was established as a pilot program, our team at The Reverse Review thought it might be interesting to step back from the drama for a moment and reflect on how far the industry has come.

A note from jessica guerin

Reverse mortgage

professionals today spend countless hours discussing the current state of the market, debating the effect of recent regulation and speculating about the future of the product. With so much change happening in the industry as of late, it seems as though there is a never-ending stream of chatter about the direction of the market. Whether it’s online, in the boardroom or at a NRMLA meeting, the talk is constant, often heated, always opinionated. Some choose to take an optimistic view, preferring to focus on the promising demographics, while others feel discouraged, frustrated by the impact of recent program revisions.

Editor-in-Chief

{ Jessica Guerin } Want to contribute to the conversation? Contact jessica@reversereview.com.

Senior Publisher Reza Jahangiri

Publisher

Erik Richard

Editor-in-Chief Jessica Guerin

Creative Director Traci Knight

Copy Editor

Kersten deck

Marketing Director alycia GREER

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

The HECM industry has evolved drastically since its establishment, and while there may be more change ahead, there are thousands of reverse specialists out there who are in it for the long haul. Many of them weathered the changes years ago and they will continue to stick it out today, because they understand that this product is a valuable tool that can greatly aid America’s retirees.

Meet the Team

t ay ec st onn c

Feedback

What started as a small pilot program with an initial goal to provide just 2,500 loans to seniors with lots of equity and little income has blossomed into a full-scale effort involving thousands of dedicated professionals across the country who are committed to helping seniors find security in their retirement years.

FACEBOOK AND LINKEDIN

Table of Contents

TRR 7.14

27 | Marketing Five Keys to Building and Maintaining a Powerful Online Presence What you can do to elevate your visibility on the Web

In this issue... 18 cheryl chargin

Originating

Nick Nanton

31 | Servicing Assignments to HUD, Part I: Reasons, Processes and Purpose What happens when a loan reaches 98 percent of its maximum claim amount Jason Perez

08 | Movers and Shakers

The latest developments in companies across the reverse space

09 | Industry News

Headlining stories of the past month Reverse Mortgage Daily

11 | Stats

May’s Top Lenders Report Reverse Market Insight

12 | NRMLA News

Read about the association’s current initiatives. Marty Bell

14 | Roundup

A collection of recent facts and surveys affecting the reverse market

32 | Spotlight The Funding Longevity Task Force

Partner at Weiner Brodsky Kider

Sponsored by S1L, a group of academics seeks to eliminate misinformation about reverse mortgages.

23 | Originating

38 | Last Word

16 | Hot Seat Jim Milano

Priceless: Using the HECM to Save Homes From Foreclosure Helping seniors keep their homes is one LO’s greatest reward. Mario Quintero

New and Pending Guidelines from HUD Promise to Have an Impact Non-borrowing spouse rules and Financial Assessment are bound to shake things up.

20 michael D. Kent Originating

29 joe kelly HMBS

John Smaldone

25 | Originating Those Pesky HECM Tax Questions

jessica guerin

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S1L’s Funding Longevity Task Force

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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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A look back at the HECM’s early years

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“With so much change in the market as of late, professionals in the space spend a great deal of time discussing and debating the future of the reverse mortgage program. While it’s easy to get wrapped up in the drama of the moment, it might be worthwhile, on this notable anniversary, to take a step back to reflect on the past. Maybe, in order to assess what direction the program will take, it would be insightful to look at how far it has come.

THE

A look at the early years of the reverse mortgage program 25 years after it was launched to help America’s seniors access their home equity

Want the online version? reversereview.com/magazine

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34 | HECM Retrospective

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James Quigley

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

Tips for answering your clients’ tax inquiries

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The Reverse Review July 2014

Contributors

John K. Lunde

Marty Bell

J ohn K . L unde

Ma rty B e ll

ji m mi lan o

11 | Stats g John K. Lunde is president and founder of Reverse Market Insight, Inc., a performance data analysis and consulting firm specializing in the reverse mortgage industry. RMI clients include eight of the top 10 reverse mortgage lenders, plus investors, servicers and vendors to the industry. 949.429.0452, rminsight.net

12 | NRMLA News g Marty Bell is NRMLA’s senior vice president of communications and marketing. This is Bell’s professional Act III after careers in books, journalism and the Broadway theater. Bell is the author of two novels and four nonfiction books, and his writing has appeared in publications including Playboy and New York magazine. Bell wrote and produced the awardwinning documentary film The Boys of Summer and produced 15 Broadway shows (including Ragtime, Fosse and Dirty Rotten Scoundrels) that won 27 Tony Awards.

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

C he ry l C ha r gi n

Mi c h ae l D. K e n t

Ma r i o Qu i ntero

18 | An Account Executive’s Perspective g Cheryl Chargin is a seasoned account executive at AAG. She has been a part of the reverse mortgage industry since 2002, working in loan origination before moving on to wholesale and correspondent lending in 2007. Chargin has a business degree from USC with a minor in gerontology.

20 | Aging in “a” Place g Michael D. Kent is the founder of American Equity Management, LLC, a consulting firm specializing in human, intellectual and investment capital strategies for the mortgage industry. Kent was formerly executive VP and president of loan origination at Reverse Mortgage Solutions and has 34 years of mortgage banking experience. He is chairman emeritus and a board member of Community Technology Alliance, a 501(c)3 organization that works to provide technology solutions for ending homelessness.

23 | Priceless: Using the HECM to Save Homes From Foreclosure g Mario Quintero is a reverse mortgage specialist and the president of Strock & Tanner Mortgage Corp. He has served the senior community through a referral-based business in Florida and New Jersey since 2002. Quintero’s mission is to build a business based on strong, lasting, lifelong relationships, one person at a time, through confidence and trust.

Jame s Qui g l ey

Ni c k Nan ton

Joe K e lly

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

27 | Five Keys to Building and Maintaining a Powerful Online Presence g Nick Nanton, Esq., is an Emmy Award-winning director and producer, and the CEO of The Dicks + Nanton Celebrity Branding Agency. He is a business agent and international speaker and consultant who specializes in personal branding, direct media, marketing and PR for business growth. His newly released book, StorySelling, details the persuasive value of story in business and entrepreneurism, and outlines the steps necessary to achieve success in marketing through storytelling and media. info@dnagency.com

29 | A History of HMBS Issuance g Before establishing New View Advisors in 2008, Joe Kelly managed all aspects of Lehman Brothers’ prime mortgage finance agenda and structured the first proprietary reverse mortgage securitizations. At New View Advisors, Kelly continues to develop new reverse mortgage loan products, valuation models, quantitative research and online products for his clients. He is a frequent speaker at reverse mortgage industry events.

Jim Milano

Cheryl Chargin

Michael D. Kent

Mario Quintero

James Quigley

Nick Nanton

Joe Kelly

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Contributors

Jason Perez

Jas on P er ez

Joh n Smald on e

31 | Assignments to HUD, Part I: 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.

38 | New and Pending Guidelines from HUD Promise to Have an Impact g John Smaldone is the executive vice president of Hanover Financial Services, a consulting firm that focuses primarily on the reverse mortgage industry. Smaldone is the founder of Taylor, Bean and Whitaker and is the former senior vice president of TransLand Financial Services’ reverse mortgage divisions. With more than 46 years of mortgage banking experience and 16 years in the reverse space, Smaldone intends to remain in the reverse mortgage industry, taking on long-term consulting assignments. john@hanoverfinancial.com Do yo

John Smaldone

have wu it take hat s?

FHA Clarifies Reverse Mortgage Foreclosure Timelines for Non-Borrowing Spouses PG.09 page 38

comments we loved

“Regardless of changes we have experienced and the ones to come, I still believe we are in an exciting industry. I am confident that we will see the need and desire for the HECM product continually increase—just look at the number of seniors reaching the qualifying age! The law of averages is on our side, my friends.” —John Smaldone

There’s no such thing as a stupid idea. What do you want us to write about? Tell us! info@reversereview.com

Be a part of the conversation.Write for us! We are looking for new contributors. Share your thoughtful commentary with our readership today.

Email jessica@reversereview.com to learn more.

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?

WE CAN LEAD THE WAY!

Title - Settlement - Valuations

800.877.7557 ext 1222 www.mtginfo.com reversereview.com

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The Reverse Review July 2014

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

Hav e a c o m pan y u p date y o u w ou ld lik e t o s ee p u b l i s he d?

Texas MBA Hosts 13th Annual Reverse Mortgage Day The Texas Mortgage Bankers Association announced it will hold its annual Reverse Mortgage Day on Thursday, September 11, in Dallas at the Westin Galleria.Already one of the largest reverse mortgage conferences in the country, this event will cover ongoing industry and NRMLA initiatives that are top of mind for reverse mortgage lenders across the country. “With the lending landscape changing almost daily, those attending this conference will receive the most up-to-date information on everything from Financial Assessment to secondary markets,” said Urban Financial of America’s Scott Norman. For more information on the one-day conference, visit texasmba.org/reverse_mortgage.

ReverseVision Launches Online Education Resource

ReverseVision has launched RV University (RVU), an online education platform created to teach mortgage professionals about the reverse mortgage industry. Many of RVU’s courses will offer continuing education credits from the Nationwide Mortgage Licensing System and credits for NRMLA’s CRMP distinction. RVU courses are also essential for companies looking to ensure their staff members are speaking the same language with respect to reverse mortgages. By utilizing RVU, companies will build a team of knowledgeable reverse mortgage experts who can better serve their borrowers and

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things i didn’t know until this issue

Email it to Jessica@reversereview.com.

best position themselves to avoid any training-related issues that may arise from a CFPB audit. “RVU is a fantastic tool for reverse mortgage professionals, built as a direct response to challenges being experienced throughout the industry,” said ReverseVision Product Manager Rachel Smith. “We were repeatedly told how expensive and time-consuming it is to train new LOs and fulfillment people new to the industry. RVU will replace the need for in-house, HECM-specific training for both new and experienced staff.”

1st Financial Reverse Mortgages Branches Into New States, Expands Its team 1st Financial Reverse Mortgages has expanded into three states, establishing branches in Texas, Illinois and North Carolina. The company has also hired several HECM specialists. The Texas office welcomes Joe Valdez (manager), Chris Valdez and Larry Olez, and the Illinois office will be managed by Glen Marino. Other additions to the team include Cathy Brock (South Carolina, Georgia, North Carolina), Mike Carson (South Carolina), Mike Glozier (Georgia), Vicki Tuttle (Georgia) and Kristin Jamieson (Florida). “We are proud that our exceptional sales support platform is helping us attract quality originators and continue our measured growth into more states,” said Mike Gruley, director of reverse mortgage operations. 1st Financial Reverse Mortgages is a division of Success Mortgage Partners, Inc., headquartered in Plymouth, Michigan.

