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How to close loans better and faster
Partnering with financial planners
Considering ethics
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Sherry Pauline sits down in our Hot Seat
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INSIDE THIS ISSUE | KNOWING OUR PRODUCT AND SELLING IT RIGHT
The Reverse Review November 2016
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The Reverse Review November 2016
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From the editor RE
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N OV E M B E R 2 0 1 6
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A NOTE FROM JESSICA GUERIN
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INSIDE THIS ISSUE | KNOWING OUR PRODUCT AND SELLING IT RIGHT
In this month’s edition, we talk a lot about partnering with financial planners and Realtors to help spread the word about the important role HECMs can play in retirement planning. The Longevity Task Force’s Shelley Giordano talks about developing a deeper understanding of the HECM’s benefits so that
Meet the Team SENIOR PUBLISHER
Reza Jahangiri PUBLISHER
Erik Richard EDITOR-IN-CHIEF
Jessica Guerin
we can better connect with financial advisors; Weiner Brodsky’s Jim Milano explores the legal implications of establishing formal H O T S E AT
O R I G I N AT I N G
LEGAL
LAST WORD
PG. 17
PG. 18
PG. 24
PG. 34
Sherry Pauline sits down in our Hot Seat
How to close loans better and faster
Partnering with financial planners
Considering ethics
partnerships with other professionals; and in this month’s feature, seasoned HECM specialist Kent Kopen outlines the importance of educating Realtors about the H4P.
NOVEMBER 2016
COVER
The importance of educating Realtors about the H4P
CREATIVE DIRECTOR
Traci Knight
COPY EDITOR
Kersten Deck MARKETING DIRECTOR
Alycia Greer
Each of these thoughtful articles stresses the fact that we must find a way to reach beyond ourselves to promote this product. Our hope is that The Reverse Review supports this mission by providing a forum where professionals can share their ideas about how we can achieve this goal. Help us by participating in the conversation. Write to us with your ideas on advancing the reverse market. Comment constructively on our stories online. Let’s commit to working together to spread the word about this important financial tool.
Advertising Information phone : 630.207.3882 email : jessica@reversereview.com Subscriptions email : information@reversereview.com Editorial Content email : jessica@reversereview.com © 2016 Reverse Publishing LLC All rights reserved. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in articles and advertisements 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.
JESSICA GUERIN Connect with me about how you can participate. Reach me at jessica@reversereview.com
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The Reverse Review November 2016
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6 | TRR
table of contents 10 / STATS
TRR 11.16
23 / TECH
24
September top lenders and HECM endorsement stats through August
A White-Glove Reverse Mortgage Signing Experience
REVERSE MARKET INSIGHT
Technology companies seek to simplify the closing process.
12 / NRMLA NEWS
AARON KING
Read about the association’s current initiatives.
24 / LEGAL
“What’s in It for Me?”
15 / ROUNDUP A collection of recent facts and surveys affecting the reverse market
17 / HOT SEAT
The legal implications of partnering with financial planners JIM MILANO
26 / SPOTLIGHT
Sherry Pauline
Chief risk officer at AAG
18 / ORIGINATING
Compensating Factors: The Secrets for Success
Knowing Our Product and Selling It Right How we can make housing wealth an accepted revenue stream in retirement planning SHELLEY GIORDANO
Adopting a system of support to help you close loans better, stronger and faster
34 / LAST WORD
PATRICK LAMBRECHT
The importance of doing right by our clients
21 / ORIGINATING
18
21
Considering Ethics
LAURA BICHÉ
Sign, Sign and Sign Again A call to action on behalf of our borrowers' aching hands BILL SMITH
23
FEATURE
30 / FEATURE
YOU CAN DO IT!
The H4P Strategy How this undervalued product can move the needle for America’s retirees KENT KOPEN
REACH OUT TO US ABOUT WRITING FOR TRR. INFO@REVERSEREVIEW.COM
“This is not your normal HECM for Purchase article. This is a story about why we’re on to something big with the H4P strategy and why we have a moral imperative to understand and act on this knowledge. reversereview . com
8 TRR | 7
The Reverse Review November 2016
movers & shakers READ ABOUT THE LATEST DEVELOPMENTS IN COMPANIES ACROSS THE REVERSE SPACE.
HAVE A COMPANY UPDATE YOU WOULD LIKE TO SEE PUBLISHED? Huron Valley Financial Announces Reverse Mortgage Division
Huron Valley Financial, Inc. (HVF) announces the establishment of 1st National Reverse Mortgage, its wholly owned reverse mortgage division. Reverse mortgage industry veteran Mike Gruley, CRMP, will lead the division, and Mike Hicks will serve as VP, national retail sales. The new reverse mortgage division will leverage Huron Valley Financial’s existing retail, wholesale and correspondent lending platforms to drive volume.
Moody’s Investors Service Rates Celink Above Average Reverse Mortgage Servicer
Celink has received an SQ2 assessment (equivalent to an “above average” rating) by Moody’s Investors Service as a servicer of reverse mortgage loans. This was the first rating Celink has received by Moody’s. Celink also received an above average rating from Standard & Poor’s in 2015. Moody’s acknowledges throughout its formal report Celink’s “dedicated” and “experienced management team” as well as its “robust technology infrastructure.” Celink’s servicing ability received an above average rating, citing strengths in its customer service as well as tracking and oversight of critical servicing milestones.
Reverse Mortgage Counseling 8 | TRR
email it to jessica@reversereview.com Renowned Retirement Income Expert Jamie Hopkins Joins ReverseVision Board of Directors
ReverseVision has announced that Jamie Hopkins has joined its board of directors. A noted expert and frequent speaker on matters of financial planning and retirement income, Hopkins is also a distinguished professor who has educated thousands of financial services professionals over the course of his career. In 2015, InvestmentNews named Hopkins one of its top 40 financial services professionals under 40. He has contributed expert commentary on the strategic use of home equity in retirement income planning to such outlets as Forbes, The New York Times and The Wall Street Journal, and was the keynote speaker at ReverseVision’s User Conference in January 2016.
(888) 383-8885 OPS@QuickCert.org
contributors
John K. Lunde
Sherry Pauline
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
Sherry Pauline is chief risk officer for AAG, responsible for compliance, licensing and enterprise risk management. Pauline’s focus is to optimize the company’s risk and compliance infrastructure. Previously, she was an executive for PennyMac and held risk/compliance leadership positions at Bank of America, Indymac and Coldwell Banker. She has an Associate of Arts degree from Orange Coast College and a B.S. in business information systems from California State University, Long Beach.
Jim Milano
Shelley Giordano
8 | Stats g
24 | “What’s In It for Me?”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.
17 | Hot Seat g
26 | Knowing Our Product and Selling It Right g Shelley Giordano is the director of business development at Security One Lending and the chairman of the Funding Longevity Task Force. She has served as a loan originator and sales leader in her 14-year HECM lending career. Giordano has spoken to audiences at the ABA, on CNN Financial, at the National Association for Home Builders and to numerous financial planning groups. She works with Women in Housing and Finance and was a panelist for the White House Conference on Aging in 2005.
Patrick Lambrecht
18 | Compensating Factors: The Secrets for Success g Patrick Lambrecht is retail operations leader at Reverse Mortgage Funding LLC. He has more than 20 years of mortgage industry experience, including nine years as a reverse mortgage operations leader. Lambrecht has a business administration degree with a concentration in finance from Grand Valley State University.
Kent Kopen
30 | The H4P Strategy g
Kent Kopen is a Certified Reverse Mortgage Professional at United American Mortgage Corp. Kopen has or has held Series 7 and Series 66 securities licenses, insurance and real estate broker licenses, and the Chartered Retirement Planning Counselor designation. He earned a B.S. from the University of Colorado in architectural engineering and an MBA from USC. Kopen co-authored the book Borrow Smart Retire Rich in 2007. kent@thereverseadvisor.com
800.208.1252
Bill Smith
Aaron King
21 | Sign, Sign and Sign Again g Bill Smith works for Reverse Mortgage West in Irvine, California. He began his reverse career with Financial Freedom in 2002 and has since originated more than 600 reverse mortgages. While at Financial Freedom, he pioneered efforts on seminar selling, fiduciary support and assisting conservators who want to obtain HECMs for their clients. Smith has lectured on reverse mortgages across the country and has been a speaker at NRMLA conferences, FPA chapters and the National Guardianship Association.
