The Reverse Review by The Reverse Review

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INSIDE

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MARKETING TIPS FROM INDUSTRY EXPERTS PG. 28 WHY CERTIFIED COUNSELEES ARE DROPPING AT A STARTLING RATE PG. 20 + BOB YEARY SITS DOWN IN OUR HOT SEAT PG. 14

THE

REVERSE M AY 2 0 1 2

review

Kenneth L. Kanady

and

Jeffrey S. Taylor, CMB

A look at the secondary market and how a plurality of factors influences the reverse space

The Reverse Review May 2012

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* According to RMI measuring number of endorsed wholesale units January – December 2011

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8 TRR

From the Editor I was struck by how much camaraderie exists among members of this industry. Despite the fact that many of them are competitors, the idea that they are all working to better the product is not lost on them. This common goal and general spirit of affability led to lively and insightful discussions on the issues currently affecting the reverse space. I had some good laughs, but I also learned a great deal about important topics like LO compensation and the impact of the HMBS program. For a look at what we did and who we met at the conference, check out our recap on page 13.

A note from jessica linn

When I learned that

I would be attending NRMLA’S regional conference in New York City last month, I braced myself for a busy schedule, jam-packed with instructive seminars on the reverse market. I pictured lots of impersonal hand-shaking, awkward small talk and hurried note-taking. Important and informative for sure, but not necessarily… fun. Was I wrong! The trip turned out to be far more than the standard, buttoned-up business trip. TRR Marketing Director Alycia Colacion and I had a great time meeting some of our valued readers and contributors. It was so nice to hear from the people who make this magazine possible and to put some faces to the names we come across regularly as we work to get this publication to print.

Meet the Team Senior Publisher Reza Jahangiri

Publisher

Erik Richard

Editor-in-Chief Jessica Linn

Creative Director Traci Knight

Copy Editor

Kersten Wehde

Also in this issue you’ll find some great articles by James Veale at Security One Lending and Darren Stumberger at Knight Capital Group, and a special Spotlight on marketing strategies from various experts across the industry. Our feature this month by Ken Kanady and Jeff Taylor at Wendover Consultants takes a look at the inner workings of the secondary market and how its many moving parts affect the reverse space. In it, I hope you find some useful tips. Finally, please don’t hesitate to reach out to me if there’s a topic you would like us to address. We always value feedback from our readers.

Editor-in-Chief { Jessica Linn } Want to talk to Jessica? Reach her at jessica@reversereview.com.

Marketing Director alycia colacion

Advertising Sales Rep. Brianna Conlon Printer The Ovid Bell Press Advertising Information phone : 949.269.1600 email : brie@reversereview.com Subscriptions email : information@reversereview.com Editorial Content email : jessica@reversereview.com © 2012 Reverse Review 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

t ay ec st onn c

Feedback

Feedback is very important to us here at The Reverse Review. Send us your thoughts on past articles or something that is on your mind and we will publish it in this section. information@reversereview.com

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Table of Contents g

NRMLA in NYC

13 | TRR heads to nyc for an industry meet and greet

TRR 05.12 FEATURE g

Here’s a recap of what we did and who we met.

Want the online version? Check out reversereview.com/magazine.

Servicing

24 | What Happens after a Reverse Mortgage Closes? – Part II

Underwriting

An in-depth look at the process

16 | Combining the Facts with Compassion

RYAN LAROSE

A look at the unique factors involved in reverse mortgage underwriting

Special Survey

Robyn Perry and W i ll R ae

25 | What does the average American think about a reverse mortgage?

Legal

19 | What to Do When You Receive Love Letters at the Office

A recent survey gauges public opinion.

Tips on how to approach your first state examination

27 | How to Calculate Remaining Economic Life

bill trask

REL from HUD’s perspective

Originating

20 | CLOSE MORE OF WHAT YOU ALREADY HAVE

For the first time ever, the number of certified counselees is dropping at a startling rate. ja mes e. veale

“No one entity can do it all in reverse—not even the biggest lenders, the smartest leaders or the best technologies. It takes an industry, and that includes a healthy secondary market.”

34 | Broadening Our Perspectives

Secondary Market

23 | HMBS SPREADS CONSOLIDATE, REMAIN RESILIENT

Appraising

A look at the secondary market and how a plurality of factors influences the reverse space K en n e t h L . K a n a d y a n d

A round up of the latest action on Wall Street

Bi l l Wa lt e n b a u g h , SRA

Spotlight Article

28 | Promoting the Product

Marketing tips from industry experts T e a g u e M c G rat h Bo b M a rse i l l e s Sam Collins Anthony Gaglione

J ef f re y S . Tay l o r, C M B

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THE

REVERSE review

M AY 2 0 1 2

The Reverse Mortgage: A Smart Option, Not Just a Last Resort J o h n S m a ld o n e

this issue

ER Ev

c h a i r m a n o f Re v e r s e Mort g a g e So lu t i o n s

NYC!

INSIDE

Featuring Robert D. Yeary

Ev ER

attends nRMLa in

Br ought t o you by Reverse Mort gage D aily

The industry’s headlining stories of the past month

42 | the last word

E REvIEW THE vERS RE R

the reverse review

B r ou gh t to y ou by R e v e rse M a rk e t In sight

The industry’s latest stats and rankings

14 | the hot seat

MARKETING TIPS FROM INDUSTRY EXPERTS PG. 28 WHY CERTIFIED COUNSELEES ARE DROPPING AT A STARTLING RATE PG. 20 + BOB YEARY SITS DOWN IN OUR HOT SEAT PG. 14

HE REvERSE REv IE W

10 | industry update

E TH

WT vIE RE

07, 09 | Stats

W IE

Essentials

How a plurality of factors influences the reverse space

RE v

D a r ren Stumberg er

Kenneth L. Kanady

and

Jeffrey S. tayLor, CMB

A look at the secondary market and how a plurality of factors influences the reverse space.

may 2012

cover reversereview.com

8 TRR

The Reverse Review May 2012

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

John K. Lunde

Robert D. Yeary

J ohn K . L und e

r ob e rt d . y e ary

Rob y n P e rry

07, 09 | The Industry Stats and Rankings g John K. Lunde is president and founder of Reverse Market Insight, Inc., a performance data analysis and consulting firm specializing in the reverse mortgage industry. RMI clients include eight of the top 10 reverse mortgage lenders, plus investors, servicers and vendors to the industry. rminsight.net 949.429.0452

14 | hot seat g Robert D. Yeary is chairman of Reverse Mortgage Solutions Inc. (RMS) in Spring, Texas. The company is a premier provider of hosted reverse mortgage loan servicing software as well as the nation’s leading authority on all aspects of reverse mortgages, specializing in reverse mortgage servicing and sub-servicing. Yeary serves as a director of the National Reverse Mortgage Lenders Association (NRMLA). byeary@rmsnav.com

16 | Combining the Facts with Compassion g Robyn Perry of American Advisors Group is a reverse mortgage HUD-approved underwriter with more than 25 years of experience in the mortgage industry. An expert in the lending field, Perry handles the technical aspects involved in reviewing and approving a loan request. Perry’s experience, knowledge, honesty and hands-on approach is an asset to the borrowers she assists. Her priority is to approve a loan quickly and to the borrower’s satisfaction.

W i l l Ra e

dennis swit

Bi ll tr as k

16 | Combining the Facts with Compassion g Will Rae has been an underwriter for American Advisors Group since 2007. Rae has more than 23 years of experience in lending and financial services and has delivered consistent results to mortgage banking companies from small to large. His goal is to help borrowers obtain loan application approval quickly and easily. Rae graduated from Oklahoma State University and resides in Orange County, California.

17 | insurance tip g Dennis Swit has more than 20 years of insurance industry experience and is currently managing partner of Loan Protector Insurance Services in Cleveland, Ohio. Loan Protector is a leading national provider of lender-placed insurance and insurance tracking services for both the forward and reverse mortgage industries. Swit is responsible for overseeing the company’s growth and client retention strategy and is actively involved in new business development, insurance tracking needs, analysis and program design.

