W
EW THE EVI ER VE
IE
RS
VERSE R EV E RE
The rise of home equity conversion
TH
RE
VE
W IE
INSIDE THIS ISSUE | HECM Pioneer Dr. Yung-Ping Chen: My Story
THE
REVERSE review FEBRUA RY 2016
nt
retireme
finances
RMF SALES ALL-STAR JULIE DIDYOUNG PG. 18
COMBATTING THE MISCONCEPTION PG. 20
ORIGINATIONS AND OPPORTUNITIES PG. 21
HOW TO ENHANCE YOUR REFERRAL BASE PG. 25
The Reverse Review February 2016
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®
FAR’s HomeSafe reverse mortgage is a proprietary product of Finance of America Reverse LLC, and is not affiliated with the Home Equity Conversion Mortgage (HECM) program. Currently available in AZ, CA, CO, CT, FL, HI, IL, NJ, OR, PA, SC and TX. NMLS #2285 (www.nmlsconsumeraccess.org); Corporate Office: 8909 South Yale Avenue, Tulsa, OK 74137. Not all products and options are available in all states. Terms subject to change without notice. ©2016 Finance of America Reverse LLC. All Rights Reserved. FAR271 [Exp 1/2017] reversereview . com 8 TRR | 3
The Reverse Review February 2016
From the editor RE
V IE
E REVE W TH RS
E
RE
EW THE
EVI ER
A NOTE FROM JESSICA GUERIN
W
VE
IE
RS
VERSE R EV E RE
The rise of home equity conversion
TH
RE
VE
EW
RS
VI
E
INSIDE THIS ISSUE | HECM Pioneer Dr. Yung-Ping Chen: My Story
THE
REVERSE review F E BRU A RY 2016
t
retiremen
finances
Ask anyone in the reverse mortgage industry about the biggest roadblock to expanding this market, and they’re likely to tell you that it’s public acceptance. For years, the industry has battled widespread misinformation and negative press coverage—two key factors that have prevented the product from increasing its reach.
Meet the Team SENIOR PUBLISHER
Reza Jahangiri PUBLISHER
Erik Richard EDITOR-IN-CHIEF
Jessica Guerin
CREATIVE DIRECTOR
Traci Knight
RMF SALES ALL-STAR JULIE DIDYOUNG PG. 18
COMBATTING THE MISCONCEPTION PG. 20
ORIGINATIONS AND OPPORTUNITIES PG. 21
FEBRUARY 2016
COVER
Are Americans changing their opinions on reverse mortgages?
But some are confident that things are looking up. With a recent slew of positive press coverage and encouraging research from well-respected financial experts, the HECM just may be elevating its image. Now, the conversation is focused on how a reverse mortgage can play an important role in retirement planning, and some are beginning to see the light. HOW TO ENHANCE YOUR REFERRAL BASE
COPY EDITOR
Kersten Deck
PG. 25
While there is undoubtedly much more work to be done, perhaps 2016 will be a turning point for an industry that has struggled to find its footing. If reverse professionals channel their energy into spreading the word in their respective communities, the collective effort just might make a difference on a larger scale. For those who adamantly believe in the HECM’s potential, the year ahead holds lots of promise.
JESSICA GUERIN Connect with me about how you can participate. Reach me at jessica@reversereview.com
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 © 2015 Reverse Publishing, LLC All rights reserved. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, Reverse Review Publishing, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 3800 West Chapman Ave., Orange, CA 92868
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Feedback 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.
4 | TRR
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table of contents 09 / READERS RESPOND
Recent issues of TRR have inspired conversation online. Read what your colleagues had to say.
TRR 2.16
21 / ORIGINATING
34
Originations and Opportunities A new landscape offers new possibilities. JOHN SMALDONE
12 / STATS
December’s top lenders and HECM endorsement stats through November REVERSE MARKET INSIGHT
22 / ORIGINATING
We’re All in the Same Sandbox How to react when unethical behavior is evident PATRICIA WHITLOCK
14 / NRMLA NEWS
Read about the association’s current initiatives.
25 / MARKETING
MARTY BELL
How to Get More Reverse Mortgage Referrals
17 / ROUNDUP
Using email marketing campaigns to build your business
A collection of recent facts and surveys affecting the reverse market
18 / HOT SEAT:
SALES ALL-STARS SERIES Julie Didyoung REVERSE MORTGAGE FUNDING
20 / ORIGINATING
Combating the Misconception Why every HECM professional needs to get active SUSAN A. POMFRET
CARLOS SCARPERO
26 / SPOTLIGHT
Yung-Ping Chen: My Story The famed economist and gerontologist talks about his contribution to the development of home equity conversion.
20
21
34 / LAST WORD
2016 Is the Most Important Year of Your Life Taking stock and forging ahead with conviction
22
SCOTT NORMAN
FEATURE
30 / FEATURE The Public’s Perception Are Americans changing their opinions on reverse mortgages? JESSICA GUERIN “Recently, research and commentary from noted academics and financial professionals have outlined the benefits of strategically using one’s home equity through a reverse mortgage, insisting that one’s housing wealth should become an important factor in retirement planning... The public conversation about reverse mortgages is trending toward positive, and many are predicting that public opinion will follow suit.
IN EVERY ISSUE...
11 / INDUSTRY NEWS Headlining stories of the past month REVERSE MORTGAGE DAILY
YOU CAN DO IT!
REACH OUT TO US ABOUT WRITING FOR TRR. INFO@REVERSEREVIEW.COM reversereview . com
8 TRR | 5
The Reverse Review February 2016
WE WANT YOU. The RFS platform is built for the originator by the originator. STRATEGIC INITIATIVES Proven models that deliver repeatable results.
SALES COACHING Cultivation and development with Builders, Real Estate Agents and Financial Advisors.
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877-721-3847
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www.rfslends.com
NMLS #1025894
contributors JOHN K. LUNDE
12 | Stats g
John K. Lunde
Julie Didyoung
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
Susan A. Pomfret
Patricia Whitlock
Carlos Scarpero
Scott Norman
Susan A. Pomfret is a HECM sales manager who has more than 25 years of industry experience. She was one of the first to originate a HECM in Rhode Island under FHA’s pilot program in 1989. An ambassador for the Alzheimer’s Association’s Rhode Island chapter, Pomfret is a columnist for the Senior Digest newspaper and PrimeTime magazine, and has also cohosted the Senior Digest Radio Show.
John Smaldone is the executive VP 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 VP of TransLand Financial Services’ reverse mortgage divisions. Smaldone has worked in the reverse space for nearly 20 years. He serves as a consultant for Willow Bend Mortgage, based in Plano, Texas. john@hanoverfinancial.com hanover-financial.com
Patricia Whitlock is a CRMP with FirstBank. She has been originating HECMs exclusively for more than 10 years. A former lieutenant in the U.S. Navy, Whitlock is on the board of directors of the Suffolk County Retired and Senior Volunteer Programs and is active in the Long Island Chapter of the National Aging in Place Council. Last year, she spoke at the American Conference Institute’s Summit on reverse mortgages in Dallas.
26 | My Story g
Jessica Guerin
Julie Didyoung joined the reverse mortgage industry in 2007 while researching the program for a family member. As a HECM for Purchase specialist for Reverse Mortgage Funding, Didyoung helps homebuyers in the Pennsylvania area navigate the loan process. In her seminars, she focuses on educating homebuyers and homeowners over the age of 62 on the details and benefits of the HECM for Purchase program to ensure they have the information needed to make the best decision for their situation. PATRICIA WHITLOCK
YUNG-PING CHEN
Yung-Ping Chen
SUSAN A. POMFRET
18 | Hot Seat: Sales AllStars g
JOHN SMALDONE
21 | Originations and Opportunities g
John Smaldone
JULIE DIDYOUNG
Yung-Ping Chen is a professor emeritus of gerontology and a fellow in the Gerontology Institute at the University of Massachusetts Boston. Chen, who has an M.A. and Ph.D. in economics from the University of Washington, Seattle, is credited with pioneering the concept of home equity conversion in the United States. His research has also led to new ways of funding long-term care and Social Security.
22 | We’re All in the Same Sandbox g
JESSICA GUERIN
30 | The Public’s Perception g
Jessica Guerin is the editor-inchief of The Reverse Review. She has worked on the editorial teams of Chicago Home & Garden, Chicago magazine and Time Out Chicago. Prior to joining the magazine, Guerin managed the marketing efforts for a commodity brokerage firm in the Chicago Board of Trade. She has a master’s degree in magazine publishing from Northwestern University and a B.S. in journalism from Boston University.