23 | A White-Glove Reverse Mortgage Signing Experience g Aaron King, a seasoned entrepreneur, is the founder and CEO of Snapdocs Inc., a modern technology platform that simplifies mortgage loan closings. Snapdocs is an alum of Y Combinator, the Silicon Valley accelerator known for helping to launch trailblazing technology startups.
Laura Biché
34 | Considering Ethics g Laura Biché has been a mortgage advisor for 23 years and has been a certified senior real estate specialist since 1999. She lives with her husband and son in the San Francisco Bay area.
-
PARTICIPATE IN 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 | 9
The Reverse Review November 2016
stats
September 2016 Top Lenders Report
12345 American Advisors Group
Finance of America Reverse
Reverse Mortgage Funding
One Reverse Mortgage
Liberty Home Equity Sol.
Endorsements
Endorsements
Endorsements
Endorsements
Endorsements
882
322
253
248
197
Lender Endorsements SYNERGY ONE LENDING INC
180
Lender Endorsements
LIVE WELL FINANCIAL INC
174
YADKIN VALLEY BANK AND TRUST
11
NATIONWIDE EQUITIES CORPORATION
145
ACADEMY MORTGAGE CORPORATION
10
HIGHTECHLENDING INC
119
EVOLVE BANK & TRUST
10
PEOPLES BANK
11
FIRSTBANK 68
FRANKLIN FIRST FINANCIAL LTD
HOME POINT FINANCIAL CORPORATION
66
AMERICAN NATIONWIDE MORTGAGE COMPANY 9
RMS/SECURITY ONE LENDING
55
NEW AMERICAN MORTGAGE LLC
9
REVERSE MORTGAGESCOM INC
51
INTERCONTINENTAL CAPITAL GROUP
9
UNITED NORTHERN MORTGAGE BANKERS LTD 41
LAND-HOME FINANCIAL SERVICES
9
THE FEDERAL SAVINGS BANK
38
SUCCESS MORTGAGE PARTNERS INC
9 8
9
MCM HOLDINGS INC
38
DOLLAR BANK FSB
MONEY HOUSE INC
38
BANK OF NORTH CAROLINA
7
38
BROKER SOLUTIONS INC
7
34
NATIONS LENDING CORP
7
33
PACIFIC RESIDENTIAL MORTGAGE LLC
7
30
WILLOW BEND MORTGAGE CO
7
28
WHOLESALE CAPITAL CORP
6
27
SOUTHERN TRUST MORTGAGE LLC
6
6
OPEN MORTGAGE LLC
SUN WEST MORTGAGE CO INC CHERRY CREEK MORTGAGE CO INC
RESOLUTE BANK
PLAZA HOME MORTGAGE INC M & T BANK
ADVISORS MORTGAGE GROUP LLC
24
SENIOR MORTGAGE BANKERS INC
LONGBRIDGE FINANCIAL LLC
20
NOVA FINANCIAL & INVESTMENTS CORP
6
UNITED SOUTHWEST MORTGAGE CORP
20
RESIDENTIAL HOME FUNDING CORP
6
TOTAL MEDIA MANAGEMENT LLC
16
CAMBRIA FINANCIAL GROUP LLC
6
16
COMMUNITY FIRST NATIONAL BANK
6
16
FIRST PRIORITY FINANCIAL INC
6
BANC OF CALIFORNIA
15
GATEWAY FUNDING DIVERSIFIED MORTGAGE
5
AMERICAN PACIFIC MORTGAGE
14
EASTERN BANK
5
5
QUONTIC BANK FSB
FAIRWAY INDEPENDENT MORTGAGE CORP
UNIVERSAL LENDING CORPORATION
14
BANNER BANK
SUN AMERICAN MORTGAGE CO
13
HOMEOWNERS MORTGAGE ENTERPRISE
5
TOWNEBANK 12
GOLDWATER BANK 5
VIP MORTGAGE INC
12
GSF MORTGAGE CORPORATION
12
SECURITYNATIONAL MORTGAGE COMPANY
BANK OF ENGLAND 10 | TRR
5 5
stats
HECM Endorsement Stats Through August 2016 { FIGURE }
01
PURCHASE
$1,200
REFI STANDARD
$800 $600 $400 $200
{ FIGURE }
7/1/16
6/1/16
5/1/16
4/1/16
3/1/16
2/1/16
1/1/16
12/1/15
11/1/15
10/1/15
9/1/15
$0 8/1/15
DOLLARS IN MILLIONS
HECM ENDORSEMENT INITIAL PRINCIPAL LIMITS
$1,000
02
HECM ORIGINATORS (FHA & NON-FHA)
INDUSTRY SUMMARY
TRAILING TWELVE MONTH ENDORSEMENTS 5,000
3,000
RETAIL UNITS CHG%
UNITS CHG%
UNITS CHG%
9
2,589 -11.61%
2,080 -26.24%
4,669 -18.79%
Retail Endorsement Growth
10
2,427
-6.26%
1,901 -8.61%
4,328
-7.3%
11
2,467
1.65%
1,553 -18.31%
4,020
-7.12%
12
2,524
2.31%
1,705
9.79%
4,229
5.2%
1
2,199 -12.88%
1,690 -0.88%
3,889
-8.04%
2
2,645 20.28%
1,932 14.32%
4,577 17.69%
3
2,669
0.91%
1,857 -3.88%
4,526
-1.11%
4
2,465
-7.64%
1,775 -4.42%
4,240
-6.32%
5
2,034 -17.48%
1,605 -9.58%
3,639 -14.17%
6
2,190
7.67%
1,573 -1.99%
3,763
3.41%
7
2,033
-7.17%
1,497 -4.83%
3,530
-6.19%
8
2,440 20.02%
1,938 29.46%
4,378 24.02%
Wholesale Endorsement Growth
29.46%
2,000 1,000
Total Endorsement Growth
9 10 11 12 1 2 3 4 5 6 7 8 Retail
MO.
20.02%
4,000
0
INDUSTRY SUMMARY
Wholesale *Numbers Represent Months
24.02%
* Figures Above Reflect Change from Prior Month
TOT
28,682
WHOLESALE
21,106
TOTAL
49,788
%%%%% LOOKING FOR MORE STATISTICS? Go to rmsinsight.net for all of the industry’s latest stats and rankings. Brought to you by Reverse Market Insight reversereview . com
8 TRR | 11
The Reverse Review November 2016
nrmla news BROUGHT TO YOU BY NRMLA STAFF
S P O T A P P R O VA L S INCLUDED IN PROPOSED CONDO GUIDELINES New condominium approval guidelines proposed by FHA could make it easier for older condo owners to obtain a reverse mortgage. The proposed rule, Project Approval for Single-Family Condominiums, implements changes to condominium project approvals that FHA believes will be more flexible, less prescriptive and more reflective of the current market. FHA proposes to reinstate “spot condo� approvals whereby individual units are approved by FHA rather than the entire condo project. The spot approvals would require property recertification every three years rather than the current twoyear requirement and provide process efficiencies for mortgagees submitting project re-certifications. Public comments are due November 28, 2016. While the public comment period is open for 60 days, FHA encourages all interested parties to fully review the proposed rule and submit comments as soon as feasible. G E T M O R E D E TA I L S O N T H E P R O P O S E D R U L E AT NRMLAONLINE.ORG.
SENIOR HOME EQUITY INCREASES BY $135.2 BILLION IN SECOND QUARTER Housing wealth continues to grow for U.S. homeowners age 62 and older, providing seniors with added financial security in their retirement years. The aggregate value of senior home equity reached $5.9 trillion in the second quarter of 2016, a gain that propelled the NRMLA/RiskSpan Reverse Mortgage Market Index to a new peak of 212.45 from 207.60 in Q1 and an 8.7 percent year-over-year increase.