1. The average retirement savings of Americans age 55 to 64 is about $120,000—not enough to fund anyone’s golden years.

FirstBank Announces New Hires Ed O’Connor, regional manager for FirstBank, has announced several new hires as part of the company’s Northeast expansion. The new additions to the FirstBank team include: Bob Totten (Connecticut and Rhode Island), Jeff Avella (upper New York), Chris Lang (upper New York) and Peggy Winters (Long Island, New York). “Each of our new team members brings a wealth of experience and knowledge to FirstBank in the reverse mortgage arena,” O’Connor said. “We are excited about the talent joining our teams and look forward to our continued expansion with exceptional people.”

Generation Mortgage Company Connects With the Financial Planning Community Generation Mortgage Company has continued to attract attention from the financial planning community in the past several months. GMC President and CEO Colin Cushman recently spoke on a panel at the Financial Advisor Retirement Symposium in Las Vegas about the risk management opportunities reverse mortgages present to financial planners. A recent issue of Financial Advisor magazine also featured an article about the HECM industry and its impact on financial planners and their clients’ retirement strategies, including quotes from Cushman about how financial advisors can benefit from reverse mortgage knowledge.

2. Five helpful keys to building and maintaining a powerful online presence

3. What steps the servicer takes when a loan reaches 98% MCA

Industry News

July 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.HUD Halts Insurance of

Fixed-Rate Future Draw HECMs

Echoing a similar precedent set by Ginnie Mae, HUD has issued a mortgagee letter stating that it will not insure HECMs that allow future fixed-rate draws against the principal limit. “FHA believes that these new variants of fixed interest rate HECM products pose a threat to the future financial soundness of the HECM program, to the department’s ability to operate the HECM program, and to Ginnie Mae’s ability to operate a financially sound securitization program,” HUD wrote. FHA will insure all fixed-rate reverse mortgages that closed on or before the publication of the mortgagee letter, provided that the loans allow a single, full draw to be made at loan closing, and that the loan does not provide for future draws by the borrower under any circumstances. The effective date for these limitations are for case numbers assigned on or after June 25, 2014—the same effective date for limitations on adjustable-rate HECMs, for which HUD states FHA will only insure loans where the payment plan option is either tenure, term, line of credit, modified tenure or modified term. // June 19, 2014

2.FHA Clarifies Foreclosure Timelines for Non-Borrowing Spouses

Following a 60-day foreclosure extension notice issued by HUD in April, FHA has clarified its guidance regarding reverse mortgage foreclosure timelines. Now, up to two 60-day extensions can be granted to non-borrowing spouses of reverse mortgage borrowers: one before initiating foreclosure and one during the process

of the foreclosure. These updated HECM Reasonable Diligence Timeframe Extensions apply to non-borrowing spouses who are facing foreclosure due to the borrower passing away, and to those cases in which the lender has already initiated foreclosure. // June 17, 2014

3.HUD Says No Relief for NonBorrowing Spouses in AARP Case

HUD responded to a judge’s order to determine relief for two reverse mortgage non-borrowing spouse plaintiffs, stating the department would provide no such relief. In a letter including a Determination on Remand document sent to legal counsel for the plaintiffs, including representation by the AARP Foundation Litigation, FHA Commissioner Carol Galante said the administration has determined that no further relief should be granted to the plaintiffs. The two plaintiffs are nonborrowing spouses of now-deceased reverse mortgage borrowers who first filed their case in 2011 claiming they had been unduly foreclosed upon and should be considered “homeowners” under the terms of the loans. The court initially ruled in favor of HUD’s interpretation of the reverse mortgage statute, which resulted in foreclosure of the plaintiffs’ homes. The plaintiffs later appealed the decision and won in October of last year. The plaintiffs are expected to challenge HUD’s determination in court in the coming weeks. // June 20, 2014

4.BNY Mellon Launches New Reverse Mortgage Business

Investment management and services bank BNY Mellon announced it is planning to launch Home Equity Retirement Solutions—a business channel that will purchase, securitize and service reverse

mortgages—later this year. The company will also provide advisory services to brokers, financial advisors and asset managers on how the loans fit into retirement plans. “Many retirees face a significant financial shortfall,” said Michael Gordon, managing director of nontraditional solutions and special situations for BNY Mellon Investment Management. “We view the funds generated by suitable reverse mortgages as an additional fixed income component of retirement portfolios, an important part of retirement planning that complements other aspects of the plan.” BNY Mellon currently works as an asset manager for 401(k) plans and defined benefit investments. It has $1.6 trillion assets under management and operates in more than 100 markets, according to its company website. It previously owned a reverse mortgage channel, which was sold to EverBank in 2007; EverBank was later acquired by MetLife Bank. // June 13, 2014

5.Obama Scorecard:

Homeowners’ Equity at Highest Level Since ’07

Growing equity and a rebound in the sale of new and existing homes are some of the key indicators showing progress in the housing market, the White House announced. Homeowners’ equity was up nearly $795 billion in the ﬁrst quarter of 2014, reaching more than $10.8 trillion, the highest level since the second quarter of 2007, the May edition of the Obama Administration’s Housing Scorecard shows. The change in home equity since April 1, 2009, now stands at more than $4.7 trillion. In the first quarter of 2014, more than 300,000 borrowers returned to a position of positive equity in their homes, shows the comprehensive report on the nation’s housing market. // June 16, 2014

reversereview.com

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The Reverse Review July 2014

Readers Respond The June issue of TRR inspired lots of conversation on the Web. Here’s what our readers had to say:

respond

readers

Do you have something to say?

www.reversereview.com 8

HUD Addresses Non-Borrowing Spouses By Ralph Rosynek “HUD has accepted the interpretation of a HECM homeowner put forward by plaintiffs through AARP litigation and the Skalet law firm. In one sense, ML 2014-07 is a wise surrender letter. Commissioner Galante and HUD’s leadership deserve credit for recognizing that legal victory, even if possible, is not a real victory in the HECM NBS issue. The problem of [non-borrowing spouses] facing foreclosure and expecting foreclosure must be addressed for a comprehensive resolution of the matter.”

Comment on our stories online for a chance to see your thoughts in print. Be a part of the conversation about how we can better serve our seniors!

Doing Right by Taking Your Time

–Atare Agbamu

By Austen Verst

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HUD Rules on Non-Borrowing Spouses

“Thank you for highlighting the various and often overlooked aspects of professional reverse mortgage origination. In a climate of confusion and competing messages, kitchen-table clarity is often the best solution. Thanks again for highlighting this art form.”

REVERSE MORTGAGE MARKETING AT THE GROUND LEVEL PG. 24 DOCUMENTING YOUR FINANCIAL ASSESSMENT DETERMINATIONS PG. 30 +JASON McNAMARA SITS DOWN IN OUR HOT SEAT PG. 16

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“Shelley, thanks for your piece. I just reminded someone today that activities yield results, as someone told me years ago. I sometimes refer to my position in baseball terms. Most months I say it’s like being on the home team and it’s the bottom of the 9th again and [we’re] behind by a few runs. I still have time to survive and win the game... After 12 years [I’m] still swinging, though some outs hurt more than others, and yes, I’m working harder than ever before to continue to help make a difference.” –Patti

to let folks talk about WT VIE RE

By Shelley Giordano

“I’ve found it helpful

By Jessica Guerin SE

The Hard Is What Makes It Great

Feet on the Street

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is important to them. Seniors want to keep control of finances and quality of life. Many have lost some control—over their activities, physical capabilities, travel, driving, even their diets. We need

Reverse professionals pound the pavement, connecting with seniors in their communities to discuss the benefits of the loan.

–Don Graves

Reverse Mortgage Marketing at the Ground Level By Patricia Whitlock “Great article, very informative. It’s great to close a loan, but closing a loan while building trust and educating the consumer is even better. It’s obvious [Patricia Whitlock is] an expert in reverse mortgages.” –Gino Something on your mind? Need to get something off your chest? Hate something we do? Love something we do? Letters to the editor may be emailed to jessica@reversereview.com.

to emphasize that having liquidity and improved cash flow can help them retain that control.” –Florian Steciuch

Stats May 2014

Top Lenders Report

American Advisors Group

One Reverse Mortgage

S1L / RMS

Endorsement

12345 1382

396

Lender

Endorsement

316

Endorsements

Urban Liberty Financial of Home America Equity

Endorsement

265

248

Lender

Endorsements

PROFICIO MORTGAGE VENTURES LLC

148

MLD MORTGAGE

LIVE WELL FINANCIAL INC

111

MORTGAGE SERVICES III LLC

GENERATION MORTGAGE COMPANY

108

MAS ASSOCIATES LLC

MAVERICK FUNDING CORP

GEORGETOWN MORTGAGE

REVERSE MORTGAGE FUNDING LLC

UNIVERSAL LENDING CORPORATION

NET EQUITY FINANCIAL INC

PEOPLES BANK

FIRSTBANK

DOLLAR BANK FSB

UNITED NORTHERN MORTGAGE BANKERS 55

FULTON BANK

ASSOCIATED MORTGAGE BANKERS INC

BERKSHIRE BANK

MCM HOLDINGS INC

GUARANTEED RATE INC

SUN WEST MORTGAGE CO INC

HOMEOWNERS MORTGAGE ENTERPRISE

HIGH TECH LENDING INC

THE FEDERAL SAVINGS BANK

NATIONWIDE EQUITIES CORPORATION

SUCCESS MORTGAGE PARTNERS INC

CHERRY CREEK MORTGAGE CO INC

WHOLESALE CAPITAL CORP

ADVISORS MORTGAGE GROUP LLC

ATLANTIC PACIFIC MORTGAGE CORP

FIRSTAR BANK

BANK OF NORTH CAROLINA

OPEN MORTGAGE LLC

AMERICAN LIBERTY MORTGAGE INC

TOWNEBANK

AMERICA’S MORTGAGE RESOURCE IN Reverse Market Insight - Logo

M & T BANK

PLAZA HOME MORTGAGE INC

UNITED SOUTHWEST MORTGAGE CORP

MONEY HOUSE INC

GMFS LLC

NORTH AMERICAN SAVINGS BANK

SENIOR MORTGAGE BANKERS INC

SUN AMERICAN MORTGAGE CO

MORTGAGESHOP LLC

TOP FLITE FINANCIAL INC

NATIONSTAR MORTGAGE LLC

AMERICAN PACIFIC MORTGAGE

ATLANTIC BAY MORTGAGE GROUP LLC

FRANKLIN FIRST FINANCIAL LTD

AMERICAN NATIONWIDE MORTGAGE CO

Endorsement

PANTONE COLORS

October 9, 2009

3005C

Process Blk C

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. reversereview.com

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The Reverse Review July 2014

NRMLA News

On the Docket: Non-Borrowing Spouse HECM Litigation Continues Apace

The Bennett and Plunkett HECM non-borrower spouse (NBS) cases continue to be litigated at an accelerated pace in the U.S. District Court for the District of Columbia, with another important filing by HUD on June 4 (a “determination” of the FHA commissioner to provide no relief to the individual NBS in the Bennett case and, most significantly, to fully honor HUD’s insurance obligations to lenders in those cases), and with another court hearing June 10. HUD also filed a status report on the results to date of FHA Info 14-19 (April 21, 2014), the permitted 60-day extension of foreclosure timeframes for certain NBS. In its report, HUD noted (based on information provided by servicers) that, as of May 28, 280 requests for such extensions had been received and

Louisiana → The state’s

legislature recently enacted House Bill 807, which revises the Secure and Fair Enforcement of Mortgage Licensing Act of 2009 by requiring mortgage servicers (including reverse mortgage servicers) to become licensed. The bill defines “mortgage servicing” as the collecting or remitting of payments for another, or the right to collect or remit payments for another, of any of the following: principal, interest, tax, insurance or other payment under a mortgage loan. Although HB 807 is effective June 30, 2014, servicers do not need to obtain a license until June 30, 2015.

approved, and that from January 1 through May 15, 2014, FHA received 6,550 notices of the initiation of foreclosure. The court still has before it a request (which HUD is vigorously opposing) that it certify a nationwide class of NBS, and a challenge to the HUD determination to provide no relief to the individual NBS. Additional rulings on this and related matters are expected soon. HUD (including the FHA commissioner) and its attorneys are clearly expending a significant amount of time and energy in thinking through the best approach to resolving these NBS issues in a manner that best serves the interests of seniors and HECM program participants, and that preserves and strengthens the HECM program in the years to come. NRMLA remains fully supportive of that effort and will continue to closely monitor developments in this litigation and seek to participate in it if and when that appears to be appropriate.