20 | Combating the Misconception g
CARLOS SCARPERO
25 | How to Get More Reverse Mortgage Referrals g
Carlos Scarpero is a former reverse mortgage loan officer who owns an online marketing agency for the lending industry. Known as “Mr. Leads” by his friends and clients, Scarpero has a wealth of knowledge about creating leads online. 937.572.3713 mr-leads.com
SCOTT NORMAN
34 | 2016 Is the Most Important Year of Your Life g
Scott Norman has led all five campaigns to amend the Texas Constitution to allow, expand and promote reverse mortgages. Since he founded the Texas Association of Reverse Mortgage Lenders in 1999, he has testified numerous times before the Texas Legislature and has worked with lawmakers in other states. Norman has also served as president of the Texas MBA and the Austin MBA. He is currently the national field retail vice president of Finance of America Reverse. reversereview . com
8 TRR | 7
The Reverse Review February 2016
8 | TRR
feedback Recent issues of TRR have inspired lots of conversation on the Web. Here’s what our readers had to say:
READERS Do you have something to say?
respond
www.reversereview.com 8
DEC. 2015/JAN. 2016
Remembering Fred
NOVEMBER 2015
Originating: The Important Work of Reverse Mortgage Trainers By Lorraine Geraci
By Jessica Guerin
“Fred was a great man in so many ways. I had the pleasure of knowing Fred personally and was part of his campaign when he ran for president.
NOVEMBER 2015
Last Word: Our Customer’s Experience: Ordeal or Opportunity? By Jim Mahoney
4“As always, excellent points, Jim. Simplifying the complicated things and managing the expectations of borrowers is a major key to industry growth and acceptance, especially for those clients who are actively trying to enhance their retirement planning instead of using the HECM as a loan of last resort. Thanks for your comments and leadership!” -MI KE GRULEY
I will miss Fred Thompson not only because of what he did for the reverse mortgage industry, but also for our great nation. Goodbye for now, Fred. Someday we will see you again!” - JOH N A . S M A L D ON E
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!
SOMETHING ON YOUR MIND? Need to get something off your chest? Love something we do? Hate something we do? Letters to the editor may be emailed to JESSICA@REVERSEREVIEW.COM.
“Lorraine, you are absolutely right about training being the key. We must better educate the financial planning industry as a whole to understand how to meet the needs of their senior clients and families... The answer is to educate those professionals to form teams that are able to work together for the best interest of their senior clients. I have had the privilege of training mortgage loan officers and staff, as well as other financial service professionals throughout my career. The methods of communicating the message have changed with the advent of social media and devices of the digital age. As we adapt to these changes, we should always be focused on how we can better serve our clients with the ethics and professionalism they deserve.” - R IC H A R D K AY
NOVEMBER 2015
!
Originating: Taxation and Reverse Mortgages By Harlan Accola
“This helped me gain a better understanding of how high-net-worth individuals can benefit in ways I never thought of or knew about. The tax benefit is so important.” - M IC H A E L R E DDY
SEPTEMBER 2015
Servicing: When the Last Surviving Borrower Dies
By Jason Perez “Prospective (and current) borrowers are often uncertain on this topic. They look for a description of the ‘after death’ process in the sample legal documents and various disclosures included with the borrower’s copy of the initial application. When they do not find any relevant information in those documents, it is common for them to
visit hud.gov. After 30 minutes of escalating frustration with the HUD site, they usually request authoritative documentation from the loan originator. It is a challenge for originators to find the requested information from FHA or HUD, especially in a consumer-friendly format. Jason’s well-researched article addresses these concerns and fills an important knowledge gap. Keep up the good work!” - D AV I D D A R L I N G reversereview . com
8 TRR | 9
The Reverse Review February 2016
trust. You are their face of
Trust is fostered every time your reverse mortgage holders interact with you. Which is why reverse mortgage servicing is so crucial…and why Celink is your constant ally throughout the life of the mortgage. 10 | TRR
celink.com | (844) 228-2101
industry news
February Update AN UPDATE OF THIS PAST MONTH’S BREAKING NEWS
The industry’s headlining stories at your fingertips UP-TO-THE-MINUTE NEWS? Visit reversemortgagedaily.com
NEWS DIRECT TO YOU: WANT EVEN MORE
HEADLINING NEWS 1. NEW REVERSE MORTGAGE
ORIGINATIONS TOP $12 BILLION THROUGH Q3 2015
Lenders funded $12.3 billion of new HECMs during the first nine months of 2015, according to an analysis of FHA data. The origination volume throughout the first three quarters of 2015 represents a 22.2 percent increase from the same period in the prior year, according to findings from the Inside FHA/VA Lending analysis from Inside Mortgage Finance (IMF). HECM endorsements also rose 17.3 percent to $4.5 billion during the third quarter, up from $3.9 billion in the previous quarter—marking the second-highest HECM endorsements have been since the second quarter of 2013, when they totaled $4.1 billion, per IMF’s evaluation. Fixed-rate HECMs accounted for only 14.8 percent of new HECM transactions, signaling a majority preference among borrowers for adjustable-rate reverse mortgages.
// January 3, 2016
2. MORTGAGE DEMAND HITS 2010 HIGH, DESPITE NEW LENDING RULES
While the jury is still out on the true impact of the CFPB’s TRID mortgage rules, demand for mortgage applications is at one of its highest levels since 2010,
according to the Mortgage Bankers Association (MBA). Mortgage applications grew 21.3 percent from one week earlier, according to the MBA’s Weekly Mortgage Applications Survey for the week ending January 8, 2016. “Bolstered by strong fourth quarter growth in jobs and continuing low rates, the results are similar to levels we saw in early December, suggesting that the purchase market’s strong finish to 2015 may be continuing,” says the MBA.
// January 13, 2016
3. HUD PUSHES BACK
DEADLINE FOR DEFAULT REVERSE MORTGAGES ONCE AGAIN
HUD has once again extended the deadline for reverse mortgage servicers to submit due and payable requests on HECMs entering default due to unpaid property charges. ML 201601 provides an additional extension through April 17, 2016, to submit a due and payable request, as well as to take first legal action where the mortgagee is actively reviewing the borrower for loss mitigation in accordance with ML 2015-11. The new mortgagee letter (ML 2016-01) only applies to the effective date of last year’s guidance in ML 201511, while also furthering the extension period provided last October via ML 2015-26. All other policies in ML 2015-11 are unaffected.
4. GINNIE MAE REVERSE
MORTGAGE ISSUANCE REACHES NEW NORMAL IN POST-FA ERA
After a “record-smashing” November, issuance of Ginnie Mae HMBS normalized in December as the market continues to adjust after Financial Assessment, according to New View Advisors. Issuers created approximately $685 million in new HMBS pools last month, substantially less than November’s $1.2 billion total. Without any large seasoned pools, New View Advisors notes HMBS reverted to what is now a “more usual” month of issuance: $525 million in original loan pools and tail issuance of $170 million. December’s issuance breakdown comprised 92 total pools, which consisted of 48 original issuances and 44 tail pools. December’s numbers brought total 2015 issuance to approximately $9.5 billion. Considerably higher than the previous year’s $6.6 billion tally, this $2.9 billion increase in 2015 consisted of a $1 billion growth in tail issuance, a $0.3 billion increase in seasoned original pool issuance and an “encouraging” $1.6 billion increase in HMBS issues backed by pools of new loans, according to New View Advisors’ data, which is compiled from publicly available Ginnie Mae data as well as private sources.
// January 20, 2016
// January 14, 2016
Want to connect with us?
Visit our site @ reversereview.com reversereview . com
8 TRR | 11
The Reverse Review February 2016
stats December 2015
Top Lenders Report
12345 American Advisors Group
Endorsements
RMS/S1L
Endorsements
413
One Reverse Mortgage
Endorsements
1,028
UFA
Reverse Mortgage Funding
Endorsements
326
Endorsements
351
207
Lender Endorsements SYNERGY ONE LENDING INC
200
Lender Endorsements
LIVE WELL FINANCIAL INC
172
SUN AMERICAN MORTGAGE CO
NATIONWIDE EQUITIES CORPORATION
100
TOWNEBANK 12
HOME POINT FINANCIAL CORPORATION
99
FRANKLIN FIRST FINANCIAL LTD
78
BANC OF CALIFORNIA NA
LIBERTY HOME EQUITY SOLUTIONS INC
BANK OF ENGLAND
14
13
11
10
FIRSTBANK 70
TOTAL MEDIA MANAGEMENT LLC
10
OPEN MORTGAGE LLC
67
UNIVERSAL LENDING CORPORATION
9
HIGH TECH LENDING INC
60
RESIDENTIAL HOME FUNDING CORPO
9
UNITED NORTHERN MORTGAGE BANKERS LTD 51
ACADEMY MORTGAGE CORPORATION
9
ADVISORS MORTGAGE GROUP LLC
44
BROKER SOLUTIONS INC
8
42
YADKIN VALLEY BANK AND TRUST
8
PROFICIO MORTGAGE VENTURES LLC
40
WILLOW BEND MORTGAGE CO
7 7
THE FEDERAL SAVINGS BANK
CHERRY CREEK MORTGAGE CO INC
39
WHOLESALE CAPITAL CORP
SUN WEST MORTGAGE CO INC
32
FIRSTAR BANK NA
7
31
HOMEBRIDGE FINANCIAL SERVICES INC
6
29
PACIFIC RESIDENTIAL MORTGAGE LLC
6
PRIMARY RESIDENTIAL MORTGAGE INC
6
PLAZA HOME MORTGAGE INC MCM HOLDINGS INC M & T BANK
28
PEOPLES BANK
27
UNITED SOUTHWEST MORTGAGE CORP
27
THE MONEY STORE
25
24
RESOLUTE BANK
MONEY HOUSE INC
REVERSE MORTGAGESCOM INC
20
18
SUCCESS MORTGAGE PARTNERS INC
17
AMERICAN PACIFIC MORTGAGE
17
Brought to you by:
AMERICAN NATIONWIDE MORTGAGE COMPANY 16 FAIRWAY INDEPENDENT MORTGAGE CORP
16
GMFS LLC
15
COMMUNITY FIRST NATIONAL BANK
15
LENOX FINANCIAL MORTGAGE CORPO
15
12 | TRR
%%%%% LOOKING FOR MORE STATISTICS? Go to rmsinsight.net for all of the industry’s latest stats and rankings.
stats HECM Endorsement Stats Through November 2015 INDUSTRY SUMMARY
MO.