First published in Q1 2000, when senior home equity totaled $2.38 trillion, the RMMI was benchmarked at 85.47. The index initially peaked at 182.26 in Q1 2006 before declining through Q1 2009, when senior home equity dropped to a trough of $3.48 trillion and the index fell to 125.08. Since that time, the housing recovery and growing population of senior homeowners have contributed to an upward trajectory for the RMMI. In Q2 2016, senior home values reached $7.4 trillion while senior-held mortgage debt increased by $10.75 billion to $1.48 trillion.
New CRMP Exam Goes Live A new exam form went live in early September to test the knowledge of applicants pursuing the Certified Reverse Mortgage Professional (CRMP) designation. A team of subject matter experts convened over the summer to review the
GOVERNMENT FUNDING EXTENDED; NO BREAK IN FHA INSURING AUTHORITY
federal government running through December 9, when lawmakers are expected to be in Washington for a lameduck session after the election.
On September 29, President Barack Obama signed into law a Continuing Resolution (HR 5325) that keeps the
The Continuing Resolution funds federal agencies including HUD and gives the
12 | TRR
exam and make appropriate changes that reflect the current regulatory environment. A new cut score, or passing grade, was also established. Anyone who has questions about the exam or the CRMP designation can contact Darryl Hicks at dhicks@dworbell.com.
FHA the authority to continue insuring HECMs. The CR was cleared by a 342-85 vote in the House of Representatives and was passed by the Senate, 72-26.
nrmla news NRMLA OPPOSES M A N D AT O R Y ASSIGNMENTS NRMLA submitted comments to HUD opposing any policy change that would require mandatory assignment of every HECM once the loan balance reaches 98 percent of the maximum claim amount. Such a fundamental policy change “could have unintended and far-reaching consequences, some of which potentially could be cataclysmic to industry participants, and thus the industry overall,” NRMLA wrote in its comments. HUD proposed this supplemental rule to address a suggestion made during the public comment period for its May 19, 2016, proposals
to strengthen the HECM program. The suggestion came from an organization asserting that mortgagees are holding high-value loans for their own benefit to the detriment of the MMI fund, and that HUD must act to require mandatory assignments at 98 percent. Mortgagees currently have the option to assign loans at 98 percent of MCA, at which time HUD assumes responsibility for servicing them until a maturity event occurs. Most mortgagees choose assignment, because as HMBS issuers they must buy out HECM loans (and related participations) from Ginnie Mae pools once they reach 98 percent. Thus, when such HECM loans are repurchased, servicers look to assign them to HUD as soon as possible, and not wait. Read the comment letter at nrmlaonline.org.
CONGRATS NEW CRMPs
NRMLA congratulates the following individuals for achieving the status of CRMP.
CRMP Sees Significant Growth in 2016
Jeff Cota Pure Mortgage 4
Interest in the CRMP designation has reached an all-time high, with application submissions doubling from last year. Thirty-eight people have already earned the designation in 2016, compared with 22 for all of last year. Another five people are preparing to take the exam. This brings the total number of CRMPs to 146. CRMPs are geographically distributed throughout the United States, with representation in 37 states. California has the most CRMPs (39), followed by Florida (17) and New York (12).
San Diego, California
Rex Duffin Sum American Mortgage Company 4
Mesa, Arizona
Loren James Riddick Peoples Home Equity, Inc.
4
The types of individuals pursuing the designation have also evolved over time. While the CRMP was designed for loan originators, current designees include wholesale account representatives, trainers, underwriters, processors and title insurers.
Alcoa, Tennessee
LIQUIDITY CHALLENGES FOCUS OF GNMA SUMMIT Nearly 900 mortgage originators, housing finance experts and government officials joined Ginnie Mae this week to explore the most critical challenges facing the housing finance industry. The two-day Summit in Washington, D.C., focused on the shift to independent mortgage bankers, new business models for managing mortgage servicing rights, and the uncertain regulatory environment.
“Independent mortgage bankers now comprise approximately 80 percent of Ginnie Mae’s monthly issuance volume,” said Ginnie Mae President Ted Tozer. “They are an important piece of the
continued success of the housing finance industry. However, if we want borrowers to continue to have access to credit, we need to take a serious look at the liquidity challenges these institutions are facing.” In August, Ginnie Mae saw its highest monthly issuance guarantees in history with $48.4 billion. Most of this increase is the result of independent mortgage bankers entering the Ginnie Mae program, helping to account for $3.1 trillion in issuance since 2009.
Thank you FOR JOINING NRMLA WELCOMES OUR NEWEST MEMBERS 4
Fidelity Bank
West Des Moines, Iowa 4
Navicore Solutions San Diego, California
reversereview . com
8 TRR | 13
The Reverse Review November 2016
877-721-3847
#customerservice #integrity #loyalty #diligence #compassion
www.rfslends.com 14 | TRR
NMLS #1025894
THIS MONTH
QUOTED & NOTED
A LOOK AT THE NEWS AND STATS AFFECTING THE MARKET
Research links HECMs to financial stability
GET UP-TO-DATE retirement facts, home price stats, senior trends and HECM market developments in The Reverse Review’s monthly Roundup.
HOUSING FACTS
Most houses are not suitable for seniors with mobility difficulties.
Five design elements can make homes safer for seniors: ONLY
3.8%
of housing units in the U.S. are suitable for individuals with moderate mobility difficulties. —Bipartisan Policy Center
• No-step entries • Single-floor living • Accessible switches and outlets at any height • Extra-wide hallways and doors to accommodate walkers and wheelchairs • Lever-style door and faucet handles
Only 57 percent of existing homes have more than one of these features, according to Harvard’s Joint Center for Housing Studies.
POPULATION STATS America is Aging
Best Cities for Retirement —WalletHub
—Ohio State University study, “How Home Equity Extraction and Reverse Mortgages Affect the Financial Well-Being of Senior Households”
Population in Millions
NUMBER CRUNCH 38%
—Bipartisan Policy Center
RETIREMENT FACTS
“Establishing a HECM may provide a buffer against financial shocks, thereby increasing liquidity and reducing default… These consumers appear to have the most improvement in credit outcomes after extraction.”
1. Orlando, Florida
6. Las Vegas, Nevada
3. Scottsdale, Arizona
8. Atlanta, Georgia
of middle-income seniors have had to make adjustments to compensate for financial shortfalls in retirement.
10. Los Angeles, California
—Bankers Life Center for a Secure Retirement
2. Tampa, Florida
4. Miami, Florida
5. Sioux Falls, South Dakota
7. Cape Coral, Florida 9. Minneapolis, Minnesota
reversereview . com
8 TRR | 15
The Reverse Review November 2016
16 | TRR
Chief Risk Officer American Advisors Group
MY FIRST CAR WAS A1971 C H E V Y N O VA .
>
SHERRY PAULINE From her favorite movie and her most embarrassing moment to her thoughts about the reverse mortgage market, we get the facts from Sherry Pauline, chief risk officer at AAG.
Ten years from now I will be semi-retired,
>
traveling America in an RV and volunteering for
glow of the sunset is waning and the world seems
the National Parkinson’s Foundation. >
S omething nobody knows about me is I
to stand still for a few minutes. >
turned down a college music scholarship because
M y most embarrassing moment was when I
disease 11 years ago. >
volunteered to introduce the CEO at a fundraising
I f I could meet anyone, past or present, it
turn the letters on Wheel of Fortune. >
would be Lucille Ball. >
history of misconceptions about the product and
W hen I was younger I wanted to be first chair I can't go without a daily fix of something crunchy, like crackers or chips. >
continue to grow market penetration past the 2-3 percent it has today. >
I'll never forget the morning
advanced platforms that reach our consumer
husband was working for
and programs to suit their needs.
United Airlines, and we saw our nation and the lives of
base along with a wide range of “go-to” products
>
by helping them age in place with stability. It’s not
forever.
just about a loan, but also about changing lives for the better.
My parents taught me how to be independent and make
my own decisions. They always said to fail is to succeed. >
M y iPod go-to is iHeart 80s Radio.
>
T he best lesson I've ever learned was to put others’ success before mine. Some of the best
moments in my life have been when others have thanked me for helping them reach a goal they thought might never happen.
I entered this industry because we can make a significant impact to enhance our customers’ lives
our friends and family change
>
Ten years from now the reverse mortgage industry will be known for technologically
of September 11, 2001. My
My favorite movie is Raiders of the Lost Ark.