California → Testifying before

the Senate Banking and Financial Institutions Committee in the California General Assembly, NRMLA President and CEO Peter Bell said the reverse mortgage industry supports legislation that protects and informs consumers, but Assembly Bill 1700 could potentially harm senior consumers unless it is amended. NRMLA has concerns about the proposed seven-day coolingoff period after counseling, information provided in the Reverse Mortgage Worksheet Guide, and the restriction on who must provide the Important Notice to Reverse Mortgage Loan Applicant disclosure. Bell testified that processing times can take several months, thereby giving potential borrowers ample time to decide whether a reverse mortgage is the appropriate product for them and

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negating the need for a coolingoff period. “In some cases,” he added, “a seven-day delay could exacerbate timing issues, such as when the reverse mortgage is being used to save a senior’s home that is in foreclosure, or when the reverse mortgage is being used to purchase a home.” The Reverse Mortgage Worksheet Guide, added Bell, conflicts with the recently published Mortgagee Letter 2014-07, which, starting August 4, protects nonborrowing spouses by allowing them to continue living in their homes after the mortgagor passes away. The worksheet g uide also does not fully explain the breadth of responsibilities of reverse mortgage counselors, which may confuse some clients. AB 1700 requires the Important Notice to Reverse Mortgage Loan

NRMLA member This month, NRMLA welcomes two new international members: • Australian Seniors Finance Pty Ltd Melbourne, Australia • Heartland Bank Limited Auckland, New Zealand

Consumer site visits Reversemortgage.org, the website that contains your member listings, welcomed 28,484 unique visitors in May.

Applicant to be handed out by the lender to the client prior to counseling. Bell testified that this proposal doesn’t account for circumstances where the senior attends counseling prior to engaging a lender. This creates the “unintended but potential effect of tying a senior to one lender instead of being able to shop for a reverse mortgage loan,” he noted. Still, the Banking Committee approved the bill and sent it to the Judiciary Committee for further consideration. NRMLA continues to argue its viewpoint before that committee.

In the Press The Tampa Bay Times ran a piece in May largely sympathetic toward local borrowers who utilized all the proceeds from their loan, collected a tenured payment for seven years, then stopped paying real estate taxes for three years and faced foreclosure. The piece was also picked up by The Boston Globe. NRMLA was told its response, this letter to the editor, will run in the Tampa newspaper.

To the Editor: A recent front-page article [“Complexities of Reverse Mortgages Snag Homeowners,” May 30, 2014] told a very unfortunate story of one family’s experience with a reverse mortgage. That story, while very sad, is not the norm for reverse mortgage borrowers, most of whom report satisfaction with the product. Reverse mortgages, like other mortgages or loans or other financial products, come with responsibilities. As the author correctly noted in the piece, all potential reverse mortgage borrowers must meet with a certified counselor to ensure that they understand the terms before they move forward. In this case, the borrowers admit they signed paperwork without “paying much attention to the terms” and later went three years without fulfilling their responsibility of paying their homeowner’s insurance. In the event that borrowers find themselves in a tough situation where they are unable to meet the terms of their loan, the best thing to do is to contact the loan’s servicer so that they can work with the lender to develop a solution. Reverse mortgages are a useful and beneficial retirement financing tool for many Americans, and historically the Department of Housing and Urban Development has responsibly observed the experience of borrowers and made adjustments to improve the program. The situation faced by these borrowers is much less likely to occur in the future as a result of the changes already implemented and soon to be implemented (limitations on upfront draws, financial assessment) as a result of the Reverse Mortgage Stabilization Act of 2013. Peter Bell President and CEO, National Reverse Mortgage Lenders Association Washington, D.C.

Telling Our Story: Rolling Out the New Reverse Mortgage

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

In July, we will begin our national education campaign about the new reverse mortgage. In the Extreme Summit pilot markets (Denver, Philadelphia and Seattle) via a television commercial, newspaper ads, a new website and a public relations outreach, we will launch a widespread effort to explain to elder Americans and their families that the reverse mortgage is now a better product and worth investigating further. To those of us working in the industry who have followed the evolution of the HECM program, we know in our hearts that this is a legitimate claim. The opportunity to assess a potential borrower’s financial circumstances and the likelihood of them being able to fulfill their obligations, the limitation on upfront draws that helps extend the life of remaining proceeds, and the addressing of potential predicaments for nonborrowing spouses all merge to yield a safer product and a more secure future. But to those who do not follow the day-today journey of reverse mortgages as we do (which is nearly everyone outside of the business), saying reverse mortgages are new is one thing, but proving it is another. “New” is a popular and perhaps overused tag in America. Convincing the general public that we deserve to call a reverse mortgage “new” is not going to be a short-term endeavor. It is going to require some patience. And it is going to require a lot of evidence. At NRMLA, we believe it is our responsibility to chronicle the evolution of the new reverse mortgage. We know we are going to have to commit the next few years toward this effort and we happily will. To acquire the evidence we are going to need, we must reach out to you for help. When you close a loan with a borrower who has responsibly planned their retirement and is utilizing their proceeds to extend the life of their assets, or who had a retirement funding plan on track but was derailed by the Great Recession, or who is using a HECM for Purchase to move into a new home that better serves their needs as they age, please ask them if they are willing to tell their story for public consumption. And, if so, if they will permit us to contact them. We intend to build a large volume of these stories in Reverse Mortgage magazine and use them as testimonials on our websites. By enabling us to tell the story of a responsible borrower, you are giving confidence to future borrowers, helping the industry as a whole and, as a result, helping your own business going forward. We believe we are going to have a good story to tell, but none of us can tell it thoroughly alone. We all need to tell it together. reversereview.com

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NEWS FROM NRMLA

NRMLA News

The Reverse Review July 2014

Roundup Here is a look at the latest

this m o nth

news and stats

affecting the market. R etirement S tats

Half of Americans have no retirement plan.

According to a recent study by the Center for Retirement Research at Boston College, many Americans are woefully unprepared for retirement.

2% VA Mortgage

{

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

1% Second Mortgage 1% Reverse Mortgage

4% Home Equity Loan or Line of Credit 8% FHA Mortgage

H o me E q uit y

Senior home equity increases yet again.

45% Other Mortgage 10% Conventional Adjustable Mortgage (ARM)

T y pes o f M o rtgage P r o ducts C o nsumers C o mplain A b o ut 29% Conventional Fixed Mortgage

H E C M FA C T S

Half of private sector wage and salary workers age 25 to 64 participate in a retirement plan.

An annual report from the CFPB revealed that HECM loans comprised only 1 percent of the 59,900

1/3 of older adults are reaching their 60s with no pension coverage.

which consumers were unable to pay, including situations involving loan modification, collection or foreclosure. Just over a quarter of the complaints related to making payments, including loan servicing and escrow accounts.

Reverse mortgages comprise only 1% of CFPB mortgage complaints.

mortgage complaints the bureau received last year. The majority of complaints were related to cases in

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

I n the N ews “The average retirement savings of Americans age 55 to 64 is about $120,000— not enough to fund anyone’s golden years.” –Time magazine, May 2014

S eni o r S entiment

Survey sheds light on the senior population’s confidence in their retirement savings. The Employee Benefit Research Institute survey asked workers how confident they were about having enough money in retirement to be comfortable.

T DEB

somewhat confident

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very confident

HAVE LESS THAN $1,000 IN SAVINGS

have a problem with their level of debt

In the Media Complete Senior Tackles Reverse Mortgages A new senior-centric publication aims to educate consumers about preparing for retirement.

With countless news outlets misreporting facts about reverse mortgages, it’s refreshing to see a publication make it its mission to get it right. CS magazine and its online counterpart, completesenior.com, strive to educate seniors about products that are important to Bill Baskin, Complete them. Part of its content Senior’s publisher focuses on how seniors and CEO, says the publication seeks can best prepare for to dispel negative retirement and includes misinformation about accurate, unbiased the product. “What information about the we are trying to do benefits of a reverse is create a perception in the minds of mortgage. Complete retirees and baby Senior aims to educate boomers that a reverse people on the different mortgage is not a ways a reverse mortgage bad thing,” Baskin can be used as a says. “It’s not a scary thing. It’s a benefit financial tool, pointing provided to seniors by out that it’s not simply Ronald Reagan, who a hardship program for enacted it and [had it] those who need access backed by the federal to fast cash to pay bills. government as a way to utilize your home’s equity. It’s a great tool for retirement and most people aren’t leveraging that.”

Behind Complete Senior is ePath Media in Laguna Beach, California. A large generator of reverse mortgage leads, ePath Media connects interested parties directly with qualified lenders. “Our goal is to connect with everyone who goes to our site and reads our magazine so that they feel they’re having a conversation with a trusted friend,” Editor-in-Chief Richard Perez-Feria says. The publication also offers information beyond finances, covering hot topics in news, travel and entertainment. “We tackle the most important and financially vital issues as well as discussions about what makes life worth living, such as the best hotels and restaurants, places to

“What we are trying to do is to create a perception in the minds of retirees and baby boomers that a reverse mortgage is not a bad thing... It’s a great tool for retirement and most people aren’t leveraging that.”

travel and what’s happening with their favorite celebrity. In a sense, we try to encompass a complete experience, hence our name—a complete 360 of one’s life. We’re the only site that deals with the left and right side of the brain. Other sites have hardcore information, but we have all aspects of a person’s life.” Baskin says that as a strong proponent of the power of the HECM, Complete Senior is actively working to help expand the market. “Now that the industry has changed and lending criteria have gotten tougher, a lot of lenders are reeling in this new paradigm,” Baskin says. “They’re back on their heels trying to figure out a way to gain market penetration and go after a broader swath of ‘wantsbased’ rather than ‘needs-based’ borrowers. That’s what we’re doing. We’re educating older Americans not to think of reverse mortgages as a ‘nightmare’ like The New York Times has said, but to think of them as a legitimate government benefit for older Americans and an integral part of a retiree’s retirement planning strategy. That’s what the industry is trying to do too, and that will resonate.” x reversereview.com

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The Reverse Review July 2014

the

THE

REVERSE

hot

review

seat

july 2014

Jim

From his first job and his favorite TV show to his thoughts about the future of Weiner Brodsky Kider Partner

the reverse mortgage market, we get the personal and professional facts from Jim Milano, partner at Weiner Brodsky Kider, in this monthâ&#x20AC;&#x2122;s edition of The Hot Seat.