RETAIL
12
2,867 14.68%
Retail Endorsement Growth
1
2,874
2
2,557 -11.03%
3
2,772
8.41%
4
2,597
-6.31%
1,895
5
2,477
-4.62%
6
2,971 19.94%
7
2,694
-9.32%
8
2,929
8.72%
2,820 20.98%
5,749 14.41%
TRAILING TWELVE MONTH ENDORSEMENTS 6,000
UNITS CHG%
1.65%
4,000
Wholesale Endorsement Growth
-18.31%
2,000
Total Endorsement Growth
-7.12%
0 Wholesale *Numbers Represent Months
01
0.24%
UNITS CHG%
4,940 12.09%
8.7%
2,062 -0.53%
4,936
-0.08%
4.7%
4,716
-4.46%
1,862 -13.76%
4,634
-1.74%
1.77%
4,492
-3.06%
1,793 -5.38%
4,270
-4.94%
2,324 29.62%
5,295
24.0%
0.3%
5,025
-5.1%
2,159
2,331
9
2,589 -11.61%
2,080 -26.24%
4,669 -18.79%
2,427
-6.26%
1,901 -8.61%
4,328
-7.3%
11
2,467
1.65%
1,553 -18.31%
4,020
-7.12%
* Figures Above Reflect Change from Prior Month
TOT
32,221
24,853
57,074
60% 50%
FIXED RATE PERCENTAGE
40% 30% 20%
11/1/15
10/1/15
9/1/15
8/1/15
7/1/15
3/1/15 3/1/15
6/1/15
2/1/15 2/1/15
5/1/15
1/1/15 1/1/15
4/1/15
12/1/14 12/1/14
10/1/14
9/1/14
8/1/14
7/1/14
5/1/14
4/1/14
11/1/14
02
11/1/14
ARM
{ FIGURE }
3/1/14
2/1/14
1/1/14
10% 11/1/13
HECM ENDORSEMENT TRENDS
UNITS CHG%
2,073
70%
{ FIGURE }
12/1/13
Retail
TOTAL
10
6/1/14
12 1 2 3 4 5 6 7 8 9 10 11
WHOLESALE
FIXED
$1,200.0 $1,000.0
$600.0 $400.0 $200.0
11/1/15
10/1/15
9/1/15
8/1/15
7/1/15
6/1/15
5/1/15
4/1/15
10/1/14
9/1/14
8/1/14
7/1/14
6/1/14
5/1/14
4/1/14
3/1/14
2/1/14
1/1/14
12/1/13
$0 11/1/13
IN THE MILLIONS
HECM ENDORSEMENT
INITIAL PRINCIPAL LIMITS
$800.0
reversereview . com
8 TRR | 13
The Reverse Review February 2016
nrmla news BROUGHT TO YOU BY NRMLA STAFF
IN THE PRESS:
New Year, New Vibrancy
THE WORLD E M U L AT E S H E C M S “The World Emulates HECMs.” So reports HECM architect Ed Szymanoski in an interview in the January issue of Reverse Mortgage Magazine. “So many Asian countries have come to us to talk about the possibility of getting into this market, because they have rapidly aging populations. Populations are aging more rapidly in that part of the world than in the United States—and they recognize the strains that this is placing on their governments and the need to provide for a social safety net for their elderly citizens,” Szymanoski says. “I think, however, that the HECM remains far and away the most successful program internationally. Certainly no other has achieved the same scale. We think of HECM as a small-scale program, because it only has 2 to 3 percent market penetration, but that is still a relatively large number compared to other nations. HECM is still the program most nations try to emulate. We have made great strides, whether it is managing crossover risk (loan balance vs. property value) or expanding liquidity needs for lenders with the Ginnie Mae HMBS program. “ “We often think of the government contribution to HECMs as being just FHA, but it’s also the liquidity and what Ginnie Mae brings to the market. It’s probably better suited that Ginnie Mae is tapping the liquidity of Wall Street investors. That is a great accomplishment. The HECM still needs to be refined as we go forward, but that is a great combination of government providing the backstop on the credit risk side as well as the funding vehicle on the liquidity side. No other nation has been able to replicate that.” 14 | TRR
The New Year has seemed to usher in a vibrant new conversation about reverse mortgages in the national press. The confluence of program alterations (Financial Assessment, draw limitations, non-borrowing spouse leniency), as well as the steadily increasing need for retirement funding solutions, seem to have removed skepticism and encouraged reporters to suggest the HECM as something that needs your consideration. Recent examples:
4 “Reverse Mortgage for Investment Protection,” written by Michael Lazar for
Huffington Post, explains why the media has changed its tone on reverse mortgages by highlighting a recent column written by Robert Powell for USA Today. “As for the reverse mortgage, some experts suggest applying for a reverse mortgage with a line of credit as soon as possible,” Powell wrote. “Why might you do this? Having a reverse mortgage with line of credit in place gives you the option of taking money out of your house instead of your IRAs when markets are down.”
4 “Make Money Last: Consider a Reverse Mortgage,” published by Bankrate.com, features a conversation between financial journalists Jean Chatzky and Jane Bryant Quinn. Quinn, who is promoting a book called How to Make Your Money Last, talks about why younger retirees should consider establishing a reverse mortgage line of credit. Quinn tells Chatzky: “So you’re 62 and you say I’m going to want to stay in my house for the next 20, 30 years. So you take the reverse mortgage against your house in the form of a credit line. And the magic of a credit line with a reverse mortgage is that it increases every year by the interest rate and the insurance fee. You’re not actually paying this interest. It builds up inside the loan. So that beautiful credit line sits there, not costing you anything else.” “Ten to 15 years from now, you may have a huge credit line against your house that you can use to help pay your bills. It’s a brand-new use of the reverse mortgage.”
4 “10 Things You Should Know About Reverse Mortgages,” written by award-winning, nationally syndicated columnist Ilyce Glink for CBS Marketwatch, includes a comprehensive analysis of HECM program features and requirements as explained by NRMLA President Peter Bell. “By having the funds from a reverse mortgage line of credit available, seniors may not have to sell off stocks or other assets to cover unexpected costs,” Glink writes. “We find retirees have peaks and troughs in their cash needs,” Bell says. “’With a reverse mortgage, they’re able to hold on to their other investments (when they need extra cash) and continue to collect dividends on those.”
IF YOU’D LIKE TO JOIN US in
our effort to promote the facts about
reverse mortgages as a member of NRMLA’s Blog Squad, please email Jenny Werwa at JWERWA@DWORBELL.COM.
nrmla news O N T H E D O C K E T:
New Due and Payable Timeline Extension Mortgagees were given an extension through April 17, 2016, to identify loans in their portfolios that must be called due and payable, or first legal action initiated, because they are in a technical default status and have no way of being cured. The extension was announced this week in Mortgagee Letter 2016-1. It is the second extension granted by HUD since the publication of Mortgagee Letter 2015-11 last April.
MEMBERS:
GOOD LUCK, SUE!
Influential Counseling Pioneer Retires Sue Brown, vice president of Reverse Mortgage Counseling at Clearpoint Credit Counseling Solutions in Atlanta, Georgia, retired on December 31. Brown managed the reverse mortgage counseling program at CredAbility, which merged with Clearpoint in 2013. HUD, NRMLA and other stakeholders to enhance HECM counseling policies. She also played an active role in the development of the Certified Reverse Mortgage Professional (CRMP) designation and continues to serve on the Independent Certification Committee, active in the reverse mortgage space and offer assistance on the ICC and other counseling activities. We wish Brown the best of luck as she begins this new stage of her life.
Mortgage debt held by seniors increased slightly from $1.45 trillion to $1.46 trillion last quarter, but the uptick was barely a dent in home equity levels, which have climbed steadily for 18 consecutive quarters.
NRMLA welcomes the following new members.
Certified Credit Reporting, Inc.
Ontario, California (associate member)
4
which administers the CRMP program. Brown hopes to remain semi-
An estimated $147 billion increase in the aggregate value of homes owned by seniors drove their share of home equity to $5.76 trillion and rocketed the NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI) to an all-time high of 200.19 in the third quarter of 2015.