19 | What to Do When You Receive Love Letters at the Office g Bill Trask is general counsel and executive vice president of Security One Lending. Trask has served the financial services industry for more than 16 years in both private practice and as general counsel to nationwide private mortgage banks. Prior to practicing law, Trask was vice president and general manager of a manufacturing subsidiary of a Fortune 500 company.

j a me s e . v ea le

d ar r e n s tu mb e r ge r

ryan lar ose

Robyn Perry

Will Rae

Dennis Swit

Bill Trask

James E. Veale

Darren Stumberger

Ryan LaRose

| TRR

20 | Update from Capitol Hill g James E. Veale, CPA, MBT has been originating reverse mortgages since early 2005. In 2007, Veale joined Security One Lending as a senior vice president shortly after it started its reverse mortgage operations. Veale has more than 40 years of experience in the tax industry and has been a California real estate broker for two decades. He and his wife, Marilu, operate the S1L branch in Lakewood, California.

23 | HMBS SPREADS CONSOLIDATE, REMAIN RESILIENT g Darren Stumberger, managing director at Knight Capital Group, heads Agency MBS trading and is responsible for HMBS/ HREMIC trading, distribution and risk management. Prior to Knight, Stumberger held mortgage trading and finance positions at Goldman Sachs, Morgan Stanley, Merrill Lynch, Standard & Poor’s and KBC Group NV. dstumberger@knight.com

24 | what happens after a reverse mortgage closes? - Part II g Ryan LaRose is president and COO of Celink, an independent reverse mortgage subservicer. LaRose has more than 12 years of servicing experience and has worked exclusively in reverse mortgage servicing since 2005. In addition, he is an active member of the NRMLA servicing and technology committees. celink.com | 517.321.5491

Report March 2012

Top Lenders Report

12345 MetLife Bank, N.A.

One Reverse Mortgage Endorsement

929

Endorsement

384

Lender

Genworth Financial

Endorsement

345

Endorsements

Generation Mortgage Co.

American Advisors Group

Endorsement

241

Lender

238

Endorsements

SECURITY ONE LENDING

234

COMMUNITY FIRST BANK

URBAN FINANCIAL GROUP

224

MAS ASSOCIATES LLC

SUN WEST MORTGAGE CO INC

139

MAVERICK FUNDING CORP

THE FIRST NATIONAL BANK

126

GMFS LLC

REVERSE MORTGAGE USA INC

101

SIDUS FINANCIAL LLC

NEW DAY FINANCIAL LLC

TOWNEBANK

M & T BANK

UNITED NORTHERN MORTGAGE

GREAT OAK LENDING

ASPIRE FINANCIAL INC

PLAZA HOME MORTGAGE INC

FIRSTBANK

SENIOR MORTGAGE BANKERS INC

ROYAL UNITED MORTGAGE LLC

NET EQUITY FINANCIAL INC

VAN DYK MORTGAGE CORPORATION

MONEY HOUSE INC

AMERICAN PACIFIC MORTGAGE

CHERRY CREEK MORTGAGE CO INC

HIGH TECH LENDING INC

ASSOCIATED MORTGAGE BANKERS

CONTOUR MORTGAGE CORPORATION

NATIONWIDE EQUITIES

VIG MORTGAGE CORP

OPEN MORTGAGE LLC

MCM HOLDINGS INC

REVERSE MORTGAGE SOLUTIONS INC

STERLING SAVINGS BANK

ATLANTIC BAY MORTGAGE GROUP

AXIA FINANCIAL LLC

Trailing Twelve Month Endorsements

INDUSTRY SUMMARY Retail Endorsement Growth

-2.68%

10,000

Wholesale Endorsement Growth

8,000

15.14%

6,000 4,000

Total Endorsement Growth

2,000 0 3 4 5 6 7 8 9 10 11 12 1 2 Retail

Wholesale *Numbers represent months

4.96%

*Figures above reflect change from prior month

RETAIL UNITS CHG%

10.8%

WHOLESALE UNITS CHG%

-0.71%

TOTAL UNITS CHG%

7,300

Mar

4,515

Apr

3,704 -17.96%

2,415 -13.29%

6,119 -16.18%

May 3,106 -16.14%

2,079 -13.91%

5,185 -15.26%

Jun

3,535 13.81%

2,322 11.69%

5,857 12.96%

Jul

3,352

-5.18%

2,159

-7.02%

5,511

-5.91%

Aug

3,705 10.53%

2,099

-2.78%

5,804

5.32%

Sep

3,612

1,972

-6.05%

5,584

-3.79%

Oct

3,032 -16.06%

1,612 -18.26%

Nov

2,675 -11.77%

1,978

22.7%

4,653

0.19%

Dec

2,676

0.04%

1,891

-4.4%

4,567

-1.85%

Jan

2,949

10.2%

2,212 16.98%

5,161 13.01%

Feb

2,870

-2.68%

2,547 15.14%

5,417

TOT

-2.51%

39,731

2,785

26,071

6.1%

4,644 -16.83%

4.96%

65,802

reversereview.com

8 TRR

The Reverse Review May 2012

Contributors B i l l wa lt e nb au gh , sra

Bill Waltenbaugh, SRA

Teague McGrath

Bob Marseilles

Sam Collins

Anthony Gaglione

te agu e mc gr ath

b ob mar s eilles

27 | How to Calculate Remaining Economic Life g Bill Waltenbaugh is the chief appraiser at Kirchmeyer & Associates, Inc., a national appraisal and valuation company. As a certified appraiser with more than 20 years of appraisal experience, Waltenbaugh has experienced firsthand the many changes that have significantly reshaped the appraisal landscape, from the advent of licensing to the implementation of HVCC. Waltenbaugh also holds the SRA designation with the Appraisal Institute and is active in both regional and national professional organizations.

28 | Promoting the Product g Teague McGrath is director of marketing at AAG and is responsible for the marketing campaigns featuring Senator Fred Thompson. Before joining AAG, McGrath was VP of marketing for Senior Lending Network (World Alliance Financial), where he refined the “Robert Wagner” brand and lead acquisition cost. McGrath was also a part of the KBC Financial Products Loan Derivatives desk, where he developed loan boarding systems and market/ industry reporting. McGrath spent 12 years at Australia’s number one television network, Channel 9, as an executive producer.

29 | Promoting the Product g Bob Marseilles is a national wholesale sales leader for Genworth Financial. genworth.com

s a m col l i ns

An th on y gagli on e

31 | Promoting the Product g Sam Collins is the president of Sam Collins Reverse Marketing, LLC and founder of REMALO, the Reverse Mortgage Association for Loan Officers. REMALO is a Webbased national sales, marketing, training and full service center, created exclusively for reverse mortgage loan officers, correspondents, branch managers, key executives and brokers. 877.262.7656 remalo.org

33 | Promoting the Product g Anthony Gaglione is the vice president of marketing at Security One Lending in San Diego, California. Gaglione participates in all aspects and business channels that S1L currently puruses. He shaped the company’s consumer-direct call center model and now focuses on corporate marketing initiatives. He has been in the lending industry since 2000 and has focused on the reverse market since 2005.

Je f f r e y S. Taylo r, CMB

K enne t h L . K an ad y

joh n s mald on e

34 | Broadening Our Perspectives g Kenneth Kanady is the director of Learning & Development for Wendover Consulting, Inc. Kanady created and managed the Wells Fargo Home Mortgage National Loan Officer Sales Training and Certification program in 2003. Kanady is the author of Reverse Credibility, a text on credibility-based engagements with seniors (Jawbone Publishing, 2009), and numerous articles on reverse sales professionalism and development. Kanady serves as a member of NRMLA’s Independent Certification Committee.