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P E R SO N A L >

Ten years from now, my twin daughters

the street (even on one-way streets). >

was more than a couple of “round lots”

will be in high school... yikes! > Something

of the stock of a publicly traded subprime

nobody knows about me

mortgage company in 2006. It went

is that I am a co-inventor of the “Muslim

bankrupt and was a total loss.

mortgage” with Mohammad L. Hammour and Harvey Weiner. With this mortgage,

The worst purchase I’ve ever made

> The

best purchase I’ve ever made was

devout Muslims in the U.S. can access

heavy dollar cost averaging into blue chip

Sharia-compliant financing for home

U.S. stocks starting in October 2008.

acquisition and debt replacement that does not involve the payment of interest, which is

> If

for a day, I would choose Richard

not permitted under Islamic (Sharia) law. > My

Cordray, and I would direct all of the CFPB enforcement attorneys heretofore to “play

favorite vacation was in Tobago in

fair.”

February 2014 with family and friends. We stayed at a remote villa on a cliff overlooking the ocean and had an infinity

I could trade places with someone

> For

I never miss an episode of CBS’

Sunday Morning (where Fred Thompson ads appear regularly, and yes, I do look for the regulatory compliance disclosures on the ad each time it runs).

success I have sacrificed time away

from family.

pool, an incredible view and, most importantly, fully functional Wi-Fi. I am trying to convince my law partners to open a

Professional

winter office there.

> Ten

> The

mortgage industry will be thriving and

craziest thing I’ve ever done was

15 years ago, leaving a “cushy” corporate

much more integrated with retirement and

job to go into the private practice of law.

financial planning (and even more regulated

The “insanity,” however, is working out well

than it is today).

thus far. >

The most fascinating things about

If I had three wishes they would be

the reverse mortgage industry is the

widespread, worldwide use of alternative

upbeat and motivated nature of the sales

energy; the elimination of food waste; and a

and operations force; how pleased an

solution and end to gun attacks in schools

overwhelming majority of seniors seem to

and other public places.

be with their loans; and the apparent desire of some journalists to stir up negativity

I never miss an episode of CBS’ Sunday

merely to “sell” a headline.

Morning (where Fred Thompson ads appear regularly, and yes, I do look for the

reverse mortgage industry it would be

ad each time it runs).

to reduce some of the drama.

morning I wake up to two little

In shaping appropriate regulation

“chirping birdies,” my 4-year-old twin

of the reverse mortgage industry,

daughters, Katherine and Kristina.

government officials need to

> My

favorite time of the day is sunset.

understand that it is not for everyone and those in the industry know that; it will not

I’ve never been skydiving or scuba diving,

be the next subprime; and those in the

much to the satisfaction and relief of my life

industry want to and are trying very hard to

insurance company.

do things the right way.

> I

always look both ways before crossing

The best purchase I’ve ever made was heavy dollar cost averaging into blue chip U.S. stocks starting in October 2008.

If I could change one thing about the

regulatory compliance disclosures on the

> Every

years from now the reverse

My favorite time of the day is sunset. reversereview.com

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The Reverse Review July 2014

originating An Account Executive’s Perspective Ch e ry l C h a rgi n sort out some of the most complicated situations, mediate through feelings and facts, and in the end, try to bring about awareness and education regarding our HECM products and FHA guidelines to reach a level of mutual understanding. This is no complaint— these are all the reasons I love my job and find it exciting, challenging and motivating.

ave you ever organized counseling for a jailbird? Or explained to a Native American chief how a reverse can be done on sovereign tribal land? Or been tasked with gathering the right people to close a loan on a historical property? If you have, you might be a reverse mortgage account executive just like me, who deals with these kinds of crazy situations on an almost daily basis. I should probably call it a day in my life as an AE! I think the job I do has so many angles, twists and turns that no one day can ever be predictable. And it hasn’t gotten any easier as the program guidelines and competition have changed. How often has it been said over the last few years, “Where did all of the easy loans go?” or “I think I must get all of the tough loans”? I often describe my position as reactionary because a lot of the time, I’m asked to help put out fires when our clients need it most. I

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While I have more than 12 years of experience in the reverse mortgage business, I still get hit with the, “you just can’t make this stuff up” scenario. Trying to convince an underwriter that a hobby farm owner isn’t a commercial property even though he’s a member of the “Goat Guild” is just one example! I am fortunate to have some amazing resources to call upon (at AAG, of course), who come together to help me get the answers we need to get the borrower to the closing finish line. I owe all of my knowledge to the very well-versed and patient underwriters, processors, closers and managers with whom I have worked over the years. My present team out of Arizona raises that bar even higher. So, that’s one side of the coin: The management of tricky situations with knowledge, speed, accuracy and a bit of grace never hurts! Now, finding the right kind of partner and aligning the pricing, technology, service, product and company culture begins. That partner needs to trust that their AE will

“No two reverse mortgage shops are alike, just like no two borrowers are alike. Nothing replaces a handshake, smile and conversation when attempting or continuing to gain trust, which of course is winning the business. It’s important to have an increased understanding of who your partners are and what that company is all about so that you can better serve their needs.”

according to cheryl

originating be their voice and their advocate. If a partner feels heard and understood and hands over a situation they trust me to handle, I know I’m doing my job right. There is a bit of an art to managing both the internal and external customers at times and in no way have I mastered it, but this is ultimately what I’m in place to do. I strive to achieve this synergistic potential in every situation and at every level of communication. It’s often felt that underwriting, policy and procedure are at odds with sales. That’s not the case at all—or at least it sure shouldn’t be. We all have the common goal of getting loans closed. While underwriting and management have their perspective and responsibility to uphold guidelines and protect the company, the only way everyone stays employed is to make sure loans get closed and funded.

partner or a borrower, and customer service based on logic and commonsense, sure have made my job as enjoyable as it can be. That said, when working with the puzzle pieces of a particular loan, it is still about the need to set reasonable expectations as to what is really possible and acceptable. I call it turning the gray into black and white. I find that whatever the outcome, if a partner comes away with a full understanding and some education, we’re all better for it. Knowing and understanding the “why” behind the “what” makes everyone feel they’ve gained knowledge and respect. I know I continue to learn things daily, which helps me be the resource I need to be.

HMBS

As with everything in life, it’s all about that global work/ life balance we try to achieve, as well as all the little goals in between. The success of my position rests heavily on navigating this balance, attempting an even scale with every step I take. x

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marketing

I think the industry as a whole has evolved and become much more customer-centric when it comes to both business-toconsumer transactions and business-to-business relationships. I know for certain that is the environment I currently operate in at AAG. Customer awareness on the part of a business

originating

Then you have the rather unusual dynamic of working with such a large retail shop. Leads running into each other, brand perspectives and company egos—it’s all an interesting play in which you understand both sides. I believe that a company with strong retail and wholesale divisions can not only survive, but also thrive and leverage opportunities for more growth and success.

The other aspect of this position I thoroughly enjoy is getting to know each individual partner’s culture and personality. No two reverse mortgage shops are alike, just like no two borrowers are alike. Nothing replaces a handshake, smile and conversation when attempting or continuing to gain trust, which of course is winning the business. It’s important to have an increased understanding of who your partners are and what that company is all about so that you can better serve their needs.

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The Reverse Review July 2014

originating

Aging in “a” Place Mich a e l D . Ke n t

uring the last four years of my reverse mortgage career, I have listened to a multitude of speakers at various conferences speak about the goals of the HECM program. One often stated goal is providing our seniors the ability to “age in place.” As much as I believe this to be a noble goal, I also believe it to be more rooted in romanticism than practicality or reality. I realize the idea of living out our lives in the “family home” where we raised our children and created hundreds or thousands of lifelong memories sounds appealing, and on the surface it is. It is understandable that we would want to be in a place that is familiar and emotionally secure to us. After all, this is our home. However, what we need to take into account is that our needs have and will continue to change. What was once practical and perfect for our needs is now likely impractical. Over the last four years I have been directly or indirectly involved in the origination and purchase of thousands of HECM loans. During this time I have reviewed hundreds of appraisals. In most cases, the properties I reviewed were of good quality and in good repair with features that would

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understandably attract a young and growing family. However, many of these properties were built for the needs of the homeowner 40 to 50 years back, and those needs have changed. In addition, due to the age of the properties, they often lack conveniences provided by advances in construction technology. Homes built 50-plus years ago can be well maintained, but they typically lack the advantages offered in homes constructed today. Advances in building materials, energy-efficient appliances and more thoughtful functional design have driven down the cost of home maintenance and increased ease of use. Additionally, homes being built in communities specifically designed for the needs of seniors offer not only advances in design, functionality and materials, but also a community environment tailored to their needs.

“As professionals in the reverse mortgage industry, we have a responsibility that goes beyond simply making loans. Our responsibility extends to the needs of our clients. Our responsibility requires us to give input and guidance not only on the loan programs we offer, but also on the appropriateness of the entire plan. This may require including other family members or friends in the discussion. It may extend the process as we work with our clients to think through their options.”

originating When my dad retired, he and my mom moved to a 55-plus community in Florida. The community was perfect for their needs and the home was far more appropriate than our big and old two-story Cape Cod home in Illinois. Their new home was extremely energy-efficient and single-level with wider hallways, a more open design and no stairs. The home was perfect for their needs, but more importantly, so was the community.

As professionals in the reverse mortgage industry, we have a responsibility that goes beyond simply making loans. Our responsibility extends to the needs of our clients. Our responsibility requires us to give input and guidance not only on the loan programs we offer, but also on the appropriateness of the entire plan. This may require including other family members or friends in the discussion. It may extend the process as we work with our clients to think through their options.

HMBS

In the end, the goal to help seniors age in place may in fact not be the best goal for us to set. Instead, a mission to help seniors age in a place—a place that is safe, a place that is energyefficient and low-maintenance, a place that provides for an engaged community, a place appropriate for their needs—may be a better focus that will provide our senior clients with the solution they seek. x

marketing

Thirteen years after my dad passed, Mom’s health was starting to become an issue. The final determination to move her home with us was the result of an incident that, thanks to a concerned neighbor, did not turn into a tragedy.