NEW MEMBERS
4
She played an instrumental role over the past decade working with
A M E R I C A’ S SENIORS HOLDING $5.76 TRILLION IN HOME EQUITY
LoanStar Home Lending
Bellevue, Washington (lender member)
4
National Support Solutions Corp.
I M PA C T O F L O N G E V I T Y Going forward, among the strategies Lawler suggests are: a massive rethinking of how we finance housing (“When people live into their 80s and 90s, is it a good idea that shelter and savings are so linked?”); a “capture and reinvest” approach where money saved from some solutions is repositioned to finance research on other solutions; and framing requests (for appropriation) not with our own emotions or biases, but in ways that appeal to those (governments) we are asking to make changes.
San Juan, Puerto Rico (associate member)
Sterling Mortgage Services of the Treasure Coast Stuart, Florida (lender member)
4
“Nothing in the community, economy or the way we live is going to go unaffected by longevity,” said Lawler, who is respected as one of the leading thinkers on aging issues. Lawler showed how the median age in the
Atlanta area has gone from the mid-20s in 1990 to over 50 in some of the communities. Among other things, this change in population share can mean the education system diminishes, property values change, new housing needs grow, traffic increases, the workforce changes, and chronic disease and caregiving alter budget demands. “We built communities where it is very difficult to age,” she said. “And we built them over and over. Now we have to change the way we spend money. The one thing we shouldn’t do is what we did before.”
4
NRMLA member companies were well represented at December’s National Aging in Place Council’s Annual Meeting in Atlanta, where Kathryn Lawler of the Atlanta Regional Commission gave a detailed preview of the longterm effects of longevity on all of our lives.
Valley West Corporation dba Valley West Mortgage Las Vegas, Nevada (lender member)
reversereview . com
8 TRR | 15
The Reverse Review February 2016
16 | TRR
roundup
THIS MONTH A LOOK AT THE NEWS AND STATS AFFECTING THE MARKET GET UP-TO-DATE retirement facts, home price stats, senior trends and HECM market developments in The Reverse Review’s monthly Roundup.
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RETIREMENT HAS THE BIGGEST IMPACT ON SENIORS’ HOME BUYING DECISIONS.
According to a 2015 profile of senior homebuyers and sellers from the National Association of Realtors, senior-related housing rose 14 percent last year. THE TOP REASONS SENIORS PURCHASE HOMES: N o 1. Retirement N o 2. The desire to own a home of their own N o 3. The desire for a smaller home N o 4. The desire to be closer to friends and family
MEDIAN AGE
66
$
MEDIAN INCOME
MEDIAN HOME PRICE
$78+k $220k
MEDIAN SAVINGS RATE
7.3% 2013
56% of retirees in 2010 had outstanding debt when they retired. -CESI Debt Solutions
NUMBER CRUNCH
8.5% 2015
PERCENTAGE OF PEOPLE WHO ARE LIKELY TO AFFORD ESSENTIAL EXPENSES IN RETIREMENT
38% 2013
T HE S EN I O R A GEN DA
SENIORS ARE RETIRING EARLIER THAN THEY HAD PLANNED.
More seniors are saying they plan to retire after age 65, according to the Center for Retirement Research at Boston College, whose research indicates that 1 in 3 plan to work past 65 (in the 90s, only 1 in 10 did). But the center says the reality is most seniors end up retiring earlier than planned, with health issues taking the No. 1 spot on the list of reasons, followed by layoffs and a spouse’s early retirement.
Savings rates increase but still fall short.
While on the whole Americans are saving more money than they have in the past few years, more than half are considered “at risk” when it comes to affording essential living expenses in retirement.
HOUS I N G F A CTS
STATS ON SENIOR HOMEBUYERS ACCORDING TO THE NAR REPORT:
MO NE Y MAT TE R S
45%
61 PERCENT
of Americans fear depleting their retirement assets more than dying. -Allianz Life Insurance Company
2015
PERCENTAGE OF PEOPLE WHO ARE AT RISK OF FALLING SHORT IN RETIREMENT
55%
reversereview . com
8 TRR | 17
The Reverse Review February 2016
FEBRUARY
2016
I CAN’T GO WITHOUT having dessert every day!
TO READ MORE ONLINE VISIT U S @ R E V E R S E R E V I E W. C O M
THE
HOT SEAT
Sales All-Stars IN THIS SPECIAL SERIES, WE HONOR OUTSTANDING HECM ORIGINATORS AT
LEADING LENDER COMPANIES. WE GET THE SCOOP ON THEIR PERSONAL FAVORITES AND LEARN THE SECRETS TO THEIR PROFESSIONAL SUCCESS.
Julie
Didyoung HECM Specialist - NMLS #485913
18 | TRR
>
FUcNts
I never miss an
fa
episode of Modern Family. Sometimes
I’ll watch an episode four or five times. >
M Y FAV O R I T E SHOW!
My first job was at a store called Cloth World. I learned a
PERSONAL >
My favorite vacation was a recent family trip to London to celebrate my daughter’s
>
>
I do, so I try my best
The most
to keep a good work/
memorable
If I were a professional athlete, I would be
life was when my
My first car was a Cougar. I paid $200 for
it in 1976. It lasted all of six weeks and then couldn’t pass inspection. >
time. But I love what
graduation.
not coordinated enough to be a professional!
life balance.
moment in my
daughter was born. >
Hathaway and Robert De Niro. It’s funny and
>
my retirement and how to spend it!
I’ve ever made was my Kindle. I love to
>
shorter to-do list than
Now I love it!
what I started with that day. >
My favorite website is
with my family and
night looking at pictures of rooms
talking about our days.
and getting design ideas.
>
>
Purchase and the benefits
give a fellow HECM
>
to help seniors achieve a
understanding their unique
better quality of life after
stories and situations.
to sell! Focus on educating
people so they can make an informed decision.
retirement. >
The most challenging part of my job is not getting
defensive when uninformed
The MOST IMPORTANT thing seniors should understand about reverse mortgages is that knowledge is power. Keep an open mind and learn about the program before you make a decision.
family member. When an
People should seek a
opportunity in the industry presented itself, I decided to give it a try.
because it is an opportunity
listening to them and
I entered this industry reverse mortgages for a
mortgage industry
potential clients by
ABOUT JULIE
because I was looking into
career in the reverse
I try to connect with
My biggest sales tip is not
>
62-plus.
be an educator, not a
>
Didyoung joined the reverse mortgage industry in 2007.
it offers homebuyers age
originator would be to
>
I love my job because I am passionate about HECM for
The best advice I could
salesperson.
My favorite time of day is having dinner
definitely Houzz! I can spend all
PROFESSIONAL
Every morning I hope I will have a
an e-reader for years.
makes you think. >
Ten years from now
The best lesson I’ve ever learned was that it is more important to be interested than to be interesting.
I’ll be thinking about
The best purchase
read and I resisted
My favorite movie is The Intern with Anne
For success I have sacrificed family
service there.
a basketball player, since I am so tall. But I’m
>
>
lot about customer
>
To be successful in selling HECM loans you need to
have integrity. Always do the right thing for each and every client.
KEEP AN EYE OUT FOR MORE OF OUR S A L E S A L L - S TA R S IN TRR’S HOT S E A T. D I S C O V E R W H AT M A K E S THESE LEADING O R I G I N AT O R S SUCCESSFUL IN THEIR FIELD.
people make negative comments about the HECM program.
Reverse Mortgage Funding, LLC. L280-Exp102816
reversereview . com
8 TRR | 19
The Reverse Review February 2016
ORIGINATING
RR
ADVANCE
RR
RR
Combating the Misconception By Susan A. Pomfret
Why every HECM professional needs to get active
we are behind the times. My challenge to the industry is to get more involved locally, beyond what we are currently focusing on. “We need to actively pursue opportunities and partnerships that can allow us to further our mission to educate the public.”
ACCORDING
TO SUSAN Every professional working in the reverse mortgage industry works doggedly to help the public overcome the misconceptions that have been plaguing our product for 26 years. After all these years, I can’t help but reflect on why we still do this. Yes, we have had some positive PR over the past few years, but we are far from where a 26-year-old industry should be. Like you, I’ve sat with skeptics at many kitchen tables. I’ve overheard misinformed seniors conversing at my local coffee shop. I’ve fielded questions during the holidays from relatives who can’t seem to grasp the facts. Faced with such overwhelming negativity, we work to explain and educate, one person at a time. I have written numerous articles for my local press combating the misconceptions and focusing on how the program can help; I’m sure many of you have as well. I’ve also had the opportunity twice within the last six years to testify before committees in the Rhode Island Senate and House to clarify and rewrite statutes so that the program could thrive here for those who stand to benefit from it. I know many of you reading this have done the same in your state, and I thank you. Still, despite similar efforts by many, our penetration rate of those who are eligible for a HECM is below 2 percent. We are not doing a good enough job educating the public. Our recent focus has been educating financial planners, elder attorneys, CPAs and the like, and while that is a great start, 20 | TRR
Along with several similar meetings and conferences this past year, I recently attended a stakeholders meeting for the Rhode Island Division of Elderly Affairs as they presented their federally approved Strategic Plan on Aging. It has become evident to me that there exists a resounding concern among seniors about their ability to age in their homes. Still, many are unwilling to explore the solution a HECM can provide. Why? Popular misconceptions continue to color their views on the product. To combat this, we need to build an alliance that will work together to overcome the industry’s challenges and support broader awareness of the importance and benefits of our product.