42 | the last word g John Smaldone is the executive vice president of Hanover Financial Services, a consulting firm that focuses primarily on the reverse mortgage industry. Smaldone is the founder of Taylor, Bean and Whitaker and is the former senior vice president of TransLand Financial Services’ reverse mortgage divisions. With more than 42 years of mortgage banking experience, and 10 years in the reverse space, Smaldone intends to remain in the reverse mortgage industry taking on long-term consulting assignments. johnsmaldone@charter.net

Jeffrey S. Taylor, CMB

Kenneth L. Kanady

John Smaldone

| TRR

34 | Broadening Our Perspectives g Jeffrey S. Taylor is the founder of Wendover Consulting, Inc. A 35-year veteran of the financial services and mortgage banking industries, Taylor led Wells Fargo’s Senior Products Group until August 2009. Taylor is a Certified Mortgage Banker, a former chair of the MBA’s CMB Committee, a founding chair of NRMLA, and a former member of Fannie Mae’s Housing Impact Advisory Board. Taylor is qualified as an expert witness in reverse mortgage litigation.

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

Saver market share

hecm endorsement trends

% % % % %

Looking for more statistics? Go to rminsight.net for all of the industryâ&#x20AC;&#x2122;s latest stats and rankings.

1/1/12

12/1/11

11/1/11

10/1/11

9/1/11

8/1/11

20%

16%

14%

12% $1,000.0

$800.0

$600.0

$400.0

$200.0

$0.0 3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/10

5/1/10

4/1/10

3/1/10

1/1/12

Reverse Market Insight - Logo

12/1/11

October 9, 2009

11/1/11

10/1/11

9/1/11

8/1/11

7/1/11

6/1/11

reversereview.com

1/1/12

12/1/11

11/1/11

10/1/11

9/1/11

8/1/11

7/1/11

6/1/11

$1,200.0

5/1/11

$1,400.0 5/1/11

$1,600.0

4/1/11

$1,800.0 4/1/11

Fixed

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/10

5/1/10

4/1/10

3/1/10

2/1/10 ARM

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

1/1/10

{ FIGURE }

1/1/11

2/1/10

Fixed Rate Percentage

hecm endorsement trends

12/1/10

{ FIGURE }

03 $ in the millions

initial principal limits

hecm endorsement

Report { FIGURE }

80%

75%

70%

65%

60%

55%

50%

PANTONE COLORS 3005C

8 TRR

Process Blk C

Brought to you by:

18%

REVERSE MARKET

INSIGHT

10%

The Reverse Review May 2012

Industry Update

May Edition

Brought to you by:

an update of this past month’s breaking news

News direct to you: The industry’s headlining stories at your fingertips Want even more up-to-the-minute news? Visit reversemortgagedaily.com.

headlining news 1. CFPB ISSUES CLARIFICATION OF LOAN ORIGINATOR COMPENSATION RULE, MORE CHANGE EXPECTED

The CFPB issued a clarification on the Federal Reserve Board’s loan originator compensation rule that caused most lenders to overhaul their employee compensation plans last year. The agency issued a bulletin stating that employers can contribute to profit pools derived from loan originations. It said that in the future it may provide more clarity on how the compensation rule applies to profit-sharing arrangements that are not qualified plans. // April 3, 2012

2. REVERSE MORTGAGE

DEFAULTS DROP IN NEW FHA BOOK OF BUSINESS

There are half as many tax and insurance defaults for FHA reverse mortgages in the most recent vintage of loans than in 2009 and 2010. Speaking before the NRMLA conference attendees, HUD Director of Portfolio Analysis Colin Cushman said that the default rate is falling based on HUD data, perhaps in part to the ongoing discussion among lenders. // April 2, 2012

3. NEW REVERSE MORTGAGE

6. PRIVATE EQUITY GROUP TO

New reverse mortgage disclosure documents are currently being drafted, NRMLA representatives told attendees at the regional conference in March. The documents are an effort to coordinate with the CFPB’s mission to create reverse-specific disclosure forms. In accordance with Dodd-Frank, they will combine Truth in Lending and Good Faith Estimate into one form.

Canada’s reverse mortgage provider HOMEQ announced that it will accept an offer from private equity company Birch Hill for $9.50 per common share. The deal, which will lead Birch Hill to indirectly acquire all of HOMEQ’s outstanding shares, totaled $138 million. HOMEQ’s reverse portfolio comprised 9,000 loans, totaling $1.2 billion as of December 2011.

// April 1, 2012

// April 2, 2012

4. CNBC: REVERSE MORTGAGES

7. TIME: REVERSE MORTGAGE

Reverse mortgages are gaining in popularity among seniors and earning more respect, according to a CNBC article. Published after the release of a new study by MetLife’s Mature Market Institute and the National Council on Aging, the article examines the trend in younger reverse mortgage borrowers. It also noted that the rise in respectability could be due to the fact that the product is backed by the government and that more financial planners are seeing it as a viable option.

Baby boomers are turning to reverse mortgages as a way to pay off debt and improve quality of life, says Time online. The article attributed the rising popularity to boomers’ general attitudes toward debt, saying that the reverse mortgage is a natural evolution. While it called the trend toward younger borrowers “somewhat alarming,” it did state that it could be a “decent option” for some.

DISCLOSURE DOCS COMING

SHEDDING BAD REPUTATION

// March 16, 2012

5. HUD GIVES $4 MILLION TO REVERSE MORTGAGE COUNSELING FUND

Reverse mortgage counseling agencies will receive $4 million in grants this year as part of a $42 million initiative to support housing counseling. HUD Secretary Donovan said the grants will help lower the cost of counseling. The funding, which was eliminated last year in a last-minute budget deal, was later restored by the Obama administration’s 2012 budget appropriations. // March 16, 2012

| TRR

Have a news story for this section? Email your story to jessica@reversereview.com.

ACQUIRE CANADA’S HOMEQ

QUICKLY ENTERING MAINSTREAM

// March 20, 2012

8. CONGRESS DEBATES CAP

ON NUMBER OF FHA REVERSE MORTGAGES

The number of reverse mortgages that can be insured by the FHA remains in question after a congressional hearing. The Housing Financial Services Committee discussed a proposed amendment that would eliminate the current limit on FHA-insured loans to reduce investor uncertainty and deal with growing demand. The amendment was subsequently withdrawn to allow for more time for analysis. The HECM program is currently operating under a suspension of the cap through a resolution that expires in September 2012. // March 29, 2012

Industry Update 9. CREDABILITY WAVES REVERSE MORTGAGE COUNSELING FEES

Atlanta-based counseling agency CredAbility will now offer free reverse mortgage counseling, made possible by a recent HUD grant. Following the grant, several other agencies also announced that they will offer free counseling, while others continue to assess how the new funding will impact their fee structure. // March 21, 2012

10. AMB HIRES FORMER

URBAN FINANCIAL EMPLOYEES, GROWS REVERSE TEAM Associated Mortgage Bankers (AMB) has hired a dozen loan officers formerly employed by Urban Financial Group. Sources close to the firm, based in Garden City, New York, confirmed its plans to grow its reverse mortgage retail division. AMB closed 168 reverse mortgages over the past 12 months, according to Reverse Market Insight. // March 25, 2012

of the quarter. The phased approach has not been fully tested by lenders. Under guidance by NRMLA and HUD, MetLife implemented new underwriting guidelines but then suspended the policy after other lenders failed to follow suit. While most lenders agree that financial assessment in some form is needed, many struggle with the proper way to implement it. // March 18, 2012

// April 2, 2012

12.

FHA MAY DEVELOP NEW REVERSE MORTGAGE HYBRID The FHA may develop a hybrid reverse mortgage product, according to statements made by NRMLA representatives at the regional conference. NRMLA President and CEO Peter Bell told attendees that he took part in an exploratory meeting with White House economic policy staff, during which the possibility of creating a hybrid product with HUD was discussed. The hybrid would combine an initial fixedrate option with a variable rate for future draws on the loan. // March 26, 2012

11.

GENWORTH TO UNVEIL REVERSE MORTGAGE FINANCIAL ASSESSMENT IN Q1 Genworth Financial Home Equity Access plans to release a three-phase financial assessment implementation by the end

reverse borrowers following the release of the MetLife Mature Market Institute study in late March. Noting that the product has traditionally been used by older homeowners, the article said that younger individuals are gravitating toward the reverse mortgage despite the fact that they have lower available loan limits. The article cited the recession and concerns about retirement funds as reasons for this shift.