The biggest challenge in the reverse
mortgage industry is to continue to move past a
flutist with the London Royal Philharmonic. >
If I could trade places with someone for a
day, I would choose Vanna White, so I could
event and got his name wrong. >
The most memorable moment in my life was when I found out my husband had Parkinson’s
my parents felt I would be a starving artist. >
My favorite time of the day is twilight, when the
>
Before I entered the reverse mortgage
industry, I worked for 33 years in the forward
mortgage space in several operational positions. I began to specialize in risk and compliance in the early ’90s.
WHAT SHERRY THINKS
The future of reverse mortgages is innovating and developing new products and programs to support an ever-changing retirement market. reversereview . com
8 TRR | 17
The Reverse Review November 2016
ORIGINATING
RR
SUCCEED
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Compensating Factors: The Secrets for Success Patrick Lambrecht
Adopting a system of support to help you close loans better, stronger and faster Talent aside, we all know that the ability to excel as an originator is greatly enhanced by having strong technology, training and support. In the world of Financial Assessment (FA), these resources are more vital
than ever.
One of the most important secrets for success under FA is to look at the entire loan scenario and analyze all of the compensating factors that could be utilized. The FHA provides a number of compensating factors you can apply to loans for customers who at first don’t appear to qualify and pass the initial residual income cash-flow analysis. With a thorough understanding of all the compensating factor tools that the FHA provides in the FA section of its manual, you can get more loans to qualify. That can be a daunting task. But if you take advantage of opportunities to leverage technology, training and support, you and your business can become better, stronger and faster. Here’s what has worked well for us and our originators. Technology
"One of the most important secrets for success under FA is to look at the entire loan scenario and analyze all of the compensating factors that could be utilized."
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To expedite the process, at Reverse Mortgage Funding (RMF) we developed a feature in our proprietary loan origination system, Tango 2.0, that automates compensating factors— including asset dissipation and hypothetical debt payoff. This has greatly streamlined our workflows. What previously took the officer, the processor and the underwriter up to 30 or 45 minutes each to calculate manually is now calculated instantly. Richard Thorpe, the national sales leader of RMF’s distributed retail team, says, “This makes it possible for a rep to be able to meet with a borrower, plug in the info and get answers right away.” Needless to say, this technology is embraced by our retail loan officers. It will also be rolled out to our brokers this fall.
Training & Support When it comes to knowing how to qualify borrowers, “training is hugely important,” underscores Eric Ellsworth, RMF’s national sales leader for the consumer direct channel. “The biggest lift for my team has been from training and our technology enhancements.” It starts with a strong foundation of basic training, but it doesn’t stop there. It requires continuing education, because every borrower’s situation is unique and reallife scenarios can reveal new challenges and solutions. So it’s important to use the trainings available to you. Also, good communication between origination and operations is a great complement to formal training. “We regularly receive notifications from the heads of underwriting and operations,” Ellsworth says, “letting us know where we got hung up on a file—this is what we can and can’t do, this is what we learned in the process. So we on the sales side are constantly learning and honing our mastery of Financial Assessment.”
ORIGINATING You are not alone—be sure to look for the resources and support available to you, and use them. For example, many lenders offer:
Credit help desk: Similarly, RMF
No matter what type of originator you are, there are resources that can help you make sure you don’t turn away borrowers who could be qualified using compensating factors. Take advantage! n © 2016 Reverse Mortgage Funding LLC, 1455 Broad St., 2nd Floor, Bloomfield, NJ 07003, 1-888-494-0882. Company NMLS ID # 1019941. nmlsconsumeraccess.org. L535–Exp072017
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encourages our loan officers and wholesale clients to send scenarios they are
RMF has a similar process for our brokers and principal agents for cases where a file’s not already qualified when it comes into our system. Each client is assigned an account team, including a dedicated account manager who really understands the product and who’s there to help them get their files through the process.
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Second look team: If a retail application initially fails Financial Assessment, it’s not automatically denied; it’s given a second look. After an operations team review, the underwriter, processor, lead underwriter and loan officer get on the phone together to discuss the file and see if there’s a way to make it work. The loan officers really appreciate this process because it gives them a voice and helps them be part of the solution.
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( Purchase pre-approvals: FA is typically not as big of an issue with HECM for Purchase loans as it is on refinances, because Purchase borrowers usually have a substantial pool of funds from the sale of the home they are leaving. However, having a process for pre-approving purchase customers prior to taking an application, covering all the FA qualification points, is key. Loan officers are then able to provide real estate agents or builders with a formal loan pre-approval, giving them satisfaction that the borrower has met the program requirements. Our “Purchase Express” program serves as a form of due diligence that raises any red flags upfront on what is truly a life-changing transaction. And once the complete application has been submitted, it allows us to fast-track the loan through the system.
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Pre-flight process: This involves a walk-through of all the details in the case file to help loan officers present the best possible solution to their client. Explains Vanessa White, RMF’s regional sales leader for distributed retail, “When a loan officer has a scenario from a potential borrower and needs guidance on what to get or ask the borrower for so the loan will qualify, prior to submitting the application the loan officer and I collaborate on a ‘pre-flight’ check to figure out how to present the loan so it works. RMF uses a combination of technology, knowledge of the guidelines, and the loan officer’s familiarity with the customer’s situation, making sure all sources of income are considered. Sometimes the process reveals another source of income that hasn’t been factored in.”
(
concerned about to our credit help desk prior to the loan being disclosed. Explains Mark O’Neil, national sales leader for RMF’s third-party origination channel, “A dedicated underwriter is there to review and give feedback on scenarios before the originator even goes out and writes the loan, so they know what to be looking for and how it will be viewed once it hits underwriting.”
SPOTLIGHT
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Sign, Sign and Sign Again Bill Smith
A call to action on behalf of our borrower's aching hands
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I recently printed an application document set that was 187 pages and weighed 1.75 lbs! One notary recently reported a closing package of 225 pages! A week ago I attended a signing of final documents by an unmarried woman. The closing documents were 160 pages. As the notary went through page by page, I took a stroke tally of the signatures. Eighteen signatures were required on the escrow documents, 65 on the lender documents and 12 on the Also Known As page, coming to a total of 95 signatures! The home was in a trust so an additional (and understandable) burden was required due to this factor. Nevertheless, the borrower expressed dismay at the task she faced.
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I’m talking about the number of pages and signatures required in the HECM application process. The sheer volume of pages has expanded without regard for the most important people in the process: the borrowers. This is a call to lenders, NRMLA, title and escrow companies, state governments and HUD to reduce, streamline and even automate (perhaps through the e-signing process?) the doc sets and, in so doing, to better serve those upon whom our industry depends.
We all understand that among the reasons that such a plethora of disclosures and agreements exists is to inform and protect the borrower as well as to protect the lender and HUD. However, I would challenge the idea that any loan originator or notary has ever sat across the kitchen table while a borrower read and understood every word of every page of every document. Signing is not an indication of understanding, comprehension or even agreement. Conversations within the reverse mortgage industry indicate that electronic signing for HECMs is in the distant future if it occurs at all. That leaves us with either accepting the status quo or addressing the issue. An admittedly complicated
One obvious solution is to eliminate duplication and merge documents wherever possible. Is it possible to create one document that satisfies both a state’s and the federal government’s requirement for the same purpose or issue? Why is it necessary to resign the application documents at closing if they were correctly completed at the time of the application and require no updating? Can documents such as the lead paint disclosure be included and combined in another, more comprehensive document? Is it possible to merge five or more individual documents into one and thus reduce five signatures to one? If the answers to these questions are yes, let’s identify what entity will take the lead (NRMLA?) and develop a plan of attack. Much industry and government attention is paid to “protecting” our industry. Equal attention is paid to “protecting” our borrowers. I don’t think it is asking too much to give consideration to the seniors we serve by removing a little of the unfairness inflicted upon them when it comes to signing our documents. n
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been a subtle development and one perpetrated without malice. Yet it is always recognized by our borrowers and begrudgingly accepted by them. Most often they blame the fact that a HECM is “the government.” I often hear adjectives like “stupid” and “ridiculous,” or the rhetorical question, “Are you kidding?”