A few years back, a handful of lenders got together to build awareness and they did a good job. But they only targeted a few select areas, and since then no effort has been made to expand on that message in other parts of the U.S. We need to actively pursue opportunities and partnerships that can allow us to further our mission to educate the public. I did some research on two powerful associations for some ideas. The National Association of Realtors (NAR) offers consumer outreach through Real Estate Today, HouseLogic and a Consumer Advertising Campaign Program. The advertising campaign includes TV, radio and print, and encourages local companies to coordinate advertising and outreach efforts with the national campaign to reinforce the message and help strengthen the brand. The National Association of Home Builders (NAHB), which gets more than 150,000 visitors each month to its website, offers opportunities to market your company with a host of many digital media products, including e-newsletters. Perhaps these associations could be useful to individual companies and add to the collective message about the HECM’s benefits while promoting their own services. I believe if we each pursue all channels available to us, we can make a difference. If every professional in this field dedicates themselves to the mission to advance the cause, we can move the industry forward, strengthen our brand and ultimately help many more seniors through the power of a HECM. n
ORIGINATING
Originations and Opportunities By John Smaldone
A new landscape offers new possibilities.
Consider the following example: We have a senior couple that owns a home valued at $480,000 with a $78,000 lien on the property. Let us assume the youngest borrower is 69 years old and the gross principal limit is $260,500. To stay within the 60 percent first-year ratio, we have a total of $156,000 to work with. Let’s also assume our total closing costs are $16,500. Add to the $78,000 need to pay off the lien for a minimum UPB at closing of $94,500.
The question now becomes: How do we spread the good word? Companies are looking for originators who know how to go out there and get business. One great way is to connect with community banks, many of which are looking for ways to increase their customer base. Educate their personnel on reverse mortgages. Offer to hold educational workshops in their branches for the public. Visit doctors, attorneys and accountants in your area. Get to know these professionals and tell them about your work. Tell
Let’s also not forget that sleeping giant, the HECM for Purchase program. This market is just waiting to be tapped, but for some reason many originators seem hesitant to reach out to Realtors. Remember that Realtors are always looking for new angles that can help them sell homes, and the H4P can be a valuable tool. So start networking. Reach out to brokers in your area and ask to sit down with them to explain the program. Offer to host an educational workshop for members of their team. If you are willing to do the work, connecting with community banks and reaching out to Realtors, you can achieve great success. An enthusiastic and determined originator, one who views a challenge as an opportunity, has limitless potential. n
-
Be a part of the conversation. Share your ideas with your colleagues and be a part of the solution. Reach out to us at info@reversereview.com. reversereview . com
8 TRR | 21
SPOTLIGHT
One of the benefits originators can now discuss is the standby line of credit. The growth rate on a line of credit can do amazing things, especially for seniors in high-value homes with a lot of equity.
This strategy is of tremendous benefit to our borrowers. They have paid off their lien and the loan’s closing costs, which means no out-of-pocket expenses, and they now have a substantial line of credit that will grow each month. What a great example to present to a savvy senior or professional partner!
them about the amazing opportunity afforded by the standby line of credit. Ask permission to display your brochures in their waiting rooms. I found that associating myself with other professionals increased people’s trust in me.
MARKETING
Some say that Financial Assessment has made their work more challenging and that it excludes a number of potential borrows. This may be true, but the fact is that we must embrace the change. I encourage my fellow originators to accept the changes with enthusiasm. They may present new challenges, but they also present new opportunities. We no longer have a product of last resort to sell, but a unique financial planning tool to educate people about.
ORIGINATING
We are in a new era as far as the reverse mortgage space is concerned. It’s not like it used to be for some of the industry’s oldtimers. But the protective measures that FHA has built into the product will go a long way toward making it better for our seniors.
We are also going to assume our borrowers do not want to take any cash at closing and put the entire amount in the line of credit, with the exception of the mandatory $100 withdrawl required to activate the credit line. This will give our borrowers $61,400 the first year and the remaining $104,000 available the second year. We now have a total of $165,400 that will be in the line of credit available to our borrowers after the second year, providing they do not take anything from their line of credit the first year.
The Reverse Review February 2016
ORIGINATING
We’re All in the Same Sandbox By Patricia Whitlock
there is a lender directing them to do so? Are they ignorant of marketing restrictions or are they pushing the regulatory limits? I suspect this may be a glimpse of a loan originator soliciting business in a less-than-ethical manner, but I also suspect that it is not a NRMLA member advertising in this way. Advertising is relatively impersonal, but its purpose is to lead to a personal encounter. A loan originator becomes the primary source of information after a potential borrower has responded to an advertisement or submitted an electronic request for more information. The LO subsequently encountered through any means becomes the voice of the industry. We hope that it is the true, honest voice of a responsible, ethical person. Unfortunately, not all reverse mortgage horror stories are from the distant past. I recently heard from a couple in the Midwest who were very interested in a HECM-to-HECM refinance, but that’s not how they phrased it. Mrs. D told me she had just turned 62 and “needed to be added to the reverse mortgage.” The originating lender is no longer in the reverse business, and the servicer directed them to NRMLA’s Locate a Lender page, where they found me. Mrs. D sent me a copy of a recent statement, where I saw that the current outstanding balance is 15 percent higher than the current principal limit.
How to react when unethical behavior is evident I always try to do the right thing, don’t you? The sad and sometimes surprising fact is that not everyone does. Our NRMLA Code of Ethics prompts us to conduct business with fairness, integrity and professionalism, and requires that member companies employ individuals determined to be “of good moral character.” I am proud to say that everyone I work with, and everyone whom I have met through various NRMLA events (and every reader of this article, I’ll bet), adheres to this code, but I have indirectly encountered loan originators who clearly do not. Recent news regarding CFPB complaints about reverse mortgage advertising tells me that there are marketers producing pieces that do not adhere to regulations. Is this by their own initiative, or do we assume 22 | TRR
She did not suggest that she or her husband had been coerced in any way when the loan was originated, but she was under the misperception that her name could be added to the deed and the reverse. Our job is not just to extol the virtue and value of a reverse mortgage, but also to make sure borrowers fully understand the consequences of their actions. A failure to provide all the facts may not seem unethical to a less experienced LO because the omission goes unrecognized, but the situation of borrowers like these tells me this demands industry concern. I had to explain that unless their home increased in value, or if they were able to make some kind of contribution toward paying down their debt, the chances of a refinance were slim. The most disturbing situation I have come across was a call last year from a younger man just three days before his mother-in-law’s reverse mortgage was scheduled to close. He found my name through a colleague in the mortgage business when he and his wife were feeling uncomfortable about her mother’s loan. They were particularly concerned by instructions she had received to
“
What is a NRMLA member’s, or any individual’s, responsibility when we see indications of unethical behavior on the part of someone in our industry? It pains me to think that that person represents our industry to potential clients. The only thing we can do is provide an avenue for complaint to the injured party.”
ORIGINATING draw the maximum disbursement at closing, then to pay it back into the account. This was required, this borrower was told, in order to set up a credit line. Not the advice or instructions I would have given. This was clearly a violation of the code’s values, perhaps indicating a lack of competence but more likely a lack of integrity. I explained to the man that a draw was not required and that it sounded fishy to me, too. By this time, his mother-in-law felt obligated to close the loan because of all the work already done, and nothing her daughter or daughter’s husband could say would change her mind. A little detective work on Google uncovered additional discrepancies: The person who contacted the borrower and took the application was not the LO who signed the documents, nor was he listed in NMLS. At that time, I called NRMLA and was told that the borrower could lodge a complaint with the attorney general.
A complaint against a NRMLA member may be made by another member or by a consumer directly to NRMLA. The U.S. Attorney General can be contacted online at webmaster@usdoj. gov or by calling the Department of Justice at 202.514.2000. State-specific attorney general contact information is available online. Complaints to the Consumer Financial Protection Bureau can be made @ at consumerfinance.gov/complaint/ or by calling 855.411.2372. HUD’s Office of the Inspector General can be reached at 800.347.3735.
MARKETING
What is a NRMLA member’s, or any individual’s, responsibility when we see indications of unethical behavior on the part of someone in our industry? It pains me to think that that person represents our industry to potential clients. The only thing we can do is provide an avenue for complaint to the injured party.
ORIGINATING
Shortly after the loan closed, the son-in-law forwarded a communication the borrower had received from the “LO” via her daughter, urging her to invest her money in an annuity. A company and contact was named. Here was a clear violation of ethics and possibly the law.