13.

FOX BUSINESS: REVERSE MORTGAGES BECOMING MORE POPULAR FOR YOUNGER BOOMERS

14.

REVERSE MORTGAGES DELAY RETIREMENT SHORTFALL A study released by the Boston College Center for Retirement Research said that a reverse mortgage can delay the time a senior falls short of his desired retirement target. The study looked at three different tools that can be used to aid retirement funds: reverse mortgages, controlled spending and investing 100 percent in â&#x20AC;&#x153;riskless equities.â&#x20AC;? Noting that 74 percent of seniors fall short of their retirement target at age 62, the study concluded that with a reverse mortgage, that age is increased to 67. Of the three tools explored, the reverse mortgage had the most impact. // April 10, 2010

Fox Business online published an article focusing on the trend toward younger

Number

46%

46% of homeowners considering a reverse mortgage are under age 70

The average age of borrowers

Here are some interesting facts uncovered by a

MetLife Mature Market Institute study on how aging homeowners use reverse mortgages.

67%

27%

Of those who underwent reverse mortgage counseling in 2010 67% did so to lower household debt 27% did so to enhance their lifestyles

The study is based on data from 21,240 counseling sessions held between September and November 2010. metlife.com

reversereview.com

8 TRR

| 11

The Reverse Review May 2012

| TRR

2012 Eastern Regional Meeting & Reverse Mortgage Securitization Forum

in New York

BY INVITATION ONLY

March 26-27 Grand Hyatt New York

TRR AND NRMLA TAKE OVER NEW YORK TRR took off to NYC for NRMLA’s Eastern Regional Conference and Mortgage Securization Forum. Attendees heard from speakers across the industry on topics ranging from current policy issues and industry trends to sales strategies and branding tactics. To see more photos of the conference, visit our Facebook page at facebook.com/TheReverseReview.

Who was at NRMLA 2012

1. A ttendees mingle at Urban Financial Group’s cocktail reception at the Grand Hyatt. 2. NRMLA’s Marty Bell and Jessica Linn 3. Mike Kent, Gregg Smith, Mark Acchione, Bruce Barnes, Joe Hansler and Ralph Rosynek 4. Jessica Linn discusses a future feature story over lunch with Jim Milano from Weiner Brodsky Sidman Kider 5. John Lunde and Topher Thiessen from Reverse Mortgage Insight with Jessica Linn 6. Cheryl Chargin gets into the game (and wins!) at MetLife’s pingpong party at SPiN 7. Catching up with former Editor-in-Chief Emily Vannucci 8. Guest speaker Jim Gilmartin and Aramco’s Darius Aram 9. TRR Marketing Director Alycia Colacion with MetLife’s Nikolay Ratajczak and Marty Bell 10. Jessica Linn and Ralph Rosynek of RMS

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The Reverse Review May 2012

THE HOT SEAT

things you need to know or may have been wondering MAY 2012

the hot seat From his most unforgettable memory to his thoughts about the reverse space, we get the personal and professional facts from Robert D. Yeary, chairman of Reverse Mortgage Solutions, in our monthly edition of the Hot Seat.

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robert d. Bob’s nickname PERSONAL

Reverse Mortgage Solutions Chairman

You can’t always be the best, but you’d better strive to be the best.

My favorite magazine is Popular Mechanics. I love to see the wild and crazy things

that are in our future and excerpts from years gone by.

When I was younger I wanted to be a lawyer, but I got sidetracked by military service.

Every morning I thank God for being born in the USA, where opportunities abound.

When I was a kid I was fortunate to have a great childhood. We did not have much money (though I

didn’t know that), but we had a lot of love. >

I’ll never forget riding on the Concorde to England, traveling at mach 2 speed 52,000 feet in the air

and seeing the curvature of the earth. Sadly, I will also never forget watching the planes fly into the twin towers on 9/11. >

The best job I’ve ever had is the one I have now. It is such a good feeling to help seniors.

Plus, we have great competitors who all have the same concern for the customers. >

I can’t say I have ever had a bad job. I have always been thankful for the opportunity

to work. >

The most memorable moment in my life was when my first son was born. >

My parents taught me how to have a positive attitude about life. My parents

taught me that through hard work and perseverance, anything is possible. >

A good friend is someone you can always count on in both the good times

and the bad times. I am blessed to have a number of great friends—three of them are my business partners. PROFESSIONAL >

FUN FACT

He recently won a $250,000 blackjack tournament.

The most fascinating thing about the reverse mortgage industry is the attitudes of people in

the business. I have been in mortgage banking for 44 years and I have never seen the level of concern that the professionals in our industry have for the consumer. I can also say that I like almost all of my competitors. They play by the rules and compete fairly. It’s fun to go to the NRMLA meetings—it’s one big, happy family. >

I entered this industry because I saw an opportunity to help grow the business and to help people.

I often say: “When I was in my 20s, I helped young families acquire a home. Now that I’m in my 60s, I am helping older folks keep their home.” I came full circle. >

I would encourage a family member to consider a reverse mortgage because it is a good

tool for managing your money. I have helped my sister and a number of my friends obtain reverse mortgages. I would not suggest the product to my family and friends if I did not believe in it. That said, the reverse mortgage is not for everyone.

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The Reverse Review May 2012

Assess

Underwriting

Like what you see? Find all of our archived articles about underwriting at reversereview.com.

find that a postage stamp cost 15 cents, a loaf of bread was 48 cents, a gallon of gas was about $1.03 (if you are old enough, you may remember the long gas lines and that you could only buy gas on odd or even days), a new car was about $5,400, and the average home was just over $86,000. How times have changed.

Combining the Facts with Compassion Wil l Ra e a n d R ob y n Pe r ry

n underwriter’s main task is to determine the credibility of the applicant and the risk of the loan. Several key factors must be considered during this process: the value, quality, and condition of the home; the client’s verifiable income sources, monthly housing expenditures and monthly nonhousing debt obligations; the past payment history of these obligations; and the reserve funds needed in case the client’s income sources are threatened. These criteria are

more commonly known as the three C’s: collateral, capacity and credit.

With the exception of the collateral, these factors don’t enter into the decision to approve a reverse mortgage nearly as often as they do on a traditional loan. As underwriters for the HECM product, the focus is on the property, which is the only collateral. We understand that the approval of this loan allows us to provide a source of continuing income to our 16

| TRR

seniors that may be in desperate need of additional sources of income. We always keep in mind that, for the most part, we are reviewing loans for borrowers who purchased their homes in the ’70s and ’80s, or perhaps even earlier. The lending industry was quite different then, almost another world compared with the industry in the last 10 years. Back then, borrowers primarily applied with their local bank, had to meet stringent guidelines and didn’t have many loan products to choose from. This was a time when two incomes were needed to qualify. Both members of the household had to work to be able to make enough money to afford this home. The good old days of the ’50s and ’60s, when the husband worked and the wife stayed home, were long gone. If you jumped into a time machine and set the destination for 1980, you would

Going to the source

Once the clients moved into their new home, life was good. They felt sure the money they had socked away would last for their lifetime. They worked all of their lives in order to keep this home and have a nice little nest egg on which to retire. Now, fast forward to today. The cost of living has not kept up with inflation. 401(k)s were depleted when the market crashed. Borrowers’ pensions may have been pulled out from under them, and to top it off, Social Security is not cutting it. For these borrowers, today’s economy has hit hard. The middle class is getting squeezed from both ends. Advances in the medical field are helping clients live longer than the previous generation, meaning that more years are spent in retirement. All the while, the cost of living continues to increase while income sources dry up. There has to be a better way to finance retirement. We believe that the HECM serves a valuable purpose. It allows some of our clients the ability to stay in their homes even when the bank is threatening to take their houses away. It allows us to create affordability for the senior who may have lost a spouse and half of his income and doesn’t

When they come to us it has usually been a difficult decision for them. It is up to the underwriter and their team of loan officers, processors and closers to try and make this process as quick and painless as possible.

know if he will be able to stay in the home they purchased together. It allows borrowers additional income, whether it be monthly or a lump sum, to take that long-awaited vacation or just sock it away in the bank for that financial security we all desire.