Last year, upon seeing the stack of application documents, an 83-year-old HECM applicant produced the final documents from the purchase of her home in 1957. The purchase and mortgage documents totaled 14 pages.
and difficult regulatory and legal challenge, addressing the problem and developing solutions should be a priority for the stakeholders.
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In my 14 years as a reverse mortgage loan originator, I have observed the insidious creep of an insensitive unfairness inflicted upon the seniors we serve. It has
The notary, who leads a team of eight associates, suggested that the process has become “worthless and burdensome to the signer” and added that her colleagues feel the same. The burden on both the signer and the notary is exaggerated when the borrower suffers from a physical limitation that impairs their ability to sign.
The Reverse Review November 2016
You are their face of
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Your reverse mortgage holders count on you. Ensure superior service over the life of their loan by choosing Celink as your reverse mortgage servicing ally.
celink.com | (844) 228-2101 22 | TRR
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A White-Glove Reverse Mortgage Signing Experience By Aaron King
Technology companies seek to simplify the closing process. In this day and age, convenience is king. That’s why remote mortgage closings—loans consummated at a location of the borrower’s choosing with the help of a notary—are on the rise.
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Thinking mobile notaries are taking advantage of the opportunity to promote their experience with reverse mortgage closings via their online profiles, which helps them attract
With a consumer experience race underway in the mortgage industry, convenience is vital to the overall health of competitors in the business. To get ahead, lenders and title companies need to embrace modern technology to streamline the closing experience for reverse mortgages and deliver the level of service that seniors deserve. Every step of the process counts. n
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Lenders and title companies are elevating seniors’ consumer experience with reverse mortgages using modern technology. Today, fixing the back-end of the mortgage process (so the borrower isn’t being asked for the same financial statement multiple times, for instance) is a key upgrade. Additionally, to ensure that the remote closing experience with reverse mortgages is well-handled by a qualified signing agent, it’s critical that settlement service companies utilize a dynamic database of notary profiles to enlist the help of only highly rated thirdparty vendors.
more specialized business. On the Snapdocs platform, for example, thousands of notaries tout their expertise with reverse closings, as they recognize that reverse mortgages are a good foot in the door with settlement companies. On leading-edge technology platforms, lenders, title companies and signing services can now easily filter for these reverse mortgage specialists to make sure they are matching the consumer with the best possible closing experience. While parents have long been able to pinpoint well-reviewed restaurants that are good for kids” using Yelp, dynamic databases tailor-made for the mortgage business are a reality for the first time. And data on notary performance history is a game changer.
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Join our conversations or see who is in our network. Join The Reverse Review group on LinkedIn or follow us on Facebook.
Reverse mortgages require an elevated level of service, patience and care. Because these loans are designed specifically for the financial needs of seniors 62 years and older, offering out-ofoffice closings as an option is perhaps even more important with reverse mortgages than with traditional mortgages. Due to their age, reverse mortgage borrowers may be away from home, traveling during retirement or, in unfortunate cases, unable to travel due to health issues. Whether a mobile notary meets with a borrower while he or she is on the road or in the comfort of his or her own home, remote closings are a valuable convenience that caters to this special demographic. Additionally, unlike the onethird of borrowers of traditional mortgages who are first-time homebuyers, according to the National Association of Realtors, it’s not reverse mortgage borrowers’ first rodeo. With understanding
through experience of the process, many do not feel the need to drive across town to a lender’s or title company’s office to sign on the dotted line. To boot, reverse mortgage loans typically finance closing costs and fees, making capitalizing on the convenience of a mobile mortgage closing a no-brainer.
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In fact, Snapdocs, a modern technology platform that simplifies these out-of-office mortgage closings, has grown 150 percent year-to-date and now facilitates over 50,000 remote mortgage closings per month. Does the reverse mortgage market have a piece of that pie? Absolutely.
The Reverse Review November 2016
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“What’s in It for Me?” By Jim Milano
The legal implications of partnering with financial planners Over the past several years, much has been written and discussed about how a reverse mortgage might fit into a senior’s retirement plan. From the reverse
mortgage press, undoubtedly, a number of efforts are underway to educate financial planners about reverse mortgages and how such loans might work with a senior’s retirement plan. Educating Versus Compensating
Most of the discussions regarding financial planners in the reverse mortgage industry have focused on educating planners about the uses of reverse mortgages in retirement. Recently, some discussion has focused on how a reverse mortgage company might more effectively integrate financial planners as effective influencers of business. Some frequently asked questions about this effort include:
1. Can I enter into marketing services agreements or lead sales arrangements with financial planners? 2. Can I more effectively integrate my reverse mortgage offerings into a financial planner’s services or offerings? 3. Can I hire financial planners as loan officer employees to offer reverse mortgages?
A fundamental shift in some of these discussions can be recognized, and with it, some old regulatory compliance concerns have reared their ugly head. Further, in recounting the “old regulatory compliance concerns,” be very cognizant that we are, and have been for the past four years, in a very different and highly charged environment where regulatory compliance and enforcement are concerned. In some circles of the reverse mortgage industry, a fundamental change in the discussion regarding financial planners has been the shift from educating financial planners to compensating them. With compensation, and corresponding affiliations or associations, comes additional regulatory compliance risk. RESPA RESPA is not new. It prohibits impermissible referrals of mortgage business. More
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recently, marketing services agreements have come under serious attack by the CFPB, both threatened and real, in the form of enforcement actions and compliance bulletins. Properly structured, lead sales arrangements may be a viable solution, but such arrangements have also been scrutinized by the CFPB in at least one recent enforcement action. Further, properly structuring lead sales arrangements brings a number of requirements that often prove unpalatable to the parties proposing such arrangements. Such a structure might include the sale of a list of names for a nominal amount per name, with no endorsement of the mortgage company (which would preclude direct “live handoffs” of each lead); and either that the lead generator is properly licensed under state mortgage laws or does not engage in the solicitation or advertising of mortgages—altogether not easy to do while still maintaining a viable business model.
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loan officers, several regulatory issues must be addressed, not the least of which is state mortgage licensing. Loan officers generally must be licensed, and either must or should work out of a licensed location, report to a manager and be controlled by the mortgage company. Control over such employees cannot be overemphasized. In a 2014 enforcement action, the CFPB alleged that sales representatives of a settlement service provider were not true employees, and thus fees and compensation paid to the sales representatives for developing settlement services business constituted impermissible referral fees in violation of RESPA. The CFPB alleged that these sales representatives
planners, the financial planner’s sponsoring company has policies that prohibit such activities by their affiliated financial planners. A mortgage lender should be aware of the rules and policies that potential financial planner partners operate under, as a violation of those policies will not bode well in the face of a complaint.