Lucy sensed something was wrong because she understood how things can change rapidly as you get older. She understood this because she was experiencing the same process. Lucy was one year younger than Mom. She didn’t need to worry about getting the kids to soccer practice or dance lessons or the hundreds of other things that younger families need to deal with and pay attention to. She was engaged with her neighbors because of their shared experiences and the fact that

they were at the same place in their lives.

originating

My dad passed away two years after my parents moved to Florida. But I wasn’t too concerned about Mom because she was always telling me about her great neighbors and how tight-knit the community was. It was this sense of community that would later save my mom’s life.

Mom became faint one morning and fell in her kitchen. She was unable to get up. Fortunately, her neighbor, Lucy, noticed she had not seen my mom the entire day. Concerned, she went over to my mom’s house and rang the bell. Mom was unable to answer the door, but Lucy sensed something was wrong and called for help. Mom was taken to the hospital and checked in for the night. Her doctor told her she was very lucky Lucy came by, because she may not have made it all that much longer without medical care.

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The Reverse Review July 2014

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originating

Priceless: Using the HECM to Save Homes From Foreclosure Ma rio Q u in t e r o

HMBS

Next, I wrote a letter to their attorney explaining what we were going to attempt, so that he could petition the judge overseeing the foreclosure to secure a 30-day extension to give us enough time to complete the reverse mortgage. Along with the letter, I included a loan comparison reflecting the funds available to pay off the lender. Within 48 hours, the judge granted us a 45-day extension to complete the process.

Over the last four years, my team and I have helped families navigate all sorts of challenges in order to keep their homes. We’ve helped clients negotiate short payoffs on second lien defaults and first lien defaults with hard equity lenders; made sure that their homes met the minimum FHA standards; and talked at length with their legal advisors, financial advisors, children and extended family members.

Counseling was completed immediately, an FHA case number was issued and an appraisal was ordered. The determined value of $266,000 gave us enough additional funds to cover the renewal of their annual insurance policy for the next year and leave a $2,020 disbursement at closing.

We have become experts in reverse mortgages. We take the time to continually educate ourselves and our staff on the details of this great product. We regularly participate in NRMLA meetings and we speak publicly about the benefits of a reverse mortgage to anyone who is interested. We do all of this because we have experienced firsthand the HECM’S tremendous power to help people like the Torreses. We have seen that, although every home has a dollar figure attached, the value of knowing you have been saved from foreclosure is priceless. x

The loan package was signed and the necessary documents were submitted to underwriting with a copy of the judge’s order to extend the foreclosure sale to May 31 so the underwriter would be thoroughly informed of the file’s

reversereview.com

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spotlight

On that final day, the family gathered in our office to sign the closing documents. When it was all over, the relief on their faces was priceless. As we do at all the closing celebrations that we like to do for our clients, we toasted to the family with Martinelli’s Apple Cider and enjoyed cake before reading the family a letter from our staff expressing how privileged we felt to be able to assist them in saving their home. It is a tremendously satisfying feeling to know that we were able to work with this family to help them find a solution to their problem.

servicing

My next objective was to meet with the family face to face in their home to discuss the process of counseling and inspect the home to ensure there were no circumstances that would prevent a successful FHA appraisal from being completed (i.e., peeling paint, unpermitted work, illegal additions, extra kitchens, security bars on the windows, etc.). After meeting with the family, I determined that the home was in great shape and they were ready to schedule counseling in Spanish. I reviewed the counseling booklet with them and helped them prepare a monthly household expense and income list for counseling.

And then, that magical thing happened: We got the “clear to close.” It was time to coordinate the final process. At this point, the family was ecstatic but still in disbelief because they were so close to losing the home they had lived in and loved for more than 30 years, the home where they raised their children and where they were caring for an elderly parent. I suggested that as many family members as possible attend the closing celebration we had planned on Friday afternoon.

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My first objective was to determine whether there was enough equity to liquidate the $80,000 mortgage plus $40,000 in penalties. After doing my own comparable search through MLS and RealQuest, I determined the value would be tight but sufficient at $260,000 to meet our objective.

urgency. Within 48 hours, minimal conditions came back that we immediately handled, and appraisal conditions were resolved by the AMC and its appraiser.

originating

s I sit writing this article, my adrenaline is still flowing from the feeling that our team just experienced this past Friday for the 25th time in four years: saving a family’s home from foreclosure as time was running out. This is the story of the Torres family from Miami, Florida. They were two weeks away from losing their home on the courthouse steps when I received an email on a Saturday afternoon from one of our banking referral partners. I immediately went into urgency mode once I spoke to their son, who was my initial point of contact.

The Reverse Review July 2014

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originating

Those Pesky HECM Tax Questions Ja m e s Q u igl e y

When HECMs are paid off, the deductible interest can be huge, usually much more than what is needed to offset tax on income, but the difference need not go to waste. When I mentioned to a prospect that it could be used to offset income tax on a huge, properly timed Roth conversion, it was a significant factor in his decision to go ahead and obtain the HECM.

* HMBS

For those interested in learning more, look up IRS Publication 936. servicing

Before I entered this industry, one of my aunts heard that answer from two HECM lenders, even though her tax questions were basically generic. Like many other people, she had no tax advisor, so she called me and I was able to answer her questions. I remember thinking how strange it was that professionals selling HECMs either didn’t know the answers or wouldn’t answer most tax questions pertinent to their products, preferring to cautiously place the onus of finding those answers on their elderly clients.

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Competent HECM personnel desire to satiate those who expect, need or want immediately enlightening answers. However, there is one frequently repeated answer endemic to most of our industry that neither immediately enlightens nor satisfies, the essence of which is, “You’ll have to check with your tax advisor about that.” Although that answer may be safe, it is not very helpful.

In keeping with my usual protocol regarding tax questions, I told him that my replies would be generalities that may not apply to him personally because of the many other variables, situations, filing statuses and limits pertaining to personal tax calculations. Then, while addressing his questions, I cited a pertinent IRS publication and offered to email it to him immediately. He was quite satisfied and appreciative of my help.

originating

f you deal with callers interested in a reverse mortgage, you are aware of the multitude of questions they ask. You should also be aware that the quality, extent and helpfulness of your answers affect their opinions of whether you are sufficiently satisfying their inquiries. Consequently, the degree of your product knowledge often determines whether they will deal with you or find competitors with more satisfying answers.

deduction amounts different according to how the loan money is used?

“Is that the best way to serve our clients and gain their confidence in us as knowledgeable professionals? I don’t think so. Therefore, I have developed a more professional and client-satisfying way of responding to tax questions, while remaining within an appropriate disclaimer.”

The next paragraph is only a portion of the material from the IRS site pertaining to reverse mortgages. A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. With a reverse mortgage, you retain title to your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full.

I recently spoke with a 62-year-old caller interested in obtaining a reverse mortgage on his home. Surprisingly, it was the only home he ever owned and he had purchased it only five years earlier. After telling him the potential HECM loan amount, etc., I was barraged with a salvo of tax questions: Is there a maximum tax deduction limit on accrued reverse mortgage interest when paid? If so, what’s the limit? Is the mortgage insurance portion of the negative amortization tax deductible? Can heirs claim the tax deduction if they pay off the loan when mortgagors pass away? How about when they are still alive? Are the

When reading the entire website, its complexity can be somewhat puzzling. Also, the section detailing the difference between the deductibility of acquisition debt interest and non-acquisition debt interest does not specifically address a HECM for Purchase. But hey, finding the missing pieces and figuring out how to correctly assemble the puzzle is the fun of learning and the best way to retain the information. Learning what you can about the tax implications of a HECM takes some effort, but it allows you to be much more helpful to clients than merely telling them, “You’ll have to check with your tax advisor about that.” x reversereview.com

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spotlight

While regulated brokers who sell other financial products confidently extol, explain and even calculate the tax benefits, consequences and other tax implications of their products, we generally embrace disclaimers through dismissive referrals to an anonymous “tax advisor,” which we appear to assume everyone has. Is that the best way to serve our clients and gain their confidence in us as knowledgeable professionals? I don’t think so. Therefore, I have developed a more professional and client-satisfying way of responding to tax questions, while remaining within an appropriate disclaimer. Here is an example:

The Reverse Review July 2014

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ENGAGE

marketing

The continuously evolving nature of the online world may appear daunting at first glance, but the good news is that today’s technology makes it easier than ever for a business to create and maintain a stout Internet presence. While getting up and running seems simple enough, there’s still a lot of work that goes into creating an appealing and engaging personal brand online. There are five key components to building and maintaining a powerful online presence. How are you doing with each of these?

2. Demonstrate value. “Value” is the magic word. If your website, blogs, articles and social media outlets don’t provide tangible value to your audience, they will be ignored. Use these platforms to share breaking news about reverse mortgages, analyze recent research developments, and provide informational and practical tips to your audience. Update on a regular and consistent basis with new and exciting content that proves beneficial to your online readership. 8

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spotlight

Cautionary tales of businesses that established an Internet identity but failed to capitalize on their foray into the online market abound. Your website and social media outlets should serve as the technological extension of your face-to-face efforts. If the goods and services you provide are the award-winning entrée, your digital persona is the host who greets your patrons (and many a dining experience has been ruined by a poor first impression).

servicing

n the past, an online presence was a luxury, but as society’s focus and attention has shifted to the digital arena, it has become an absolute necessity. A carefully crafted website and a fully operational social media profile can lay the framework for business success, but disorder and dysfunction can lead to outright failure.

HMBS

Nic k Nan t o n

marketing

Five Keys to Building and Maintaining a Powerful Online Presence

When designing a top-flight company website—or consulting with a third party that will handle the technical design aspects—you should make sure you’re keenly in tune with your desired audience and customer base. Your target market will greatly influence your projected online branding, from the site’s individualized layout and color scheme to its functionality. If there is disparity between your business goals and objectives and what you’re hoping to promote, it will glaringly reflect on your website.

originating

1. Your website should be branded, interactive and engaging. It’s not enough for a business website today to simply contain a list of information, a description of goods and services and contact information. An effective website must be engaging and compelling, and maintain the viewer’s attention to the point that they want to pick up the phone and find out more. That means understanding your target market enough to “hook” them, and it means creating a site that echoes your expertise and the brand you are creating.