Lender-placed insurance has been a hot topic in the press lately and most of the publicity has been negative. Based on what has been written, it’s easy to see why demands are being made to change a product that is critical to protecting the mortgage industry and the borrowers it serves. Public opinion might change if it were known that: ach mortgage agreement requires the borrower to maintain 1g Ehomeowner’s insurance. hen it is determined that a borrower has failed to maintain 2g Wcoverage, numerous letters are sent and phone calls are made

underwriting

to the borrower in an effort to secure evidence of insurance. The borrower’s last known insurance agent/carrier is also contacted. 60 days the borrower has failed to produce evidence 3g Ifofafter insurance, the servicers issue lender-placed insurance

legal

to protect themselves and their investors’ interest in the borrower’s property. f the borrower produces evidence of insurance after lender4g Iplaced insurance been issued, coverage will be canceled and

originating

As HECM underwriters, we can combine facts with compassion; most underwriting does not give us this opportunity. Our borrowers are savvy, interesting, opinionated and even quirky. They also recall how difficult it was to get their purchase loan and often worry too much about the process of loan approval. When they come to us it has usually been a difficult decision for them. It is up to the underwriter and their team of loan officers, processors and closers to try and make this process as quick and painless as possible.

Dennis Swit

underwriting

any unearned premiums refunded.

THE L E RESO NDER’S U GETTIN RCE FOR G MORT REVERSE GAGE S TO CLOS E

appraising

3 We specialize in repairs needed prior

servicing

Repairs done … Ready to close!

secondary market

In conclusion, if more were known about the exhaustive attempts that are made by servicers to get their borrowers to comply with the insuring requirements of the loan, maybe less noise would be made about this invaluable tool used to protect the Have a question for this column? mortgage industry for uninsured loss. Email information@reversereview.com.

As underwriters, our job is simple, but not easy. x

to closing

spotlight

3 No repairs too large or too small 3 We finance our work and are paid at closing 3 BIHG works on a national level

BayState Independence Housing Group, LLC Repairs Done...Ready to Close

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The Reverse Review

DEDICATED TO THE REVERSE MORTGAGE INDUSTRY May 2012

AMERICA’S REVERSE TITLE. OUR NAME SAYS IT ALL.

For more information, contact Bob Beverly, National Sales Director at: 18

| TRR

727.481.3626 EMAIL rbeverly@amrevtitle.com WEB www.amrevtitle.com DIRECT

Proud member of NRMLA

learn

legal

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What to Do When You Receive Love Letters at the Office

responses to production in that state. This isn’t sneaky or back-handed—it’s prudent. You have an asset to protect for the benefit of your family and your employees. Provide what you must, but no more.

Bill T ra s k

servicing appraising spotlight

So, what do you do when you find yourself in John’s shoes? Preparing is half the battle. Usually, examination notices come with an information request. They would like to see a list of closed loans, applications that you denied, or applications that were withdrawn or canceled by the applicant during the examination

I’ve found most examiners gracious in granting extensions of time to respond to the initial request, but don’t count on it. The published regulations and the department’s own rules can form the bottom line for your performance. Start gathering the requested information well before the deadline. When completing the questionnaire, take your time. Remember that you’re only responding to one state and only provide the information requested. If the questions allow it, limit your

When an examiner opens up a loan file, that loan’s whole story consists of the documents there. Even if the file contains a problem that might show up in your report of examination, you want your file to speak clearly enough to the examiner so that he or she finds no reason to start following rabbit trails and asking questions that you know will go nowhere. The examiners need to understand what happened in a file within the four corners of the paper you provide. Other documents or narrative notes that make the file clear do no good unless they are in the actual file. A short and concise response makes the examiner’s job easier, and that will make your examination a better process for both of you. x

secondary market

He opened the last letter and began to read. Somehow, all the good stuff was losing its luster. The state wanted to send someone from the Department of Financial Institutions to examine his company. After a couple of minutes he realized his shins and head were starting to hurt and decided this letter was a morning task.

period. Depending upon the state, they may require this information in an electronic format that contains certain fields. Additionally, you may have a questionnaire to complete. The length and depth of the questionnaire depends entirely on the state.

originating

John looked out his window. The day had gone so well, he barely realized the sun was low and the office was now empty. Time to clean off his desk before hitting the road—he had a school play on the schedule for tonight and he was harboring images of his daughter kicking him in his shins and his wife smacking him on the head if he was late.

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ohn was in the office early. After months and months of scratching to keep his company going, things finally looked hopeful. A small group of loan officers with a decent pipeline joined his company at the end of last week. And the two people he had making outbound calls on live leads were going to close seven loans between them this month. And John had two appointments to take applications set up for tomorrow.

underwriting

Once you have a report of your production for the examination period, look through it and see if it contains any memorable files. You might include your operations group—processor, underwriter, doc drawer, funder and shipper—in this process. If you identify any memorable files, crack them open and review what made them that way. If you have any miscellaneous documents that will help explain what you remember, get them into the file.

Ac c o r d i n g to b il l

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The Reverse Review May 2012

analyze

originating

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Close More of What You Already Have jam e s e . v e a l e

or the first time in memory—and perhaps for the first time ever—the number of certified counselees (CCs) who are not originating HECMs exceeds the number who are. The statistics on CC fallout should send a message throughout the industry, particularly to all of us who originate, and to our direct management.

Annualized Dropout Rate

35% 30% 25% 20% 15% 10% 5% 0%

Increases in the Dropout Rates

6/07 8/07 10/07 12/07 2/08 4/08 6/08 8/08 10/08 12/08 2/09 4/09 6/09 8/09 10/09 12/09 2/10 4/10 6/10 8/10 10/10 12/10 2/11 4/11 6/11 8/11 10/11

The following graphs illustrate two different types of dropout rates. The first illustrates trends while the graph below shows actual experience. The graph to the right illustrates the annualized dropout rate (ADR) in applications following case number assignment (CNA) from June 2007 through October 2011. The rate is

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9/11

8/11

7/11

10/11

Mon th C ou ns el i ng C erti fi c ate I s s u e d

6/11

5/11

4/11

3/11

2/11

1/11

The second graph uses actual counselee information summarized and provided by HUD. It displays the dropout rates for total CCs as well as the dropout rates for CCs following case number assignment. The rates are associated with the month in which the counselor issued the counseling certificate. HUD currently lacks the data necessary to provide accurate information before January 2010 or after October 2011. 12/10

11/10

9/10

10/10

8/10

7/10

6/10

5/10

4/10

3/10

2/10

1/10

55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

identified with the month in which the case numbers were assigned.

CC dropout rate after cna

Counselee Dropout Rates

M o n t h C a s e N u m b e r A s s ig n e d

total CC dropout rate

{ FIGURE }

Actual Certified

Following Case Number Assignment

{ FIGURE }

Obtaining and educating a lead is a timeconsuming and costly process. The old adage stands: “A bird in the hand is worth two in the bush.” This article is not advice. It is a look behind the statistics in an effort to begin to find answers to the question of where our industry is heading. In the end, the message is clear: Origination needs to find ways to close more of the applications we produce.

As expected, the rates are more erratic and dramatic for actual CC information than they are for the ADR following CNA. The ADR

originating Ac c o r d i n g t o j am es

following CNA provides annualized trend estimates, while the HUD CC information is based on actual results.