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Then, there is Claire McCaskill—need I say more? In 2008, U.S. Senator McCaskill added a clause to the HECM statute that prohibits HECM mortgagees from associating with those who offer other financial services products unless the mortgagee can prove firewalls and safeguards are in place. The Golden Rule Without much clarity in drafting, the so-called “McCaskill provisions” have Finally, some HECM loan aggregators that had a chilling effect on reverse mortgage purchase HECM loans have policies in companies partnering with insurance agents place, and language in their loan purchase and financial planners. These provisions in and sale agreements, that they will not the HECM statute, coupled with the fact that purchase HECMs if the seller had any FHA lending historically has been a “gotcha” involvement with program (in that (or provided lenders may not borrowers with) know they have a any financial real problem until "In some circles of the reverse mortgage industry, a fundamental or insurance years after loans change in the discussion regarding financial planners has been product that are originated), is directly has made HECM the shift from educating financial planners to compensating or indirectly lenders hesitant acquired with them. With compensation, and corresponding affiliations or to partner with the proceeds of a insurance agents associations, comes additional regulatory compliance risk." reverse mortgage and financial loan. Rumor has planners. The it that making McCaskill and selling loans provisions do not define “other financial were “sham employees,” notwithstanding only to face repurchase demands on those services products” other than to exclude title the fact that the settlement services provider loans is not a good business model. or hazard insurance, and do not define what paid the sales representatives on a W-2 firewall and safeguards might be adequate. basis. This matter resulted in a very public, Conclusion HUD was supposed to define these terms embarrassing and somewhat expensive and provide guidance after a market study, disciplinary settlement. Sometimes, our ideas are not bad but it never published anything further. but rather not fully baked or their And, if a mortgage lender will hire financial time has not yet come. Educating financial State Law Issues planners as permanent part-time employee planners about the possible uses of a reverse loan officers so that such financial planners mortgage in a senior’s retirement plan is Several states also have provisions in their can offer “other products” to seniors with a an idea whose time has come. Creating a reverse mortgage laws that prohibit so-called reverse mortgage or after a senior obtains a point of sale whose only incentive is to ask, “cross selling” of other financial services reverse mortgage, well… see the “McCaskill “What’s in it for me?” is half-baked and products with a reverse mortgage. And at provisions” above. very untimely in the current regulatory least one state’s laws (California) prohibit environment. n insurance agents from offering “other Financial Planner Rules products” to seniors that have a reverse The views expressed in this article are those of the author I do not practice in the securities or brokerand not of his firm or clients, and is not intended as legal mortgage. advice nor a solicitation thereof. dealer space, but some reverse mortgage If a mortgage lender will hire financial lenders have reported that, in attempting planners as permanent part-time employee to educate or partner with certain financial
The Reverse Review November 2016
SPOTLIGHT IN THIS MONTH’S EDITION
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A LOOK AT HOW WE CAN PROPEL THE PRODUCT FORWARD
nov. 2016
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Knowing Our Product and Selling It Right
How we can make housing wealth an accepted revenue stream in retirement planning Shelley Giordano
T
orrey Larsen’s Home Equity Retirement team at Retirement Funding Solutions recently went
through the discipline of learning how to calculate the growth on a HECM loan balance, as well as the future value of a HECM line of credit. Encouraged by how illuminating the exercise was, they moved on to determine both term and tenure payments from any given net principal limit. It wasn’t much of a leap thereafter to calculate the future value of a line of credit, and how that could be expressed as deferred term or tenure payments. In the end, they could even calculate loan balance/LOC for varying rates over the course of a loan. 26 | TRR
Many of us fell into reverse mortgage lending and our training was hit-or-miss. For veterans who have survived this volatile business, we have become pretty darn good at explaining the benefits of the HECM. Unfortunately, we don’t always have a deep understanding of exactly how a HECM works. Several times a year I find myself in a heated battle with a loan officer, often someone who has been in the business for a long time, who insists that the HECM line of credit earns interest. This baffles me. It is so easy to compare the HECM growing credit capacity to growth in credit limits on a credit card. How could one miss this? The difference between the two is that the HECM lender has a
contractual obligation, established at loan origination, to provide growing access to credit at a rate that cannot be canceled, frozen or reduced. The credit availability growth is not arbitrary, like other forms of credit. More astoundingly, it grows independently of the housing value. What a benefit! In a perfect world, our training would have started with a more developed understanding of the HECM LOC. A more widespread misunderstanding is how a payment on the HECM loan balance increases the line of credit. In part, this is because we really don’t understand that it is the ongoing principal limit driving the loan balance and line
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Wade Pfau, Ph.D., CFA An expert in retirement planning, Pfau is publishing his first book on reverse mortgages this month.
Barry Sacks, Ph.D., J.D. Sacks recently published a paper in the Journal of Taxation on recovering a lost deduction from the HECM, and is at work on two papers that will have broad appeal beyond financial planners .
Thomas C.B. Davison, Ph.D., CFP
;
Davison maintains a blog at toolsforretirementplanning.com that chronicles current research, as well as his own case studies and insights.
Jamie Hopkins, J.D., MBA, The American College of Financial Services professor has joined the mission by writing regularly on reverse mortgages in retirement, as well as joining the board at Reverse Vision.
Shelley Giordano Giordano published an article in Benefits Magazine, which appeals to employers to include reverse mortgage opportunities in retirement readiness seminars.
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SPOTLIGHT
Over the years, we clearly missed the boat on appealing to Middle America while we marketed vigorously to the neediest slice of homeowners. Since Financial Assessment, most of us have made the transition to a more discretionary borrower. Still, it’s pretty obvious that we need to pick up our game in order to provide accurate and complete information on how the HECM works. No one wants to be caught in a financial planner’s office, not knowing how the line of credit grows or how payments on the loan balance work. But there is something else we need to do to make sure that we live up to and benefit from our recent, more positive visibility. 8
MORE AND MORE FINANCIAL PROFESSIONALS ARE EXTOLLING THE BENEFITS OF THE HECM.
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Knowing more about how our HECM works has been on my mind after a recent trip to the UK, where I met with the Equity Release Council. Right away, I could see that the HECM offers unprecedented, truly ingenious flexibility: the choice of payments, no payments, partial payments, early full prepayment, deferred payments on the loan balance in addition to early draws, late draws, no draws, pause and resume draws, full draws, revolving credit draws, and term or tenure draws—all at the absolute discretion of the borrower. No special arrangements have to be made at the loan’s outset; the HECM’s versatility is built in. But what surprised me most is the benefit we enjoy due to the private/ public partnership with FHA. Because of the MIP, the HECM LTV is more than twice what it is in Britain. Imagine how difficult it would be to sell a HECM that provided less than 25 percent of the home value.
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What tends to be confusing is the allocation pattern for those payments. Some call it the “waterfall” and it means that the payment is allocated first to MIP, next to servicing fees, then interest, and finally to draws on principal. This order of allocation has nothing to do with the increase in line of credit when a payment is made! In other words, these are two separate issues that we tend to conflate. Every payment against the loan balance (on adjustable loans, of course) does attach to the line of credit. But for tax purposes, the payment will not be counted as an interest payment unless the MIP/servicing fees assessed if any, components of the loan balance have been cleared. The revolving line of credit and the tax deduction applicability of the payment are two completely different issues. This is a pretty crucial distinction when talking with referral partners and discretionary clients, and one
our industry needs to overcome once and for all.
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of credit values. For simplicity, let’s assume there are no servicing fee set-asides. In the background, the principal limit is growing at the note rate +1/12 the 1.25 percent MIP. It is doing so because, inherently, the HECM is a negatively amortizing loan. Credit capacity grows every month and is expressed as loan balance, or loan balance plus remaining line of credit. The loan balance and line of credit are subsets of the principal limit. One can clearly see on our amortization schedules that (initial principal limit) - (initial loan balance) = (initial LOC). All three are compounding at the effective rate, right? Now, make a payment to reduce the loan balance, and it must show up, dollar for dollar, in the LOC column in order to maintain the equation above.
EXPERTS TAKE NOTE
The Reverse Review November 2016
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SPOTLIGHT
LET’S GET REAL HERE.
A product with the flexibility, versatility and safeguards that the HECM provides cannot be given away. Sure, there are fees, but as Mary Beth Franklin of Investment News told one of her readers, “No insurance is free.”
What contract could be better than that? n
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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
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This is a theme that Nobel Laureate and distinguished MIT professor Dr. Robert C. Merton repeated again and again at his keynote address at Oxford University at the JOIM-Oxford-EDHEC conference in September. Every reverse mortgage product around the world is unique because it is a non-recourse contract. For most of history, homes have become a usable asset only at death. And all over the world, most retirees own a house. In fact, nothing new needs to be created to make it an asset, but let’s not apologize that it does cost something to use. Converting it to a “fungible” asset during your life cannot happen for free. Use it while you need it and, if there is any value when you die, your heirs retain that value. Or, live as long as you need in your own beloved home and you are assured that there will be no risk for your heirs.
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Curious about what it is like to be a consumer, I sent an inquiry to a large lender. A package of colorful and informative materials arrived in short order. So far, so good. A couple of weeks later an ominous-sounding letter arrived implying that I was missing out if I did not call the enclosed number presently. An even more threatening missive arrived in two weeks, and then another. These came in varying envelopes that did not designate they were from the lender. Finally, the lender sent me a rather opaque email. I guess they wanted to confuse me into responding. I can tell you for sure that the first packet gave me a good feeling, but the following communications reinforced the idea that the reverse mortgage industry is heavyhanded and that it must have a hard time convincing folks if they have to resort to tactics like this.