COMPLAINT CONTACTS
With Mrs. D.’s permission, I forwarded the facts of her case to an acquaintance at the CFPB. I do not know the outcome, or if she even filed a complaint. n
HAPPY
MARDI GRAS
FROM
888-383-8885 | quickcert.org | ops@quickcert.org reversereview . com
8 TRR | 23
SPOTLIGHT
Fastest Turn Times in the Industry. That’s something to celebrate!
The Reverse Review
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MARKETING
PROMOTE
How to Get More Reverse Mortgage Referrals By Carlos Scarpero
Using email marketing campaigns to build your business
I recommend using Constant Contact as your email service provider to initiate email campaigns, although there are similar solutions in the market that could work just as well.
STEP 3 Start digging for birthday information. If you use Gmail and your prospect listed their birthday on Google Plus, then their birthday will automatically be added when you export your contact list. You might also find birthday information on Facebook and LinkedIn. Reach out to people individually to fill in the gaps.
BONUS TIP If it’s a hot prospect or referral partner, kick it up a notch by sending a printed card. It costs a little more money, but can be absolutely worth it. I recommend using sendoutcards. com, because they have a “set it and forget it” system in place for printed cards and gifts.
STEP 4 Import the spreadsheet into your Constant Contact account (or whatever service you are using). STEP 5 If you are using Constant Contact, click on the create button and use their template to design your campaign. (Note: Do not take this opportunity to pitch. Just wish your contact a happy birthday and leave it at that!) The great thing about this is that you set it up once and whenever a birthday comes up, an email is sent automatically. Once you have honed your contact list and solidified your relationships through birthday greetings, take it to the next level by reminding them of your services. Focus on generating reverse-specific content. Write a blog post or create a video that offers insight into how the product can be useful. Don’t overthink it. At the end of your message, leave a phone number and email address that your prospects and referral partners can use to schedule an appointment. Then, create a landing page where your contacts can access your content. Most email providers like Constant Contact have free landing page tools that you can use. Send an email to your contacts that says something like, “Hey, I’ve put together a report about reverse mortgages and the work that I do, and I thought you might be interested.” Include a link to your landing page. It’s important to give your contacts the option to view your report by suggesting they click on the link. Do not just send them the report. This way, you can view traffic results to gauge the level of interest. Those who click on the link are now part of your new list. Send follow-up emails to this new list. Continue to build value by creating new content. Invite them to webinars or live events. Ask them if they want to set an appointment with you and move them into your sales process. I guarantee that if you take this seriously and do it, you will enhance your referral base and better your business. n reversereview . com
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SPOTLIGHT
The right way to approach email marketing is to use it to follow up with the people who already know, like and trust you, such as past clients, prospects, referral sources and professional acquaintances. A good campaign aims to maintain and accelerate your relationships with your contacts. One great way to do this is to send personalized birthday greetings.
STEP 2 Delete the contacts you don’t really know. If you got an email from that person, would you immediately recognize it? If not, delete it.
MARKETING
Email marketing is a proven and cost-effective method for many sales professionals. According to a 2013 Direct Marketing Association study, email marketing produces an average return of $43 for every $1 spent. But in order to see such a return, your campaign must be done right. Purchasing email lists and spamming people won’t get you results.
STEP 1 Get a spreadsheet of email addresses together, including name, email and birthday. I suggest building your list using the contacts in your Outlook or Gmail, your stash of business cards and your LinkedIn contacts.
ORIGINATING
As a reverse mortgage professional, your best method for expanding your client base is to secure referrals not only from friends, but also Realtors, financial advisors, lawyers and other professional sources close to you. But how can you do this quickly and cheaply? By staying top-of-mind with your referral sources through email marketing.
Here’s what you need to do to launch an effective birthday email campaign:
The Reverse Review February 2016
SPOTLIGHT IN THIS MONTH’S EDITION
DR. CHEN DETAILS HIS ROLE IN THE EVOLUTION OF HOME EQUITY CONVERSION IN THE U.S.
Dr. YungPing Chen: My Story
RR
february 2016
The famed economist and gerontologist talks about his contribution to the development of home equity conversion.
WANT TO SEE MORE ARTICLES LIKE THIS?
See them at reversereview.com.
- By Yung-Ping Chen
W
HEN I FIRST PROPOSED WAYS TO TRANSLATE THE ABSTRACT NOTION OF HOME EQUITY CONVERSION INTO A PRACTICAL FINANCIAL INSTRUMENT, I called it an “actuarial
mortgage” or a “housing annuity.” While I don’t believe I specifically designed today’s HECM program, I did conduct a great deal of early research on the voluntary conversion of home equity for those older people who need more current income. Here is my story.
In the early 1960s, while studying income and wealth distributions among older people in the context of poverty, I became intrigued by the “income poor but house rich” phenomenon that plagued many of them. The thenprevailing tendency was to judge the extent of poverty among the aged (and the general population) by current income alone, without taking account of property or asset possessions. I believed that incidence of poverty among old people would be lower if poverty were measured 26 | TRR
using what might be called the “net-worth approach.” The net-worth approach calls for adding up all the assets, liquid and non-liquid, a person owns minus all the liabilities he or she owes. Under this concept, a “net-worthadjusted income,” which would be the sum of potential income from annuitized net worth plus current income, would replace current income alone as a yardstick by which to assess a person’s full financial capacity and their poverty status. This would be a superior method, in theory, as it more accurately counts all the financial resources under a person’s command. In practical terms, however, the networth-adjusted income measure falls short when it comes to non-liquid assets, especially as they pertain to the net home equity in a person’s residence. For the net-worth-adjusted income to make practical sense, therefore, non-liquid assets such as a home must be able to be sold. But older homeowners were typically reluctant to sell their homes.
It was not until I tried to resolve this dilemma did I come up with the concept of a financial product that would allow voluntary conversion of the person’s net equity in the home into a lifelong flow of income (or annuities) as spendable cash, while being assured of lifetime occupancy in the house or upon voluntary move-out. I gave my first seminar on this idea of home equity conversion at the joint meeting of the Social Systems Research Institute and the Department of Economics at the University of Wisconsin in December 1963. I later presented a paper at the 1965 annual conference of the National Tax Association that concluded with this concept. In 1966, I published an article on the same message in The Gerontologist. That same year, before an international research community at the seventh International Congress on Gerontology in Vienna, Austria, I argued for the net-worth concept of poverty and broached the notion of an actuarial mortgage plan. In those early days, I was unaware that
SPOTLIGHT home equity conversion was an idea with a history and not the new idea it seemed to me then and to those who heard or read about it from me.
who pioneered the concept of home equity conversion in the United States. Chen’s research has
Yung-Ping Chen
also led to new ways of funding long-term care and Social Security. A fellow in the Gerontology Institute at the University of Massachusetts Boston, Chen’s work is credited for generating a better understanding of the economic, political and social challenges of an aging population.
In fact, it was not until 1969, when I was preparing to apply for this HUD grant, that I come across a newspaper story about a version of home equity conversion that had already been in use in France for decades. In France, the story indicated, the owner of a house or other real estate could sell the property for a lifetime annuity (called a viager) with the purchaser taking possession of it upon the seller’s death. For the owner, it was a means of obtaining income without selling the house outright. For the buyer, it was a way of acquiring property without a large and immediate disbursement of funds. The buyer would pay a sum less than the market price of the property, since he would have to wait for an unknown period of time to take title, and he would be speculating that he would outlive the seller. Other things being equal, prices tended to rise with the seller’s age. Viager would be a transaction between individuals, typically with the assistance of a lawyer. One modern-day example of this transaction involved Madame Jeanne Calment (1875-1997) of Arles, France, the individual with the longest documented longevity before and since her death on August 4, 1997. Thanks to Dr. Allard, who gave me his co-authored book in November 1999, I learned that Madame Calment entered into a viager contract at age 90. She received a monthly payment for 32 years—it was paid by the “buyer” of her apartment, a lawyer, for 29 years until his death and then by his heirs for another three years until her death, at age 122. 8 reversereview . com
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SPOTLIGHT
“
I believed that incidence of poverty among old people would be lower if poverty were measured using what might be called the ‘net-worth approach.’ The networth approach calls for adding up all the assets, liquid and non-liquid, a person owns minus all the liabilities he or she owes.”
noted economist and gerontologist
MARKETING
In the 1960s, few people were aware of the central notion of home equity conversion, but some in the U. S. Congress
As interest in the idea of home equity conversion among some academic researchers and policymakers grew, I did not know how the general public would react to it. For that purpose, in 1970, I received a research grant from HUD to study the receptivity of home equity conversion through an opinion survey. The survey was conducted on a probabilistic sample of single-family, owneroccupied homes whose heads were from 55 to 75 years old in Los Angeles County in California. (The location was chosen because I was then teaching at UCLA.) By that time, I had named the potential mortgage instrument a housing annuity. A monograph of that study was published in 1973.