The Four Most Significant Events

For example, to get the ADR following CNA for September 2008, the total endorsements for the 12 months ended January 31, 2009, were divided by the total CNA generated during the fiscal year ended September 30, 2008. Using a 12-month trailing total minimizes the impact of seasonality and significant aberrations.

servicing appraising

In Conclusion Whether it is due to a failure to manage home value expectations or poor origination practices, the recent rise and the persistent level in the fallout rate should put us all on notice that we need to find ways to improve the pull-through rates at each of our respective companies. The monetary cost and time spent in closing each loan on an industrywide basis is going up due to the increased fallout rate. We should be looking for ways to push back against this trend and close more of what we already have rather than ignoring the message found in current trends. x

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spotlight

HUD maintains that the pull-through rates are distinct for each lender. While we may not like what it took to achieve higher pull-through rates at the Big Three, we should all be interested in discovering and incorporating better origination practices in an effort to achieve better endorsement results. A few years ago, a session at NRMLA was dedicated to illustrating how providing accurate information to applicants who had

The ADR following CNA is calculated by dividing the trailing 12-month endorsement totals for each month by the trailing 12-month total of case numbers assigned, using the fourmonth rule of thumb, which states that it takes four months for an application with a case number assigned to be endorsed. The data was taken principally from CNA information in the monthly FHA Single Family Outlook report and the endorsement data from the HUD HECM Endorsement Summary reports.

secondary market

The fourth event is the loss of the Big Three, particularly Wells Fargo Bank and Bank of America. Without their presence, the ADR following CNA as measured by HUD has risen by as much as 9 percent, reaching a total of 39 percent. This came as a huge surprise to many of us. HUD has stated that the pull-through rates of the Big Three were much higher than the pull-through rates for the rest of the industry. This difference should be of great concern. (Only about 2.6 percent of the actually measured 9 percent has appeared so far in the ADR following CNA, but that should change shortly.)

Computing the ADR Following CNA

originating

The 19,055 CNAs would normally turn into endorsements during the second quarter of the following fiscal year (ended 9/30/2010). But the fiscal year that followed saw the greatest total drop in endorsements in the history of the industry, more than 35,500 (a 31 percent drop, another record). Despite this, the overall ADR following CNA

The third event was the implementation of the new counseling protocol on September 11, 2010. While the new counseling protocol seems to have produced some improvement in the percentage of CCs moving to CNA, the FIT report seems to have produced just the opposite result following CNA. The ADR following CNA went up to 30.4 percent, an increase of 3.4 percent, following the introduction of the FIT report.

dropped out before endorsement could turn a significant percentage into borrowers. That session was fascinating.

legal

The impact caused by the second event was temporary and reflects the inordinately large quantity of case numbers assigned during September 2009. What drove up the ADR following CNA in September 2009 and shortly thereafter? Fear that principal limit factors were going down in the following fiscal year. The total case numbers assigned reached 19,055, which is 18.62 percent higher than the 16,064 CNAs in March 2009 (the second-highest month for CNA so far). Predominantly fear-driven origination motives usually result in a higher overall dropout rate, as they did here.

changed little between the two fiscal years (26.93 percent for the fiscal year ended September 30, 2009, and 27.03 percent for the fiscal year ended September 2010). The 27 percent seems to be the amount of the ADR following CNA directly related to the shock in appraised values.

underwriting

The first major event that increased the CC dropout rate was the severe drop in property values due to the general mortgage market collapse and the resulting burst of the so-called housing bubble. Before June 2007, when home values were rising in many parts of the country, there was little likelihood that an applicant would drop out of the loan process after a case number was assigned. Then, as property values began to erode nationally, the ADR following CNA began to rise until it plateaued sometime around May 2009. Many industry insiders blame this increase on 1) more conservative appraisal practices and requirements and 2) the failure of originators to properly prepare applicants for the shock that came when they learned that their homes were appraised for less than they had expected.

What drove up the ADR following CNA in September 2009 and shortly thereafter? Fear that principal limit factors were going down in the following fiscal year.

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The Reverse Review May 2012

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|The TRR

Best Advice for a Better Life

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HMBS

secondary market

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spotlight

side, market activity remains vibrant and continues to see several hundred million dollars of flow per week. Liquidity has remained strong with no observable spread concession for the higher premium, four-year average life paper.

appraising

On the floating-rate side, 10.5 percent cap par priced bonds are in the low to mid-60s discount margin, which remain 30-35 basis points cheaper than 7 percent cap Ginnie Mae agency CMO floaters. Spreads should remain

On the secondary side, market activity remains vibrant and continues to see several hundred million dollars of flow per week. Liquidity has remained strong with no observable spread concession for the higher premium, four-year average life paper. Two- to three-year

servicing

Worthy of note, premium floatingrate HMBS have been better bid than par dollar price floaters, and it will be interesting to see if this trend continues. Fixed rates still compare well (10-40 basis points cheaper) to competing asset classes within the agency commercial mortgage-backed securities (CMBS) sector. They are also beginning to look fair to agency Collateralized Mortgage Obligations (CMOs).

resilient and tighten marginally in rate backup scenarios, but don’t expect a meaningful tightening from here (where every new issue auction tightens the market 5-7 basis points). As we enter corporate earnings season, many of the negative underpinnings of the macro environment remain (Europe’s sovereign debt crisis, U.S. unemployment, gas prices, Middle East tensions) and should keep rates 2011 fixed-rate prepayments dropped range-bound and the discussion on more than 30 percent in March with QE3 brewing. Economic floating-rate dropping 14 fundamentals have been percent. As a whole, the generally positive and risky 2011 vintage of HMBS is going to the assets have been tightening sour ce running roughly 50 percent throughout the winter and of the baseline prepayment early spring, but a sustained curve. 2010 prepayments also backup in rates is not yet dropped marginally and are On the secondary warranted in the U.S. running closer to 40 percent

secondary market

fter a dramatic tightening to start off the year and amid a volatile rate environment, spreads consolidated during the sharp sell-off following mid-March’s Federal Reserve meeting. As we approach publication, current offer side levels for newly issued premium fixed-rate HMBS are 85 to interpolated swaps for corporate settle and 65 discount margin for newly issued premium floating-rate HMBS.

originating

Da rre n S t u m b er g er

In March, HMBS issuance volume topped $880 million (a 23 percent increase month over month), split 58 percent fixed rate and 42 percent floating rate. Wells Fargo led the top five issuers with 24 percent of the market share (mostly subsequent participations); RMS finished second with more than $200 million of new issuance and a 22 percent market share. Urban and MetLife finished third and fourth with 18 percent and 17 percent respectively, and Generation finished fifth with 8 percent of the market share. In March there was $455 million in securitized deal issuance brought to market by three Ginnie Mae sponsors, bringing year-to-date issuance to $830 million.

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HMBS Spreads Consolidate, Remain Resilient

underwriting

average life paper remains very well bid and trades meaningfully inside of new issue given the spread pick versus competing assets, the roll down the curve and attractive cash flow profile. The Interest Only (IO) market has also tightened recently with dollar prices up anywhere from a quarter to a half a point. Demand still outweighs supply for this sector and we’ll continue to see contraction in yields.

of the curve. The reduced prepayment risk of HMBS relative to conventional MBS and zero percent risk weighting under Basel III (a regulatory standard expected to be implemented globally) will continue to be attractive features to bank buyers and money managers. x reversereview.com

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The Reverse Review May 2012

clarify

servicing

Want to comment on this article? Comment online at reversereview.com.

What Happens After a Reverse Mortgage Closes? â&#x20AC;&#x201C; Part II Rya n LaR o s e

This is the second installment of a three-part series. The first installment highlighted the differences between the servicing of forward versus reverse mortgage loans and it can be found in the April edition of The Reverse Review.

hortly after monthly statements are mailed, reverse mortgage customer service centers are inundated with borrower inquiries. The senior borrower is much more attentive to detail, will ask about anything they do not understand and will demand full explanations. Servicers rarely have to explain the servicing fee set-aside anymore, and the servicing community owes an enormous debt of gratitude to the industry professional that first thought of 24

| TRR

eliminating this very confusing item. This inbound call volume is a surprisingly predictable trend. At Celink, the percentage of incoming calls every month is approximately 20 percent of our portfolio. In 2005, when we were servicing 5,000 loans, we received approximately 1,000 incoming calls per month. Celink now services more than 75,000 loans and can expect 15,000 incoming calls (each a separate touch-point) per month. The regularity of

this trend makes staffing decisions for our Borrower Care department rather predictable. When a borrower requires repairs from closing, a significant amount of time will be spent in education

about the process and their obligations under the repair rider. Frequent phone calls and letters are exchanged between the borrower, the contractor and HUD-certified inspectors. These efforts assist the borrowers in