The Reverse Review July 2014

marketing 3. Leverage email marketing. Social media is one great way to engage your audience, but it only works when they’re online and using social media themselves. Email marketing, on the other hand, gives you the opportunity to consistently interact with your customers and your market as long as they are checking their email inbox (and these days, who isn’t?). Remember to focus on providing value in order to keep your readers engaged. However, if email marketing is overused, it will be treated as spam. Keep your newsletters and e-updates on a monthly schedule to maintain your maximum open rate and subscriber base. 4. Want subscribers? Toss in a freebie. Your email marketing campaigns are a great way to stay topof-mind with your customers and to keep your market aware of what you are offering. But if you don’t have any email addresses to send to, what does it matter? One of the most effective

“Your online presence is one of the cornerstones of your business, and it should be treated as such.” ways to build a targeted email list is by offering free content, such as e-books, special reports, video seminars and so forth. Simply require that the user give you their email address in order to access the content. Promote these freebies on your website and through social media, and you will see your email list start to grow steadily. 5. Use pictures and video to tell your story. You know the saying “a picture is worth a thousand words”? A video is even more powerful. The simple truth is that pictures and video are far more engaging than pages and pages of text. So embrace it! Create a video introducing yourself and welcoming people to your site. Share pictures and video of your team at work. Post pictures of your latest products. Take

advantage of visual media to keep your audience engaged and actively involved in your business. Your online presence is one of the cornerstones of your business, and it should be treated as such. Guarantee that your body of Internet outlets— from your website to your social media platforms and email lists—are vibrant, highly functional and continually updated with the latest information that is tailored to your target audience. These sites do not exist simply as undeveloped advertising boards; they are an integral facet in the 21st-century marketplace and can be the main determinant in a successful outcome or a failing organization. x

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reflect

secondary A History of HMBS Issuance Joe Ke lly

he history of HMBS issuance reveals a lot about the recent history of the reverse mortgage industry. In 2008 and 2009, it shows the tentative, lowvolume beginnings of Ginnie Mae’s HMBS program, and the impact of Fannie Mae’s fade from the HECM whole loan market. originating

The golden era of HMBS was from 2010 through the first half of 2013, with high fixed-rate volume, steadily rising HMBS prices and big bank issuers. Since the second half of 2013, the numbers reveal the dramatically lower volume and shift away from fixed-rate HECMs as big bank issuers withdrew from origination and FHA lowered PLFs and imposed other restrictions.

marketing

Here’s a look at how HMBS issuance has fluctuated in the past five and a half years:

HMBS Issuance by Quar ter Fixed Adjustable

Quarter Total

Fixed %

$234,511,467

$559,539,090

41.9%

$325,027,623

2008 Quarter 3

$90,697,498

$392,431,248

$483,128,746

18.8%

2008 Quarter 4

$44,943,315

$269,638,295

$314,581,610

14.3%

$210,561,502

$102,318,576

$312,880,078

67.3%

$570,829,415

$404,470,718

$975,300,133

58.5%

2009 Quarter 3

$1,927,639,673

$1,564,124,032

$3,491,763,705

55.2%

2009 Quarter 4

$3,003,997,895

$748,461,283

$3,752,459,178

80.1%

$1,954,598,264

$994,003,421

$2,948,601,685

66.3%

$1,921,759,584

$427,355,811

$2,349,115,395

81.8%

2010 Quarter 3

$1,994,098,197

$667,183,011

$2,661,281,208

74.9%

2010 Quarter 4

$1,901,136,975

$824,303,975

$2,725,440,950

69.8%

2011 Quarter 1

$1,918,257,083

$764,623,717

$2,682,880,800

71.5%

2011 Quarter 2

$1,980,365,104

$611,969,866

$2,592,334,970

76.4%

2011 Quarter 3

$1,893,092,198

$772,405,157

2011 Quarter 4

$1,490,462,669

$491,192,877

2012 Quarter 1

2012 Quarter 2

$2,665,497,355

71.0%

$1,981,655,546

75.2%

$1,468,962,699

$786,053,712

$2,255,016,411

65.1%

$1,556,177,659

$596,171,875

$2,152,349,534

72.3%

2012 Quarter 3

$1,524,191,593

$570,681,068

$2,094,872,661

72.8%

2012 Quarter 4

$1,575,333,969

$515,265,228

$2,090,599,197

75.4%

2013 Quarter 1

$1,868,902,091

$521,205,115

$2,390,107,206

78.2%

2013 Quarter 2

$1,881,414,477

$637,884,595

$2,519,299,072

74.7%

2013 Quarter 3

$577,225,518

$1,623,966,616

$2,201,192,134

26.2%

2013 Quarter 4

$285,436,885

$2,179,820,808

$2,465,257,693

11.6%

2014 Quarter 1

$438,989,850

$1,275,781,640

$1,714,771,490

25.6%

2014 April/May only

$386,091,812

$591,934,939

$978,026,751

39.5%

$32,699,677,392

$18,658,275,206

$51,357,952,598

63.7%

Totals

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spotlight

2010 Quarter 1 2010 Quarter 2

servicing

2009 Quarter 1 2009 Quarter 2

HMBS

2008 Quarter 2

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The Reverse Review July 2014

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servicing Assignments to HUD, Part I: Reasons, Processes and Purpose jaso n p e re z

A majority of loans are paid off or will have moved to default/due and payable status before reaching HUD assignment eligibility. A loan that is eligible at 95 or 96 percent may not be eligible at 97.5 or 98 percent. Additionally, a loan that has lender/force-placed insurance (FPI) or delinquent property taxes is not eligible for assignment. This is true even when the FPI or delinquent property taxes do not create a default status on the loan. x

spotlight

With traditional insurance (auto, home), the most common claims are made when something negative (accidents, injury) happens. I categorize these types of claims in the HECM insurance world as those that are filed for reasons of default. Examples would be when a loan is called due and payable or the loan

When a loan becomes eligible for assignment to HUD at 98 percent of MCA, it must meet certain criteria for HUD to accept it, take over the servicing and then pay the claim to the lender. To ensure that a loan is ready for this assignment, this criterion is triple-checked well before the balance reaches 98 percent (typically this happens when it approaches 85 to 90 percent). Loans move (slowly) to MCA through the monthly accumulation of interest, mortgage insurance premiums and servicing fees. During this initial review, the servicer is

servicing

TWO || HUD provides insurance for servicers in the event a loan is not paid back in full. This remedy is essentially handled like any insurance claim, and like traditional insurance, there are different types of claims.

There may be other reviews of a loan, especially if work is required to complete or fix errors. In short, a final review process follows and this happens much closer to eligibility, around 96-97 percent of MCA. Loans can take years to move to this assignment process.

HMBS

ONE || This second mortgage insures borrowers in the exceptionally unlikely and rare event a lender goes out of business, and

Let’s walk through the complicated territory servicers navigate when a loan reaches 98 percent of its Maximum Claim Amount (MCA), determined by the current loan balance as a percentage of the MCA. The MCA is determined at closing and is defined by HUD as “the lesser of a home’s appraised value or the maximum loan limit that can be insured by FHA.”

HUD will not accept a loan for assignment if it is in default or is due and payable. The review focuses on origination documents and ensures that there are no errors on the mortgage, that assignments (if applicable) are in place, and that the servicer has all of the documents required for submission to HUD. If anything is incorrect or out of place in the servicing file, we work aggressively to correct it. As a subservicer, Celink reaches out to its clients involved in the origination process. Rare cases arise when a client (or its subservicer) is unable to fix a document error, which makes the loan’s assignment to HUD impossible.

In the next issue, Part II will focus on eligible loans for assignment to HUD and the process of assignment within HUD’s servicing software, HERMIT.

according to jason “When a loan becomes eligible for assignment to HUD at 98 percent of MCA, it must meet certain criteria for HUD to accept it, take over the servicing and then pay the claim to the lender. To ensure that a loan is ready for this assignment, this criterion is triplechecked well before the balance reaches 98 percent (typically this happens when it approaches 85 to 90 percent).” reversereview.com

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marketing

Those on the servicing side understand the importance of HUD insurance through its second mortgage and the twofold purpose it serves:

has been satisfied in any way other than full payment to the lender. These are HUD Claim Type 21 (Foreclosure/Deed in Lieu) and Claim Type 23 (Mortgagor’s Short Sale) processes. Insurance companies also offer incentives for positive records (that is, spotless driving records with no accidents or injuries). In the HECM insurance world, these would include the Assignment to HUD or HUD Claim Type 22 process.

seeking to confirm that the loan is in “active” status.

originating

hether you are involved in reverse mortgage loan servicing, origination or any aspect in between, no doubt you understand and strongly believe in the benefits a reverse mortgage provides to our borrowers. I’m not sure, however, that the industry as a whole understands or appreciates the important role HUD serves with the HECM product. In this two-part piece, the detailed process and aspects of the HUD assignment process will be explored.

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The Reverse Review July 2014

spotlight article

The Funding Longevity Task Force by j e s s i ca gu e r i n

In month’sthis editi

on,

We ta lk to S1L’s t for missio ce about i ask ts n to s pre word ad the .

he reverse mortgage industry seems to have one main mission these days, and that’s to get the financial planning community to understand and embrace the HECM as a powerful retirement tool. Security One Lending has taken this charge seriously, assembling a task force of academic and financial professionals to examine how this message can be effectively spread. With the goal of diminishing product misconceptions among financial planners and their regulatory overseers, this group of eight began meeting quarterly last year to share ideas and discuss obstacles. Security One Lending’s Shelley Giordano serves as chair of the Funding Longevity Task Force. She says inaccurate press coverage and close-minded compliance officers are the group’s greatest obstacles. “Reporters can’t describe how 32

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housing wealth can be a suitable component on the retirement matrix, and they don’t get the cost correct either,” she says. “All too often, a reporter is just replicating what he read somewhere else.” Giordano says the task force is actively working to tackle the media problem. “They’ve done outreach to reporters that has resulted in some very good articles.” Tackling the compliance issue, however, will take some time. “We still don’t understand why compliance officers shut the conversation down,” she says, adding that most tend to call conversations about housing wealth “unsuitable” and advise their firms’ planners to avoid any such discussion. “Financial advisors have killed more of our deals than they’ve facilitated, and it’s very discouraging to our salespeople.” Giordano says the issue is particularly unsettling because the

math is undeniable. “American retirees are going to financial advisors and paying them money to help them have the best retirement they can have, and yet, in some instances, they’re not allowed to have a conversation with their planners about their housing wealth, which we know from the work that these scholars have done can greatly improve the probability that they’re going to have a more secure retirement. It’s wrong.” Among the work that Giordano cites is research from Barry Sacks, who has published studies and spoken extensively on the smart role HECMs can play in a retirement plan. Sacks, who has a Ph.D. in physics from MIT and a J.D. in tax law from Harvard, is a strong proponent of a coordinated strategy that allows a homeowner to access their home equity in order to avoid drawing from a down portfolio. “Reverse mortgages are particularly useful for people who are in this

spotlight article

“There is a massive need for people to provide more for their retirement than they have provided. Reverse mortgages can be and should be an important part of helping people fund their longevity, as the name of the task force implies. In other words, the objective is to prevent people to the greatest extent possible from outliving their money.”-Barry Sacks

Shelley Giordano Chair, director of business development for S1L

spotlight

Sacks agrees. “A major step would be to get the financial planners and FINRA to recognize that a large swath of retirees and future retirees in the category called mass affluence should at least examine the possibility of including a reverse mortgage credit line as part of their overall financial planning,” he says. “Will this happen? I hope there’s a chance. I’m certainly working very hard for it.” x

The Task Force

Rita Cheng, CFP CEO of Blue Ocean Global Wealth Tom Davison, Ph.D., CFP Wade Pfau, Ph.D., CFA Alex Pistone National sales leader for S1L Barry Sacks, Ph.D., J.D. John Salter, Ph.D., CFP Associate professor of financial planning at Texas Tech University Sandra Timmermann, Ed.D. Former director of MetLife’s Mature Market Institute reversereview.com

servicing

Still, Sacks says he wants FINRA to take it one step further. “What I really want them to do is change their overall view about reverse mortgages, because I believe that for the right group of people, mainly

But she admits that there is still much more work to be done. “We have a big problem in our industry and every company has to be doing its part,” she says. “It’s so deeprooted, this idea that your house is sacrosanct, that it’s something different than an asset and you should only use it if you absolutely have to, despite the fact that the math demonstrates again and again and again that overall wealth is improved if you can keep your portfolio invested, particularly in market downturns, and let it return to a robust value before you start drawing on it again. It’s just math.”