There are dangers in habituating planners to a no-cost loan. It is not likely to be a sustainable strategy, as several lenders have privately told me. There is considerable fine print to these offerings involving home values, geography, initial principal limits and margins, not to mention higher borrowing rates, especially if the LIBOR index increases. Face it: Getting caught up in the fine print never gives anyone a good feeling. Likewise for “cheapest.” The whole notion that my competitive advantage is that I am the cheapest not only undercuts the value of what I am selling, but diminishes whatever level of professionalism I am bringing to the transaction. When pricing corrections are eventually made, planners who have been sold on “cheapest” and not the benefit of your expertise and the incredible power of the HECM may desert the whole notion. This actually happened to our industry when the HECM Saver was discontinued. One of
Do financial planners work for free? Not on your life. If you have something of value to provide, either in product or knowledge, why give it away? Most planners charge somewhere around 100 basis points every single year on the assets they manage. That’s real money and it is money that is no longer available to compound over time for retirement savings! And unless they are fee-only, they charge commissions on some products they recommend. Why should the lender work at a significant loss in order to get their attention?
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Like me, you have probably enjoyed telling those who think reverse mortgages are scams that the Reverse Mortgage Stabilization Act of 2013 has bolstered consumer safeguards to unprecedented levels. The former product was subject to abuse but has evolved. These safeguards have positively impacted the MMI Fund as well, which is an important contribution to rehabilitating our image with regulators, referral partners and our increasingly sophisticated clientele. We should be basking in the perception that we have cleaned up our act. Imagine my surprise when a potential recruit at an interview confessed that his employer instructed loan officers to hide the fact that a condo needs to go through the FHA approval process until after the appraisal check had cleared!
the most respected names in financial services dropped reverse mortgages immediately.
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To gain the most from the new HECM landscape, we need to be scrupulous in making sure that our actions align with the intent of the new regulations. Let’s not squander our chance to make housing wealth an accepted revenue stream in retirement planning. To my way of thinking, this includes pricing loans realistically, not as loss leaders. Some lenders are aggressively marketing $0 UPB no-cost loans as a marketing and recruiting strategy. The cover for this is that the tails will compensate downstream for today's lost revenue. This may or may not happen, for we know the discretionary borrower is prudent and that even in the past, borrowers have not used HECM lines of credit ruthlessly. Futhermore, when we reached the first Day 366 when lines of credit could be accessed in full, there was no indication that borrowers were eager to cash in on their remaining lines of credit.
"To gain the most from the new HECM landscape, we need to be scrupulous in making sure that our actions align with the intent of the new regulations. Let’s not squander our chance to make housing wealth an accepted revenue stream in retirement planning."
The Reverse Review November 2016
By Kent Kopen
This IS NOT your normal HECM for Purchase article. This is a story about why we’re on to something big with the H4P strategy and why we have a moral imperative to understand and act on this knowledge. All loan originators share common DNA with entrepreneurs. Dan Sullivan, founder of Strategic Coach, says entrepreneurs rush toward problems and their success is a function of how many they serve. Want to make more money? Sullivan would tell you to figure out how to serve more people. My H4P epiphany had its roots during my time as a financial advisor. When the asset-backed securities market melted down in 2008 and originators lost access to so many product types, I decided to try something different, so I went to work at Merrill Lynch and later for Morgan Stanley. As a securities-licensed advisor, I was haunted at both firms by a recurring phenomenon. 30 | TRR
Wealth managers use what is called a Monte Carlo simulation to predict the probability that a client will not outlive their money. It’s basically a powerful computer program that looks at thousands of iterations of possible market outcomes (e.g., what if stocks go up and bonds go down?). A good outcome is a high number—meaning you have a good chance of making it until the end with at least a dollar.
When a financial advisor is trying to get a prospect to switch from a competitor to their firm, they usually ask for the prospect’s account statements and run a Monte Carlo simulation on the prospect’s current portfolio. Then they run another analysis on their suggested portfolio, print pretty reports and say, “See, if you switch to us, you’re more likely to not run out of money when you get old.” That, of course, is an oversimplification, but you get the idea. When I ran numbers, I would repeatedly see cases where someone had a portfolio worth over a million dollars, but their number was in the 60 percent range. That means they had a 40 percent chance of completely running out of money based on their desired lifestyle. If there’s one common characteristic among adults it’s that they want two things: choice
and control. Running out of money as we age means we lose both. And if someone doesn’t have kids who will take them in, it means much worse. So here was my epiphany: If the nice folks who have sevenfigure investment and retirement accounts are going to run out of money, what about the other 99 percent of the population? We’re talking a national crisis. To prove that’s not hyperbole, consider that the Government Accountability Office released a report last June on the current financial status of households between 55 and 64. This report said the median household approaching retirement has a nest egg of between $10,000 and $20,000; 41 percent of these households have no retirement savings; and 56 percent of households are homeowners, although only 22 percent are mortgage-free.
Three factors are going to make this challenge even worse: longevity, soaring health care costs and low interest rates on retirement savings. Today, there are more than 48 million people who are over 65. By 2030 that number will grow to 73 million. While there are currently around 75,000 people age 100 or older, by 2050 there will be over 1 million. I can assure you, when financial advisors are designing portfolios, they are not modeling survival to age 100. And low interest rates make the long-considered safe withdrawal rate of 4 percent suspect. With the world’s central bankers all talking about or moving toward negative interest rates, the “I can’t earn any interest anywhere” problem is only going to become more challenging. So the problem is “rich” people don’t have enough money saved for retirement and everyone else is really in trouble. When there is no solution per se, avoiding mistakes becomes paramount. Let’s look at how wrong conventional wisdom can be. The default advice when a retired person cannot make their finances work, even with a reverse mortgage on their current residence, is to sell and rent. That seems
reasonable; after all, what other choice is there? The
following analysis shows what a terrible mistake that is. Mind you, the people suggesting “sell and rent” don’t know about downsizing, buying a home with a reverse mortgage and saving the difference.
The question we want to answer is this: If a homeowner sells their house and realizes $300,000 in net proceeds, how does their net worth differ if they use the sale proceeds to pay rent versus buying a smaller home, using part of the proceeds for their down payment and investing the rest?
After all, having access to one’s wealth, in the form of cash, is the cornerstone to preserving choice and control. Our rent-versus-buy analysis sought to keep the comparison like for like (apples for apples) as much as possible. In the rent scenario, sale proceeds covered rent and renter’s insurance. Both were adjusted for inflation on a goforward basis. In the buy scenario, the investment account proceeds were used to pay property taxes, insurance and HOA dues. House appreciation was the same as the rent and insurance rate of inflation. And in both cases, the investment account earned 4.64 percent, which is the 10-year average of a lowload, tax-free bond fund.
Key findings of the analysis:
n
The renter’s investment account is out of money in year 11.
n
The homeowner’s net worth in year 11 is $226,538.
n
The renter’s investment account in year 20 is –$644,025.
n
The advantage of owning versus renting, 20 years out, is a difference of $707,218. Net Worth Own vs Rent
Two factors that would have enhanced the outcome of the H4P strategy were purposely excluded: 1) eventual recapture of mortgage interest deduction, and 2) in California, transferring a lower tax basis from a previous residence via Props 60/90. The results were significant enough without them. The important takeaway is this: The H4P strategy is almost $100,000 better after five years, $250,000 better after 10 years and $700,000 better after 20 years. This scenario was based on a 67-year-old person, who very well may live to be 87, so a 20-year planning horizon is reasonable. Of course a renter or homeowner may use other income such as Social Security, savings, annuities, pension, etc., to extend the time when their investment account hits zero, but the conclusion is the same. Eventually, the homeowner will likely sell and perhaps move into an assisted living facility. Far better to still have some wealth than to be a burden on one’s kids. Even 20 years out, the homeowner still has some net worth. What do we do with this knowledge? How do we move the needle for America’s retirees? How do we save some from making a half-million-dollar mistake? It starts with education. 8
Renter's Investment Account
Advantage Owning vs. Renting
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The Reverse Review November 2016
A survey of financial advisors that I conducted last year for this magazine revealed a few key facts that might help:
Can a reverse mortgage be used to purchase a home?