Ac c o r d i n g t o ryan

Our experience shows that certifying residency can be anything but simple at times. Some borrowers will perceive the contact as an intrusion, some will react in a downright hostile manner and still others will question the validity of our request.

legislative

When

a borrower requires

repairs from closing, a

The third and final installment will cover tax and insurance defaults, the death of a borrower and final disposition of the loan.

legal originating secondary market

Moving on through the typical life-cycle of a

reason behind the request; reminding them of the fact that they agreed to occupancy verification during the closing process; and reiterating that it is required for their HUD insurance to remain in place. x

reverse mortgage, there are numerous touchpoints between the servicer and borrower. Borrowers will be required to certify residency after the first year of the loan. This should be a straightforward and simple process: Mail a letter out and get a signed certification back. But our experience shows that certifying residency can be anything but simple at times. Some borrowers will perceive the contact as an intrusion, some will react in a downright hostile manner and still others will question the validity of our request. Each of these exceptions consume considerable amounts of time: explaining the

underwriting

significant amount of time will be spent in education about the process and their obligations under the repair rider. Frequent phone calls and letters are exchanged between the borrower, the contractor and HUD-certified inspectors.

completing their repairs and protect them from the occasional unscrupulous home improvement contractor. Unfortunately, it is not uncommon to find a remodeling company attempting to talk the borrower into additional (and possibly unneeded) repairs, nor is it uncommon for a repair invoice to come in higher than the originally quoted bid. In both of these situations, reverse servicers are responsible for working with the contractor and the borrower to resolve these issues amicably.

servicing

Reverse Mortgage Survey What does the average American think about a reverse mortgage A March survey by freescore.com polled 319 people of various backgrounds to gauge their opinions about the HECM program. Here are the results:

37.03 %

Yes

Do you think that a borrower’s children will be adversely affected or responsible for repayment if their parent receives a reverse mortgage?

56.33 %

Yes

20.89 %

43.67 %

2.22 %

Yes

16.77 %

Don’t know

29.43 %

What best describes a reverse mortgage? A mortgage like any other A mortgage that reverses my interest payments so I pay equity first, then interest A loan that allows elderly borrowers to access their equity without selling their home Don’t know

Does a person who takes out a reverse mortgage lose ownership of his home?

49.68 %

spotlight

Yes

62.97 %

Do you think a reverse mortgage affects a person’s credit score?

appraising

Have you heard of a reverse mortgage?

40.51 %

42.72 %

Respondent Facts:

17.41 %

10 percent were over the age of 55. The respondents were distributed evenly throughout all regions of the United States. The 40.82 % average household income exceeded $30,000. 90 percent of respondents had at least a high school education; 50 percent had at 39.55 % least a college degree.

Freescore.com, the value leader in online consumer credit services, provides members with affordable, unlimited access to all three credit scores from each of the national credit bureaus: TransUnion, Experian and Equifax. More than 1 million consumers trust freescore.com for bureau credit scores and information.

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| 25

The Reverse Review May 2012

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value

appraising

Have a question about appraising? Email us at information@reversereview.com and your question will be answered in our next issue.

How to Calculate Remaining Economic Life Bill Wa lt e n ba ug h, SRA

underwriting

reach the end of its economic life if its remaining years of physical usefulness are not profitable. Some highly desirable areas can have older residential structures that are well maintained and in good condition. However, their remaining economic life can be low if it is more profitable to remove the dated improvements and build a new structure that provides the modern features and amenities the market demands.

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Physical life The total period a building lasts or is expected to last

Economic life The period over which improvements to real property contribute to property value As such, a structure that is sound and in good physical condition with many years of physical life remaining may

The physical condition of the property

The HUD handbook states that the useful life of a building has come to an end when:

The building can no longer produce annual income or services sufficient to offset maintenance expense, insurance and taxes to produce returns on the value of the land.

Rehabilitation is not feasible.

Given this information, one needs to consider whether or not a property with obvious deferred maintenance needs to have a low REL. From HUD’s viewpoint, maybe not. If the subject is considered typical for the area and trends indicate that properties with deferred maintenance are renovated, it is reasonable to consider that the current improvements and property type will be useful for many years to come. In closing, I feel it is important for appraisers to understand how clients are using the information provided in reports. In this case, per HUD, the most important consideration in estimating REL is the estimated time the current improvements are expected to contribute value to the property. x

According to bill If the subject

is considered typical for

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Trends in the neighborhood

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However, to fully understand REL and how users like HUD employ this information, we also need to consider the following:

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From an appraiser’s perspective, the REL is part of a simple calculation used to estimate depreciation for the cost approach. The REL is the difference between the estimated total economic life and the estimated effective age. A wellmaintained property has a low effective age and a high REL, whereas a property in disrepair will have a high effective age and a low REL. In short, it is a quick and easy way to estimate straight-line physical depreciation.

How the property fits into its surroundings

secondary market

here’s never any lack of confusion when it comes to the topic of estimating Remaining Economic Life (REL). For the most part, this confusion centers on the misunderstanding that REL is reflective of the number of years a physical structure is expected to last. Just think about it: From a mortgage perspective, this concern is reasonable. Who wants to make a 30-year mortgage on a residential property if the physical structure isn’t expected to last more than 20 years?

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From HUD’s prospective, the REL needs to be reflective of the number of years the property is expected to remain competitive in the market. To accomplish this, HUD suggests the appraiser consider:

the area and trends indicate that properties with deferred maintenance are renovated, it is reasonable to consider that the current improvements and property type will be useful for many years to come.

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The Reverse Review May 2012

spotlight article Here’s a collection of marketing advice from

MAY edition

professionals across the industry.

Bob Marseilles Genworth

he goal of any good marketing plan is to generate leads. There are many traditional lead generation first story methods that have served reverse mortgage professionals well for years. These methods include advertising, hosting seminars and mailing prospect letters. However, as technology becomes more interactive, new lead generation tools are changing. In addition to the standard lead generation methods, reverse mortgage professionals are adopting online and social media strategies to enhance their lead generation capabilities.

When Advertising, THINK BEYOND PRINT

This month’s Spotlight features marketing tips from industry experts.

When considering an online marketing strategy for lead generation, there are several places to start. The most basic strategy includes a website (hopefully you already have this part) and banner ads. A banner ad is basically a print ad for a website. Since virtually every organization, community group and business has a website, a good place to start may be the websites of the groups currently printing senior-focused newsletters or brochures. Banner ads are usually pretty small, but can be a great way to grab someone’s attention. The most effective banner ads usually give visitors a good reason to click on the ad. Once the ad is clicked, the individual can be redirected to your website, or better yet, a special landing page with text and graphics created specifically for your campaign. One of the many advantages of banner ads is that they can usually be modified whenever you want. You don’t have to wait for the next print issue to change something. Want to see more articles like these? Go to reversereview.com.

Promoting the Product //

As reverse mortgage professionals, our readers are always looking for better business practices. This month in Spotlight, we ask several marketing leaders from companies across the board what they’re doing to promote the product.

Social media is quickly becoming a viable lead generation solution for reverse mortgage lenders and brokers. According to an August 31, 2010, article on usnews.com, nearly half of adults between the ages of 50 and 64 are using social media sites. 28

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Search Engines Can Be Your Best Friend In addition to banner ads, online lead generation strategies can also include pay-per-click campaigns on search engines such as Google, Bing and Yahoo. With pay-per-click campaigns, you bid on certain keywords that someone might use when researching reverse mortgages online. Depending on your bid, your ad will appear on the top or to the right of the search results, increasing the chances of someone clicking on your ad. Just like a banner ad, the visitor will be redirected to the website or landing page of your choice. Pay-per-click campaigns can be effective, especially on the local level. However, because you pay every time someone clicks on your ad, whether

spotlight article be very simple or quite complex, depending on your needs. If creating a custom tab is not a good fit, Facebook offers advertising as well. These ads work like a banner ad and you can use them to direct people to your website, but the standard is to direct people to a fan page rather than an external site. (Plus you can leverage the additional power of the Like button and show users how many of their friends also Like your page.) Facebook advertisements can be directed to very specific individuals if you wish. The targeting options include age, sex, location, likes and interests, relationship status, workplace, education and many others. Leads are the life-blood for those in the reverse mortgage industry. Finding new sources for leads is key for growth. As technology changes our lives and the lives of the seniors we serve, we must continue to adapt and grow. The traditional lead generation methods will continue to serve us well, but those willing to expand into uncharted territories will have first access to the tech-savvy seniors who are already there. x

legal

Don’t Forget To Be Social Teague McGrath American Advisors group

originating

t’s no surprise that reverse mortgage leads are in high demand right now. Favorable secondary pricing and potential market-share opportunities create a positive reverse mortgage environment, and leads become a vital cog in the originating machine. But for many originators the bigger questions are: Where to get them? How good are they? How much should they pay?

secondary market

There are a variety of lead generators available, yet most of them can be categorized as Web, mailer or TV. There is a subset of generators that also originate loans themselves, which creates a different kind of lead.