HMBS

Sacks feels so strongly about this that he was inspired to act when he came across an investor alert from the Financial Industry Regulatory Authority (FINRA), which described the HECM as a “loan of last resort.” In response, he sent FINRA’s investor education department copies of his research and that of Dr. John Salter and his colleagues at Texas Tech, prompting the agency to remove the inaccurate description and issue a revised alert.

Giordano says having people like Sacks actively promoting the cause goes a long way for the industry. “If a mortgage company called FINRA, it would have done nothing. But for a disinterested party who is looking at the math and has the credentials, it’s a different conversation,” she says.

marketing

A member of the task force, Sacks is outspoken about the value of the HECM. “There is a massive need for people to provide more for their retirement than they have provided. Reverse mortgages can be and should be an important part of helping people fund their longevity, as the name of the task force implies. In other words, the objective is to prevent people to the greatest extent possible from outliving their money.”

mass affluent retirees, a reverse mortgage should be judicially, prudently and responsibly used as part of an overall financial plan,” he says. “They’re scared of saying anything like that; they elevate caution over analysis.”

“Our goal is to assist American retirees in their right to accurate information on the new HECM and its costs. Furthermore, our task force is concerned that Americans seeking advice on the suitability of using a reverse mortgage to improve their retirement plans often face a shut door. Without the ability to even discuss suitability, American retirees may be needlessly harmed.”

originating

category called ‘mass affluence,’ which is a misleading term, but it’s a term used by financial planners,” Sacks says. “It means they’re not affluent, but there’s a mass of them, and they’ve got enough so they can come close to having a comfortable retirement, but only if it’s carefully, prudently and responsibly managed.” Sacks says this involves using a reverse mortgage in a targeted way to offset a negative sequence of returns in one’s portfolio.

The Mission

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The Reverse Rbeview ack Looking July 2014

By Jessica Guerin

Twenty-five years ago this July, HUD launched the Home Equity Conversion Mortgage Demonstration, creating an invaluable tool designed to help senior homeowners fund their retirement years. Since that time, the industry has seen volume rise and fall, and lenders come and go as it struggled to find its place in the mortgage market. Even today, the program continues to be modified under new regulations as HUD, convinced of the HECM’s value, seeks to ensure its longterm sustainability. With so much change in the market as of late, professionals in the space spend a great deal of time discussing and debating the future of the reverse mortgage program. While it’s easy to get wrapped up in the drama of the moment, it might be worthwhile, on this notable anniversary, to take a step back to reflect on the past. Maybe, in order to assess what direction the program will take, it would be insightful to look at how far it has come.

Lotto Winners In July 1989, HUD launched a small pilot program to test the concept of a loan that would allow seniors to convert their home equity into cash. According to the agency, the goal was to assist elderly homeowners who were “house-rich but cash-poor,” a market it said comprised more than 3.5 million seniors with incomes below $15,000 and homes valued at more than $50,000.

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To start, Congress authorized HUD to insure 2,500 HECM loans in two years, and the agency notified FHA-approved lenders across the country of a lottery that would select 50 initial participants. Each lender selected would be allowed to originate 50 reverse mortgages.

The first few years, though, were decidedly rocky. Because there was no foundation for the origination of these loans, everything—from staff training and counselor education to processing procedures—had to be created from scratch.

Jeff Taylor was president of Wendover Funding at the time, running a large forward mortgage bank and servicing operation based in North Carolina. He remembers the lending industry’s response to HUD’s initiative. “Lenders who put their name in were selected by lottery. Some were shocked that they got it, some were excited that they got it, some simply said, ‘I’m not sure I want to be in this.’”

Taylor recalls how little support there was at the time. “There weren’t even any state-by-state loan documents,” he says. “So we partnered with a law firm in Washington, D.C., and they made the documents available for the states as they came online. We went to the 50 lenders to see what states they were going to be in, and they paid $1,200 for a set of legal loan documents for their state, or for every state they wanted to be in.”

Taylor says Wendover saw an opportunity to step in. “We went to the first meeting, which was in ’89 I think, and I stood up and said Wendover Funding would be in a position to offer subservicing for the initial 50 lenders,” he says. “So we signed up 95 percent of the lenders… We were up and running in about six weeks. Candidly, we started servicing them on an Excel spreadsheet.”

From the start, Fannie Mae was the sole investor in the space. “Each loan was sold to Fannie Mae loan by loan,” Taylor says. “Today, they’re sold in pools, but there was such little volume that each loan was sold over the counter to Fannie Mae, one by one.”

A Rocky Start Although the going was slow at first, the HECM’s potential was obvious from the beginning. Just one year after launching the demonstration, Congress agreed to extend it through 1995, increasing the number of authorized HECMs to 25,000 and opening up the program to any FHAapproved lender.

Wendover also held the first reverse mortgage seminars at its Greensboro headquarters. “AARP came, Fannie Mae came. Freddie Mac would periodically stick its nose in. For probably the first four years, from 1990 to1994, Wendover was the only host, inviting the agencies to come out.” After that, Taylor says, AARP and Fannie Mae stepped in to host meetings of their own. Because support and resources were so minimal in those early years, participating lenders struggled with how to make a profit selling the loan.

The result was an absurdly long turnaround time, with some lenders reporting to HUD that it took as long as 18 months to close their first reverse mortgage. At this time, the majority of active lenders were also originating fewer than one loan per month, making any investment in training and infrastructure unfeasible. This was problematic because staff education was a major hindrance. Without a team of loan officers who really understood the product, it was hard to sell it to consumers. “There was no ready supply of reverse mortgage professionals who knew how to make the loan, so everybody had to be trained, and it was by the seat of their pants, ” Taylor says.

NRMLA Forms Gradually, however, things began to improve. As familiarity with the program increased, the number of originations more than tripled from 1991 to 1992. By August of that year, a total of 2,155 loans had been closed in 38 states, marking an upward trend that continued for the next several years. The number of HECM lenders also grew steadily, peaking in 1997 to 195 across the country. But the lender pool then declined, a trend attributed to low origination fees, limited profits and the fact that the forward mortgage scene held greater “There was no promise at the ready supply of time. reverse mortgage professionals who knew how to make the loan, so everybody had to be trained and it was by the seat of their pants.”

Consumer outreach was also a problem. Most seniors had never heard of a reverse mortgage, and

loans orig inated per fiscal yea r

In a report to Congress three years after the pilot’s launch, HUD wrote that the “unconventional and complex aspects of the loan” presented challenges to lenders. “With little reverse mortgage experience to draw upon, the business of making and servicing HECM loans has been costly and time-consuming for lenders,” the agency wrote.

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

profits were too low to spend substantial dollars on marketing. As Taylor says, “The classic line I would tell everyone was: This is a great industry to be in. First of all, you have no competition, but unfortunately you have no customers.”

The association’s establishment went a long way to advance the industry. “It added credibility,” Taylor says. “What I learned very quickly is that it’s difficult in Washington, even if you know what you’re doing.”

The fledgling industry had a dire need for a trade association to help advance its mission. In 1997, Peter Bell established the National Reverse Mortgage Lenders Association to do just that. Taylor says he approached Bell with the idea. “We had coffee one morning and I said, ‘Peter, I think it’s time that we pull our membership together and form a trade association so that we have a voice in Washington,’” Taylor says. “I got 20 lenders to put up $5,000 each to create the trade association… Peter already had his foot in the door as a lobbyist, and the rest is history.”

Major Players Emerge

Taylor says NRMLA helped steer the product in the right direction and navigate the conflicting interests of all the parties involved. “AARP was trying to take the program in one direction, and it was kind of counter to the lenders’ desires,” he says, adding that originally AARP lobbied Fannie Mae for a single fixed-rate loan that would be serviced for just $10 a month.

In 1998, nearly 10 years after the launch of the pilot, the industry was picking up steam. HUD declared the HECM program a permanent FHA offering, increasing the number of authorized loans to 150,000 and, not long after, raising the limit on origination fees from $1,800 to $2,000 or 2 percent of the maximum claim amount. Craig Corn was working for Lehman Brothers’ MBS team at the time, when the firm was just beginning to venture into the reverse space. He says raising the cap on origination fees was a major leap forward for the industry. “It meant that you could actually make money in the business, because you could charge origination fees that were commensurate with the work that you were doing,” he says. The move toward increased profitability sparked a dramatic shift in the market. In 1999, with financing from Lehman 8 reversereview.com

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The Reverse Rbeview ack Looking July 2014

Brothers, Financial Freedom Senior Funding Corporation purchased Transamerica’s reverse mortgage loan portfolio and servicing operations for $200 million. As part of the deal, Lehman Brothers would repackage the loans as securities. The deal turned Financial Freedom into a major player in the space. “Financial Freedom took the origination and servicing platform, so they got the business infrastructure, and we at Lehman took on all of the loan assets,” Corn says. “So in one fell swoop, Financial Freedom went from being this tiny, regional lender to having licenses in 30-something states.” That same year, as Lehman issued the first reverse mortgage securitization, others began to take an interest in the market. “When a well-known institution like Lehman Brothers gets into the space, that causes a lot of other people to at least take note,” Corn says. “That, combined with changes on FHA’s level to allow for more revenue opportunities, really changed the dynamic and the economics of the space.” By October 1999, the program was well under way. Nearly 40,000 reverse mortgages had been insured thus far, with only 388 loans ending in claims on the insurance fund. The servicing sector had begun to expand, growing from just one firm—Wendover—to four, bringing a healthy competition into the market. Now Unity Mortgage, Seattle Mortgage and Financial Freedom were also offering servicing for correspondent lenders, although Wendover still handled two-thirds of the industry’s servicing needs. In a report to Congress in 2000, HUD determined that the program “has generally been a success, with loan volumes growing, borrowers reporting high levels of satisfaction with the program, premium collections projected to exceed insurance claims by more than $500 per loan, and a trend toward lower average costs paid by borrowers to originate.” It was around this time that Wells Fargo began building its reverse channel, bringing Taylor on board in 2000 to help develop and expand its HECM 36