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ORIGINATING
New or not, arguably home equity conversion could be a useful adjunct to financial resources for retirement. With individuals and society facing new and emerging demographic and economic conditions, more resources seem required to finance a longer period of healthy aging and not-so-healthy aging. Moreover, voluntary home equity conversion would promote self-reliance and reduce the public expenditures financed by higher taxation that otherwise would have been required to assist the financially strapped.
were clearly interested in the “actuarial mortgage plan” I had advocated. In 1967, I was invited by the Joint Economic Committee of the Congress to contribute to a compendium of papers on retirement income programs. Also in 1967, I was invited by the chairman of the Senate Special Committee on Aging to submit a statement. Then in 1969, I was invited to testify before the Subcommittee on Housing for the Elderly of the Senate Special Committee on Aging.
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SPOTLIGHT
What I envisioned, however, was the creation of an ‘impersonal market’ for a new type of mortgage product involving both the private and public sectors. This product would entail joint operation of several financial intermediaries such as banks or savings and loan associations, mortgage companies, private and public pension funds, and possibly also involving home improvement companies.”
-USA Today, 2014
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There was still more information to be learned. In 1979 and 1980, two conferences on home equity conversion were held in Madison, Wisconsin. In the course of those proceedings, Nelson Haynes of Deering Savings and Loan Association of Portland, Maine, reported that in 1961 he had made what amounted to a reverse mortgage loan to Nellie Young, the widow of his high school football coach. All these examples were bilateral arrangements in “personal” markets, involving
To summarize, the idea of home equity conversion came from the concept of measuring the command of one’s financial resources based on the “net-worth concept.” In economic terms, home equity conversion would simply be another form of dissaving. When a young person builds up home equity, he or she mortgages their future income to acquire an asset; when an old person converts the home equity into cash, he or she mortgages their asset to acquire a supplemental income. From the standpoint of earning and spending over one’s economic life cycle, saving while young followed by dissaving when retired seem perfectly logical and sensible. n
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SPOTLIGHT
of Americans are worried about their retirement prospects.
MARKETING
85%
transactions between individuals or between an individual and the government. What I envisioned, however, was the creation of an “impersonal market” for a new type of mortgage product involving both the private and public sectors. This product would entail joint operation of several financial intermediaries such as banks or savings and loan associations, mortgage companies, private and public pension funds, and possibly also involving home improvement companies, with the support of the government.
ORIGINATING
DID YOU KNOW...
Some other practice in another part of the world resembled the idea of home equity conversion. While doing the study funded by HUD in 1970, I learned something of interest that reportedly happened in Poland. The study was designed to assess homeowners’ receptivity to a proposed idea of converting home equity into cash, using in-person survey research. There was an open-ended question in the survey instrument. A respondent offered the information that some years ago a Polish peasant could receive a pension from the government for a lien on his house; he could live in his house throughout his lifetime, and the government would take possession of the house upon his death.
The Reverse Review February 2016
nt
retireme
finances
finances
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retireme
By Jessica Guerin
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PUBLIC PERCEPTION has been described as a social phenomenon defined by the difference between fact and popular opinion. It is the reputation of a product or person— a judgment fueled by emotion, rumors and cultural prejudices and given a voice by the mainstream media. Reverse mortgages have long suffered from a negative public perception. The problem is the result of several factors, including common misconceptions about a somewhat complicated financial product that have been hard to dispel. Most Americans simply don’t understand the ins and outs of the product, with many holding on to the false belief that the bank owns a borrower’s home. Even some financial professionals are uninformed about the details of the loan. Of course, it would be remiss to deny that the product has had its issues in the past. The woes of non-borrowing spouses entering into foreclosure have inspired many attention-grabbing headlines, and the long-ago misdeeds of some bad apples who pushed borrowers to purchase other financial products with their proceeds didn’t help matters. Then there were unfit borrowers who were running through their money, leaving nothing left for taxes, insurance or living expenses. The fact is that the product is designed for senior citizens, and society is rightfully protective and emotional when it comes to their wellbeing. Stories about seniors failing to thrive with these loans gave rise to a negative sentiment about the product and its usefulness. But after years of productive dialogue between the industry and lawmakers, the reverse mortgage program has adopted new rules to safeguard it from the blunders of the past. It’s a unique and complicated product, and it took time for officials to understand the guidelines needed to maximize its effectiveness. With new protections in place for non-borrowing spouses, expanded rules to police industry participants, and a financial assessment to ensure the loan’s suitability for a borrower’s circumstance, reverse mortgages are a better, stronger and safer product than ever before.
The truth is there is no other product out there that allows older Americans to access their home equity, and statistics indicate that many will need to utilize this valuable asset to support their retirement.
withdrawals from a reverse mortgage could be utilized along with investment portfolio withdrawals to stabilize one’s retirement income. “Retirees need longevity protection and additional funds. Annuities and reverse mortgages can meet those needs,” Tomlinson writes. “While annuities have been researched extensively, reverse mortgages haven’t received as much attention. We need research on how to fit these two products together in overall retirement plans.” Tomlinson concludes that financial planning software that can analyze the coordinated use of annuities and reverse mortgage proceeds needs to be developed to assist middle-income seniors whose savings cannot provide sufficient retirement income.
Recently, research and commentary from noted academics and financial professionals have outlined the benefits of strategically using one’s home In October, Nobel Prize-winning equity through a reverse mortgage, economist and MIT finance professor insisting that one’s housing wealth Robert Merton drew the finance world’s should become an important factor attention to reverse in retirement planning. mortgages. Speaking at The media appears to be a wealth management ROBERT catching on, citing the MERTON conference before Economist, latest research and noting members of more than that recent program MIT 140 wealth advisory revisions have provided firms, Merton said he extra safeguards for believes that reverse “Americans have consumers. With all of this mortgages will become wrongly steered clear momentum gathering in an essential component of reverse mortgages... 2015, some are noticing of retirement savings. This is going to become a change in the tide. The one of the key means of The house is the largest funding retirement in public conversation about and sometimes only the future.” reverse mortgages is major asset for many trending toward positive, in the working middle and many are predicting that public class, he said, and reverse mortgages opinion will follow suit. are well suited to tap that wealth. “Americans have wrongly steered clear PUSHING THE NEEDLE of reverse mortgages,” Merton said. “This is going to become one of the In 2015, a handful of academics and key means of funding retirement in the financial professionals published future.” research and publicly commented on the use of reverse mortgages in retirement planning. Joe Tomlinson, an actuary and financial planner, researches and writes about investment options and retirement planning. In April of last year, Tomlinson published a paper on Advisor Perspectives, a website that specializes in “actionable advice for financial advisors.” Titled “New Research: Reverse Mortgages, SPIAs and Retirement Income,” the paper examines how Single Premium Immediate Annuities and monthly tenure payments or line of credit
Jamie Hopkins, an associate professor of taxation at The American College and associate director of the school’s New York Life Center for Retirement Income, has also become a vocal proponent of reverse mortgages. Hopkins said he began researching the HECM’s role in retirement planning after reading research by Barry Sacks, John Salter and others in the Journal of Financial Planning. Their work inspired him to explore strategic uses for home equity in retirement planning, and the frequent Forbes contributor often writes about his belief in the value of the product. 8 reversereview . com
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The Reverse Review February 2016
“Using a reverse mortgage is no longer just for the cash poor and house rich,” Hopkins wrote in an article last May. “Instead, reverse mortgages can be used strategically as one part of a retirement income plan designed to build a buffer against sequence of returns risk early in retirement, help defer Social Security benefits or reduce cash outflow from traditional mortgage payments.”
PICKING UP ON THE TREND
In November, The Journal of Retirement published an article examining various ways in which a reverse mortgage can be strategically used in retirement income planning. Written by Tom Davison, partner at the financial planning firm Summit Financial Strategies, and Keith Turner, a reverse mortgage advisor with Retirement Funding Solutions, the paper explores how different strategies can suit different types of borrowers. “Today, there is an evolving understanding of reverse mortgages as a valuable financial planning tool,” Davison and Turner write. “Reverse mortgages are now seen as well suited for retirees—not only homeowners who are underfunded and turn to a reverse mortgage as a last resort, but also those who enter retirement well-funded.”
Big-time newspapers like The Wall Street Journal, USA Today and The Boston Globe published articles last year explaining how a reverse mortgage can be used in conjunction with other strategies to enhance a retirement portfolio. Web coverage was equally positive with sites like forbes.com, marketwatch.com and time.com detailing why home equity should be an important part of the overall retirement picture.
Finally, a paper published in November by Wade Pfau, a professor of retirement income at The American College of Financial Services, outlines six different strategies for using reverse mortgages. Titled “Incorporating Home Equity into a Retirement Income Strategy,” Pfau’s paper illustrates that taking out a reverse mortgage as a last resort produced the least successful outcome, while taking a reverse mortgage line of credit at the beginning of retirement, and allowing the credit line to grow before tapping it, proved to be the most successful strategy. “Strategic use of a reverse mortgage can improve retirement outcomes,” Pfau writes. “There is great value for clients to open a reverse mortgage line of credit at the earliest possible age.”
Perhaps spurred by the uptick in positive commentary from the finance world, the mainstream media seems to have changed its tune about the value of HECMs. According to NRMLA, 93 percent of news articles about reverse mortgages in 2015 were neutral or positive.