n 21% said no
n 47% said they get the concept but don’t know the details
n 75% - Favorably n 25% - Raving fans
n 50% - 1 to 3 n 13% - 4 to 6
Can different lenders charge different fees for the same reverse mortgage?
n 25% - more than 6
n 13% - No, fees are mandated by HUD/
Average commission from a buy-side
FHA
n 63% - I don’t know
n 6% said they didn’t know much about them
Financial advisor misconceptions
n 45% thought the bank would take the house
n 18% thought the borrower’s estate was liable if the loan balance exceeds the home’s value
The H4P strategy is going to require more than financial advisors giving the right advice; we also need real estate agents to learn the strategy and be able to explain and teach it. The following page illustrates findings from a detailed survey I conducted with real estate agents in my local market. There is no reason you couldn’t distribute this same survey in your local market. It will lead to conversations and questions with prospective partners. You can tell those agents, “I’m not here to disrupt your existing mortgage relationships, I just want to help you with the new business I’m going to help you get.” Todd Duncan, author of High Trust Selling, calls this the lost leads conversation. To quote an old saying, “It’s not what people don’t know that’s the problem, it’s what they think they know that just ain’t so.” Look at the misconceptions and educational opportunities I found among real estate agents in my market. How familiar are you with using a reverse mortgage to finance a purchase?
50% Get the concept, don’t know the details
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In addition to a lack of understanding, the HECM for Purchase has a few product deficiencies. These must be explained by the buyer’s agent to the seller’s agent. They’re not deal killers, but they do require different language in the purchase agreement.
50%
n 13% - $6,000 to $10,000 n 75% - more than $10,000 How many new listings per year are possible if the seller could downsize, finance 50 percent or more, and have no mortgage payment?
n 13% - 1 to 3
The major challenges include: 3 New construction needs a Certificate of Occupancy prior to application 3 Sales contract needs an amendatory/ escape clause as an addendum 3 Must be owner-occupied within 60 days of closing 3 No seller concessions allowed 3 No lender credits allowed 3 No contributions from any other parties 3 Repairs are paid for by the seller prior to close 3 Repairs must be completed before closing 3 No Power of Attorney or guardianship on a HECM for Purchase 3 Sale price can exceed appraised value by lesser of 10 percent or $25,000 3 Buyer pays for home inspection and home warranty
Now for the good news. What are sales agents’ concerns and how big is this opportunity for them?
n 75% - Don’t know how they work – need Comfortable with the strategy
relationship with a reverse mortgage specialist
How many new buy-sides per year are possible if a buyer could finance without having a mortgage payment?
How would you rate reverse mortgages?
n 39% said they didn’t know How familiar are you with reverse mortgages?
n 50% - Don’t have an established
education
n 50% - Not sure how to advise a buyer or seller
n 38% - Not sure how to educate borrowers
n 38% - 4 to 6 n 38% - more than 6 Average commission from a listing
n 88% - more than $10,000 In summary, America’s retirees need to understand how financially dangerous it is to follow the conventional wisdom of selling and renting, and losing an appreciating asset in the process. As a renter, they’ll still make a mortgage payment, it’ll just be their landlord’s. Financial advisors need to understand that this option exists. For Realtors the H4P strategy could mean an extra $50,000 to $100,000 in income each year.
Bottom line: Real estate agents should become part of the solution to one of America’s biggest challenges (seniors outliving
their money) and they could earn considerable revenue for their newfound expertise. Advisors would be appreciated for giving good advice, and seniors would preserve their wealth. Everybody wins. Do you agree that getting this information into the marketplace is a moral imperative? Ours is noble work! n
What is your average commission from a listing?
Can different lenders charge different fees for the same reverse mortgage?
More than $10,000
n I don't know. 69% n Yes, lenders have discretion. 19% n No, fees are mandated by HUD. 13%
75%
How long ago did you first hear about reverse mortgages?
What percent of last year's transaction fallout was due to financing issues?
0-5 years 6%
0-20%
6-10 years 38% 11-20 years 25% 20+ years 25%
Which of the following recent HUD changes are you aware of?
Which of the following designations do you have? Realtor - 88%
n FHA now requires income qualification 56%
SRES - Seniors Real Estate Specialist 38%
n FHA now requires credit qualification 56%
ABR - Accredited Buyer's Representative 13%
n N on-borrowing spouse has survivor rights in the property 38%
CRS - Certified Residential Specialist 6%
How would you rate reverse mortgages?
50%
Favorably
25%
Raving fan
13%
No opinion
6%
Against
6%
Skeptical
What concerns do you think your fellow Realtors might have about reverse mortgages?
1 Don't know how they work. 2 Not sure how to advise a buyer or seller. 3 Not sure how to educate borrowers. 4 Don't have an established relationship with a reverse mortgage specialist.
See the rest of the survey on reversereview.com. Access a copy on reversesurvey.com reversereview . com
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The Reverse Review November 2016
LAST WORD
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REFLECT
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Considering Ethics By Laura Biché
"When it comes to ethics, the message is simple: Do what is best for our client, for ourselves and for the industry. These are complementary objectives that each of us should embrace and strive to accomplish."
set so that the LO received an extra $20,000 while the client was getting $10,000 less in their principal limit amount. To the LO’s credit, all of the costs were being credited back to the borrower. That amounted to nearly $18,000 in closing costs all together. The total payout to the LO was more than $30,000.
The importance of doing right by our clients When non-NRMLA members visit the association’s website (nrmlaonline.org), they find 17 documents comprising 67 pages and a complaint form listed under the Code of Ethics and Responsibility tab. The
fact that the authoritative body and de facto voice of our industry has devoted so much time and space to this subject is impressive, and that information may be helpful to those of us who interface daily with homeowners in need of financial assistance. That said, much of the content is laden with legalese and complex jargon that may be off-putting to potential clients seeking reassurance about our practices and actions. During a recent read-through of that site, I found myself wondering how we could make the message about our standards of conduct easier for our clients to understand. When it comes to ethics, the message is simple: Do what is best for our client, for ourselves and for the industry. These are complementary objectives that each of us should embrace and strive to accomplish. As I was contemplating what to write for this article, two client scenarios came across my desk that got me thinking about ethics in the reverse mortgage industry.
SCENARIO NO.1
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There was nothing inherently unethical about the first scenario, but I nonetheless contemplated it more than usual. When I ran the numbers on the adjustable-loan program that was being proposed, the margin was
My concern about this arrangement boiled down to the fact that the borrowers received $10,000 less than the maximum amount available to them. I wondered, “Was there enough money at a margin .125 percent lower by which the borrower would have gotten the maximum proceeds?” No doubt, with that adjustment made to benefit the client, the LO could afford to have credited closing costs to the borrower and still would have received a very sizable commission check. In my opinion, clients should get the maximum amount available to them. The second scenario involves a topic that appears in NRMLA’s ethics documents: “Be in good communication with your borrowers.” In most cases, the homeowners who come to us for reverse mortgage loans have an intense need for immediate
SCENARIO NO.2
cash flow either to retire an existing mortgage payment and/or access additional monthly cash. I have found that they are very concerned and absolutely want to ensure that they are making the best possible decision regarding the disposition of the roof over their heads. If we, as mortgage specialists, do not adequately keep in touch with these homeowners throughout the loan process, we fail to provide appropriate, professional care to our clients and, ultimately, we malign the industry as a whole. When my borrowers leave messages for me, I make certain to call them back and provide satisfactory responses to their questions. After all, for the 23 years that I have been in the mortgage industry, both conventional and reverse, I have taken stock of my performance on behalf of my clients by the simple act of looking myself in the mirror every morning. Am I OK with the person I see? Have I been fair and ethical in my own mind and by industry standards? As long as I am OK with the face looking back at me, I know I am on the right path. n
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The Reverse Review
MOVE YOUR REVERSE BUSINESS FORWARD!
November 2016
Open Mortgage can expand your reverse mortgage business with: A dedicated team of loan advisors In-depth training Fast track loan processing
Competitive pricing Step-by-step assistance from pre-application to closing Scalable options to fit your needs
YOUR SUCCESS IS OUR BUSINESS Contact us today to grow your reverse mortgage business! Call 512-501-6297 or visit reverse.openmortgage.com
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