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operations. According to Taylor, Wells Fargo entered the market when it merged with Norwest Mortgage, which had previously acquired Directors Mortgage, one of the original 50 lenders. “Norwest maybe had 35 or 40 reverse mortgage loan officers, but [when I came on board] that grew to 1,200.” Taylor says the lender focused its efforts on training staff about the loan, with Ken Kanady leading the charge. “We had a mandatory training program called STORM (Sales Training of Reverse Mortgages). You had to close at least three loans with a manager before you could be certified.” To this day, Wells Fargo is credited for helping advance the program by providing exceptional training to a huge number of reverse professionals, many of whom are still in the business today. At this point, Financial Freedom’s operation was thriving. The Irvinebased lender acquired several reverse companies—including Unity mortgage, which was the largest national lender at the time. “By the time we got to 2001, we had effectively acquired or absorbed nine different companies to create a national platform for Financial Freedom,” says Jim Mahoney, who was CEO at the time. “By then, we had a 65 percent market share and were a national company with retail, wholesale and servicing.” Seattle Mortgage was another burgeoning lender in the space at the time. John Nixon ran the company’s forward and reverse channels. “We were doing about 30 loans a month, and then it started really taking it off. It got so strong that in 2002, I relinquished my forward mortgage duties to focus solely on reverse mortgages, because they were becoming a much bigger percentage of our overall production,” he says, adding that at the time, Wells Fargo and Financial Freedom still had the majority of the market share. “We really came from nowhere and became the second-largest wholesale lender and the third-largest overall lender by the time we were sold to Bank of America in June 2007.”

Improvements Abound While the industry saw major players take root as mergers and acquisitions altered the landscape, other aspects of the program evolved as well. One important development was the establishment of nationwide counselor education, which had been an issue for the industry from the start. HUD’s program guidelines required borrowers to participate in a session with a certified housing counselor, but the number of counselors out there who fully understood the product was nominal at best. “It was a real struggle getting counseling back then. You couldn’t find anybody who new how to do it,” says Taylor, adding that at the time, no counseling software had been created and some agencies didn’t even have computers. Mahoney agreed. “The counseling was scattered, inconsistent,” he says. “They were all good people doing their best, without a doubt, but there just wasn’t an infrastructure for counseling that was that supportive.” In 2001, HUD took steps to change this, partnering with AARP to establish training programs that would certify counselors to educate consumers about HECM loans. Through the program, the two instituted mandatory exams and established consistent policies and procedures. Consumer awareness was another lingering issue that began to right itself. In the ’90s, lenders struggled to sell the product without any sort of substantial public outreach. Consumers were simply unaware of the product’s existence, and the loans were not quite profitable enough to allow for any sort of sizable PR campaign. Corn says marketing in the early days was minimal and vastly different than it is now. “It was before TV spokesmen and it was certainly before the Internet, so a lot of it was direct mail. There was some radio being done,” he says. “It was much more of a grassroots, doing-business-inyour-backyard kind of business model.”

Taylor agreed. “Marketing was very fragmented. A lot of people worked out of the trunk of their car. They would make up their own flyers and do what they wanted.” In the absence of national print or TV campaigns, most borrowers were hearing about the loan through word of mouth or from the local media. According to HUD’s 2000 study, in which a number of HECM borrowers were surveyed about their experience with the loan, “The majority of the participants first learned about the HECM product from family or friends, local newspaper articles, or, in a few cases, printed materials from [AARP].” The marketing landscape shifted dramatically around 2005 with the success of two national television campaigns featuring well-known actors: Jerry Orbach for The Senior Lending Network and James Garner for Financial Freedom. According to Corn, the campaigns had a lasting impact on reverse mortgage marketing. “Those two institutions really pioneered the national cable TV lead generation model, and it was that model that completely changed the nature of lead generation. For the first time, you could really make some decisions about how much money to spend and have a pretty good understanding as to how many calls you’d get, how many qualified leads you’d get, how many applications you’d get, and how many closed loans you’d get,” Corn says. “In other words, you actually had a business model that wasn’t hit or miss. That changed everything.” As national TV commercials helped spread the word, HECM endorsement numbers reached unprecedented levels. In 2005, the market grew from slightly more than 40,000 loans to nearly 110,000 loans in just two years. According to Mahoney, this massive jump was the result of several factors, including rising home prices and low interest rates. The industry had also been working together under NRMLA’s guidance to dispel product misinformation, and their efforts were paying off. “The major lenders—which were Financial Freedom, Wells Fargo, Bank of New York and Seattle Mortgage—funded a PR

campaign for NRMLA because too many adjustments. With HUD on the brink negative articles were being written in of instituting Financial Assessment, the the press … Writers did not understand changes are unlikely to grind to a halt any the product,” Mahoney says, time soon. adding that the effort made a Many believe that despite, or difference. “The public started perhaps because of, its tumultuous “The market seeing very positive articles path, the reverse mortgage has changed on reverse mortgages. We program has become a better, dramatically… got good borrower stories Now you have a stronger offering for America’s out, so the general perception very deep, very seniors. Corn says FHA’s revisions changed in the newspapers and liquid market for have improved the program. “Do magazines.” these securities I think that the changes FHA has and full priced In 2006, the reverse space saw made and continues to make are transparency— a wave of positive change good for the financial stability and that’s good for that propelled the market to sustainability of the program? The the industry. new heights. Recognizing answer is yes.” We understand the product’s potential, much better Over time, Corn says, the program private investors entered the what these has evolved to become a much secondary market, giving rise assets are worth more important part of FHA’s now.” to a competitive interest rate business. “The market has changed environment. HUD raised the dramatically,” he says. “Now you have a volume cap yet again, increasing the very deep, very liquid market for these number of authorized insurable HECMs securities and full-priced transparency— to 275,000, and the department finally that’s good for the industry. We established a single national loan limit. understand much better what these assets Prior to this, borrowers were limited by are worth now.” the FHA lending limit in their county, which, according to Taylor, was around Mahoney says that when reflecting on $90,000 for most counties in 1990. The new the industry’s progression, a cyclical limit of $417,000 went a long way to make pattern becomes is evident. “We’ve had a the loan more desirable. lot of struggles in this industry over the course of time. If you look back, we had The following year, Ginnie Mae periods of falling real estate prices, we’ve entered the securities market with the had periods of unemployment problems, establishment of its HMBS program, we’ve had similar problems [reappear] vastly altering the landscape. According to because most of the economy is cyclical,” Mahoney, Ginnie Mae’s entrance propelled he says. “What we’re dealing with in the the market forward. “That perfected the industry today is in some ways different executions on the secondary market. You but also the same than what we’ve dealt now had a federally insured loan backed with in the past.” by Ginne Mae’s guarantees,” he says. “It became a very desirable investment.”

With Ginnie Mae in the game and consumer awareness rising, 2008 saw volume exceed 100,000 loans, prompting HUD to call that year a “turning point” in HECM history.

Fast-Forward to Today Needless to say, the program’s evolution continued well beyond 2008. The industry endured fallout from the housing crisis, saw loan limits increase again, witnessed big banks enter and exit the space, and navigated its way through increasing regulatory oversight and program

Those who have stuck it out remain committed to the product and are confident that once the regulatory dust settles, the market will rebound from recent lows and grow to new heights. Nixon says the demographics, coupled with home price appreciation, are bound to have a positive impact on the market. “The retirement gap is just so overwhelming, and it’s going to keep getting wider and wider as more and more people face it,” he says. “I think once we truly get this product imbedded as a retirement and financial planning tool, the pie will grow, and it will grow rapidly.”x

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The Reverse Review July 2014

last word New and Pending Guidelines from HUD Promise to Have an Impact

EXAMINE

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Joh n S m al d o ne

ll eyes are on the new nonborrowing spouse ruling from HUD. There are still many questions as to what effect this will have on the industry, with some wondering if they will hurt or benefit married seniors seeking a reverse mortgage. Remember, the new ruling applies to FHA case numbers issued on or after August 4, 2014. Also, under the mandate, non-borrowing spouses will be able to remain in their homes after the death or permanent confinement of the borrower, providing they were married at the time of the loan’s closing and a certified letter was issued disclosing their spousal status at that time. Let us examine how the ruling will impact borrowers and their families:

* The ruling will help protect the nonborrowing spouse from eviction in the event of the death of the borrower or in the event that the borrower had to vacate the property (to a nursing home, for example).

* * The rights of the borrower’s heirs will remain mostly unchanged. The only difference is, under the new ruling, the home would not inure to the heirs until both the borrower and the nonborrowing spouse are deceased or have vacated the home. ** * One potential drawback is that when a non-borrowing spouse is present, the principal limit will be based on the age of the youngest individual. If the non-borrowing spouse is younger than the borrower and under the age 38

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of 62, this would impact the amount of money the senior could receive from the loan. Under the present principal limit factor tables, the amount of funds is based on the ages of borrowers 62 years and older. HUD is in the process of devising and updating new principal limit factor tables to account for cases in which the non-borrowing spouse is younger than 62. With last year’s reduction in principal limit factors and implementation of the 60 percent rule for disbursements at closing, it could become impossible for some to obtain a reverse mortgage if they are required to add a non-borrowing spouse to their case file. However, it is still unclear if the borrower will have a choice when it comes to adding the non-borrowing spouse to the case file if they are under the age of 62. The period for industry participants to send comments to HUD regarding the new ruling closed June 2. Once those comments are reviewed, a revised HUD mortgagee letter could be issued that might address such questions. Until HUD issues a clarification on this matter, we will not know if the borrower will have a choice in including a non-borrowing spouse on the loan documents. Regardless, many seniors, especially those with substantial equity in their homes, will be able to capitalize on the new ruling and protect the interests of their spouses.

The Financial Assessment ruling, however, is an entirely different situation. HUD released a mortgagee letter with some details last fall, but delayed implementation until the department was able to issue further clarification. HUD officials have said a new mortgagee letter should be released this summer, and that aside from some clarifications, the guidelines will not differ too much from the original mandate. Still, I say don’t count your chickens just yet; wait to make sure those eggs hatch. I don’t mean to suggest that lenders should hold off on preparing for FA— quite the contrary. We know that a borrower’s credit, ability to pay taxes and insurance, and ability to maintain the property will be essential factors in the mandate, and lenders would be wise to take steps to ensure those factors are present now. Lenders that underwrite the loan risk need to get prepared and devise a uniformed underwriting plan to tackle FA’s requirements. Regardless of changes we have experienced and the ones to come, I still believe we are in an exciting industry. I am confident that we will see the need and desire for the HECM product continually increase—just look at the number of seniors reaching the qualifying age! The law of averages is on our side, my friends. Those of us who recognize this and capitalize on it while learning to navigate HUD’s new guidelines will survive and thrive. x

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The Reverse Review July 2014

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