“A lot of the positive and neutral news coverage we saw in 2015 came from articles about retirement planning that included general information about how reverse mortgage loans work and the features, benefits and responsibilities to consider before applying,” says Jenny Werwa, NRMLA’s director of public relations. “What I like about these mentions is that they put reverse mortgages in the context of other financial tools and strategies that are already familiar to consumers, so that tells us that we are getting more mainstream, which is very positive.” Mike Kent, president of Liberty Home Equity Solutions, says he thinks recent product changes have helped elevate the conversation about HECMs. “I believe the changes made to the product over the last year, such as maximum draw limitations and credit-based underwriting, and the changes made regarding non-borrowing spouses, have made the product much safer and more appealing to the general public,” Kent says, adding that new research has helped tip the scales. “These papers have been very supportive and have really helped to change the opinion of many in the retirement planning field
MIKE KENT Liberty Home Equity Solutions
“Public perception is definitely improving. As we see the positive changes in opinion in articles written about the reverse mortgage product, public opinion follows. We are seeing a corresponding excitement about the product in the general borrowing public.” 32 | TRR
regarding the value of a reverse mortgage in overall retirement planning.”
SHERRY APANAY Finance of America Reverse
“If every company, every loan originator, raises the bar on education, we can improve the product’s reputation. It’s a great product, but may not be the solution for everyone, and it’s our job to help consumers figure that out.”
Sherry Apanay, chief sales officer at Finance of America Reverse, credits NRMLA’s collaboration with industry lenders for the recent surge of positive press. “I believe it’s apparent that NRMLA’s P.R. campaign has had a huge positive impact. The campaign is funded by a group of large and small lenders that are committed to the success of the reverse mortgage industry, and even more importantly, are committed to ensuring that accurate information about reverse mortgages is available so consumers can make informed decisions.”
Apanay says positive press coverage is a major element to the market’s growth. “One word: credibility,” she says. “When a trusted publication provides balanced reporting and a positive perspective on reverse mortgages, it helps.” Teague McGrath, chief marketing officer at AAG, also stresses the value of positive coverage in the mainstream media. “These outlets are powerful when you consider their strength in the areas of potential reach and perceived credibility. Forbes has something like 45 million unique online visitors and WSJ about 20 million. The WSJ has the highest-paid subscriber base in their print news. And when you consider these are one-stop news stores for your business, financial, lifestyle/ arts, technology, health and auto news, positive coverage in these outlets translates to greater exposure and increased consumer awareness.”
SUSTAINING THE MOMENTUM It remains to be seen what 2016 will bring for the industry, but many are hopeful that the year will see a period of much-needed stability after so much change. Armed with a stronger product, many reverse professionals are eager to see this positive momentum continue full steam ahead.
“Public perception is definitely improving,” says Kent. “As we see the positive changes in opinion in articles written about the reverse mortgage product, public opinion follows. We are seeing a corresponding excitement about the product in the general borrowing public.” While the latest coverage is promising, some industry veterans believe there is a lot of work that still needs to be done to turn things around. “I believe the positive articles have made an impact, but unfortunately the negative stuff seems to stick around longer and permeate ‘belief systems,’ whether or not they are based on fact,” says Apanay. “I think we still have some work to do.” McGrath agrees. “We need consistent, amplified positive coverage to create a significant upward shift in reverse mortgage loan volumes.” To help advance the cause, reverse professionals can continue to spread with word among professional partners and their local media. Combatting inaccurate coverage online is another great way to advance the message. NRMLA’s Blog Squad seeks to do just that, enlisting members of the industry to comment online and correct misinformed reporting. “It’s important to correct inaccuracies and misconceptions about reverse mortgages that appear in publications,” Werwa says. “We encourage all professionals in the industry to use the comment section in online articles to post positive messages and facts about the product, the industry and our borrowers.” McGrath also says the industry needs to be vocal when it comes to the press. “When we see a controversial, contentious
and all-round negative article, we need to respond and correct it as an industry. Likewise, we should promote articles that depict reverse mortgage loans accurately and positively as a viable financial planning tool for retirement. Borrower stories and articles promoting expert opinions can combat the negative, outdated articles and new groundbreaking studies need to be funded. The bottom line is we just need more of us in the industry to make this our mission, with consistently greater frequency.” Apanay says reverse professionals can help propel the product forward by acting with integrity and furthering their product education. “A larger number of originators need to be more interested in serving the seniors’ need than making a sale. Don’t misunderstand me, we’re all here to make a living, but there’s a right way and a wrong way. Serving seniors is how this industry was built and with numerous changes over the past several years, I think we’ve lost some level of integrity and expertise. A commitment to education from every loan originator is key! If you don’t fully understand the math, you have no business taking a loan application. If every company, every loan originator, raises the bar on education, we can improve the product’s reputation. It’s a great product, but may not be the solution for everyone, and it’s our job to help consumers figure that out.” Kent echoes this idea. “Educate, educate and educate. The goals of every organization should be to educate and inform the consumer about the reverse mortgage product. If we do a good job educating and informing, borrowers will be able to make the decision about whether the product is right for them.” n
Media Roundup
Here are some notable highlights from 2015’s reverse mortgage press coverage PRINT COVERAGE ONLINE COVERAGE
The Wall Street Journal // March “By depleting their portfolio, delaying Social Security, taking out a reverse mortgage and buying longevity insurance, our couple might have… almost 30 percent more than if they simply claimed Social Security at 62 and plunked for a 4 percent portfolio withdrawal rate… Moreover, the strategy is arguably less risky, because they’re locking in various income streams that will keep paying no matter how long they live.”
The Boston Globe // June “Many people think of their house as a last-resort fund or as a bequest for their kids. But the days of ignoring housing wealth are over. Most people will need to tap their home equity—either by selling and downsizing or taking a reverse mortgage—to help pay monthly bills in retirement.” -Alicia Munnell, director of Boston College’s Center for Retirement Research USA Today // July “When you do the deal right a reverse mortgage can increase your chances of a healthy income in your golden years, especially if you use the money in conjunction with other income such as Social Security, pensions and payouts from your retirement accounts.”
Forbes.com // October “The lack of focus on home equity in retirement income planning is nothing short of a complete failure to properly plan and utilize all available retirement assets. This needs to change immediately because strategic uses of home equity, especially reverse mortgages, could save many people from financial failure in retirement and help stem the overall retirement income crisis facing Americans… Reverse mortgages are a viable tool for retirement income planning, and while not for everyone, could serve as a saving grace for many baby boomers facing a retirement income shortfall.” -Jamie Hopkins Marketwatch.com // November “A growing body of research is showing that homeowners of all stripes should consider using a reverse mortgage in conjunction with their portfolio-withdrawal strategy. Such loans, where you borrow from the equity in your home, can help you preserve your nest egg, leave a legacy, or both.”
Time.com // December “New government rules instituted in the last few years have made these complex products safer and less costly… If you do find you need the cash from your home—maybe your healthcare costs go up more than expected, or you have a medical crisis—set up a reverse mortgage as a line of credit.” reversereview . com 8 TRR | 33
The Reverse Review February 2016
LAST WORD
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REFLECT
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2016 Is the Most Important Year of Your Life By Scott Norman
Coach reached out to me long after cancer had shattered most of his body, and asked me to give his eulogy. In doing so, he challenged me to address what I consider to be five essential questions. I share these with you in the hope that they will be a roadmap of sorts toward a fulfilling year. ask yourself
1. Who are the people who have influenced your life the most? Write down the names of those who have meant the most to you—not those who have been in your life the longest, but those who have helped you and influenced the trajectory of your life the most—and tell them. If you do nothing else this week, do this!
Taking stock and forging ahead with conviction With sweeping changes in culture and politics, and profound adjustments in the way Americans look at retirement, 2016 is the most important year of your life. I was told this in a letter I received from my high school coach that he wrote just before he passed away a few weeks ago. I would like to share parts of this letter with you. While I don’t expect his words to be as significant to you as they were to me, I hope this simple and profound message will resonate in some way. “Life today is fast and full of opportunity—but if you don’t have a daily purpose, any road you take will eventually lead to a dead end.” Coach’s implication is that we are often pulled into needless distractions without pausing to really think deeply about the very measurable and basic goals we want in life. If we choose, we can discern what is really essential, and we can design a life of real intention. Concurrently, when you are on your deathbed—and I mean literally on it—you will see the world in a different light. Your professional wins will be trumped by what you visibly stood for and how many friends you kept close to you during your life. 34 | TRR
2. Are you really happy with your job? Is it inspiring your imagination, family and happiness? If the answer is no, make drastic changes today. 3. In a near-perfect world, what should your life look like in five years? Take 15 minutes to write down your answer. 4. How many people will you serve this year who can never pay you back? Take 15 minutes to write down your answer. 5. Finally, take 15 minutes to reread all of your answers while asking yourself, “How can I design my daily routine to more closely align my life with these answers?”
The year ahead is bound to provide all of us with disappointments, rewards and opportunities. It’s up to you to make the most of what comes your way. Whatever happens in 2016, I hope you are inspired to make it the best year of your life. n
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