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In years past, direct mail was a common form of lead generation for many industry participants. Unfortunately, the mail volume increased in many 8

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second story

Web lead generators use pay-per-click campaigns and other online tactics to convince a “surfing” senior to find out more by clicking on the ad, then filling out the lead form. In many cases, the lead generator then attempts to call the qualified lead to create a live transfer to the appropriate lead buyer in order to increase both the quality and the value. The price for this kind of service varies drastically from $40 to $250 depending on exclusivity, live transfers and the homeowner’s state. There’s a lot to consider. In addition, the marketing methods employed by some online practitioners can be noncompliant or unethical. If your business values longevity and customer experience, it is in your interest to fully understand the message and marketing tactics your lead source uses to make your phone ring.

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Even though social media is relatively new in the grand scheme of things, its effect on the way individuals and businesses interact with others is undeniable. Social media is quickly becoming a viable lead generation solution for reverse mortgage lenders and brokers. According to an August 31, 2010, article on usnews.com, nearly half of adults between the ages of 50 and 64 Acc o r d i n g are using social media to bob sites. That number was up from 22 percent the year before. Facebook is ready to help capture online lead the leads you need. The generation first step is to create a strategies can fan page. Once the fan also include page is set up, you pay-per-click can begin generating campaigns leads. Custom tabs on search can be created on fan engines such as Google, pages to capture these Bing and leads. The custom tab Yahoo. With will be designed like a pay-per-click special landing page campaigns, you on a website and should bid on certain give the lead a reason to keywords that enter their information, someone might such as a coupon, free use when quote or a research researching paper. A quick Facebook reverse search for custom tabs mortgages online. will provide numerous options. These tabs can

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they are qualified or not, the campaigns can become very expensive if you are not careful with your bidding and keyword selection. If pay-per-click campaigns seem like too much risk for the reward, search engine optimization may be able to provide similar results. There are many things you can do, such as adding keywords and proper head tags, to optimize your website and the more you do, the better your results. One thing that can help right away is to make sure your company is identified locally, e.g., on Google Local. This will help move you to the top if the search includes a location. Even if the person searching doesn’t include a location, you are more likely to show up based on the fact that Google places local options toward the top of the search page.

The Reverse Review May 2012

To Move Forward, Work In Reverse Join a winning team in a growing industry

To learn more about becoming a reverse mortgage advisor, scan the image below or visit

www.genworth.com

© 2012 Genworth Financial Home Equity Access, Inc. 10951 White Rock Road, Suite 200, Rancho Cordova, CA 95670 • NMLS # 3313 | TRR (800) 218-1415 • For a complete list of licenses, visit: www.genworth.com/reverse/licenses W-030612

spotlight article

ow do you generate your leads? H What messaging and marketing practices do you use? Can I see some examples?

re they exclusive? Do they include A transfers or appointments?

A A A

What is your qualifying criteria?

hat conversion metrics do your W clients get for the same lead?

Who are your biggest lead buyers? re you compliant? (For example, A some ads may state, “No mortgage payments.” But indeed there is a mortgage payment at the end of the loan period.)

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sources, including Web-generated leads and leads generated from various national TV campaigns. We were forced to diversify our direct mail efforts and began to utilize different marketing avenues, mainly TV, live transfers and several vendors that sell Webgenerated leads.

Today’s reverse mortgage environment is much more difficult than it was back in 2005, when my company initially started to focus on the product via our call center. We had built our business on direct mail for many years with a consistent +1 percent response rate thanks to creative pieces and data selects, which created a profitable and scalable marketing cost per funded loan.

The feedback I hear more often than not from brokers and our branches is that they have a difficult time scaling up their marketing efforts due to a lack of focus on a particular marketing source. Most say that they are forced to prematurely end a campaign before its true potential can be measured because cash is tight or because they have a difficult time getting quality leads over an extended period of time. We stress consistency and focus because we think a longer campaign with steady lead-flow allows you to make the necessary adjustments to reach your profitability goals.

But in early 2009, we saw the effectiveness of direct mail start to dwindle as the industry contracted and home values went soft. In recent years, these factors have led to a challenging time for many brokers and retail loan officers who are continually investing capital on marketing to drive loan volume. The high demand for leads has led to an increased price for most lead

Our most recent success in the call center can be attributed to many things, none more important than the fact that we are focusing primarily on a single form of marketing. Security One Lending is almost a year into its Pat Boone TV campaign, and we are beginning to turn the corner in the call center. Once we were able to focus on our TV leads, we saw our 8

Anthony Gaglione security one lending

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The high demand for leads has led to an increased price for most lead sources, including Web-generated leads and leads generated from various national TV campaigns. We were forced to diversify our direct mail efforts and began to utilize different marketing avenues, mainly TV, live transfers and several vendors that sell Web-generated leads.

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Going to the source

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ne aspect of my job that I really enjoy is meeting with our retail managers, retail loan officers and wholesale brokers to go over what type of marketing is working and what isn’t working for their personal business. One simple suggestion I often make is to focus on a single source of marketing, if possible.

secondary market

third story

These are important questions to truly evaluate and understand your lead source. In many respects, we are all in this together and promoting the business practices of those who are only in the reverse space while the going is good will only undermine us in the long term. So, it cannot be emphasized enough: Be diligent in your lead selection process and determine if it’s the right source for you. x

legal

The best advice is to do your homework on your lead source and ask the right questions of your lead provider.

Here are some questions that I would recommend:

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markets to the point of saturation, which in turn impacted the response rate. When that occurs, aggressive marketing techniques are employed and all sense of suitability and compliance go out the window. At their worst, mailers included false checks and government stimulus promises that give the industry a bad name. In many respects, the decline of direct mail was a net benefit to the reverse space, yet it doesn’t solve the ongoing problem for originators: where to find the best quality lead for the right price.

The Reverse Review May 2012

“Our focus is to give you the tools and support

that you need to be successful”

• Credit Union Partner Program • Pat Boone, National Spokesperson • Top $ Compensation Plan • Personal Website • Quick Compensation One week after the loan funds • Excellent Fulfillment Team 32

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• Reverse Fortunes - Free Membership • Marketing Expense Reimbursement • Jumbo Reverse Program • Quality Branded Marketing Materials • America CE Institute Continuing Education Program

To receive a Security One Media Kit visit www.S1Lemployment.com

spotlight article

Sam Collins reverse marketing, llc hinking ahead is the key for future success. Without putting in the effort to create new, fresh leads, you are probably going to go out of business. But marketing takes money, and what happens if you don’t have much of it?

What Is Inbound Marketing?

If you are a newbie to technology and think you have to do it all, think again. There are tons of resources you can access. Many resources offer free tips to walk you through the most important steps toward inbound marketing (one such site is my blog, remaloblog.com). Inbound marketing is the key to filling your sales funnel with qualified leads and your website is where education, engagement and conversion can take place. Good luck! x reversereview.com

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You may be wondering how the heck you can make the change from totally outbound to inbound marketing. I am not advocating that you drop your outbound marketing completely. But what if you were to take just a part of your marketing budget and start investing in inbound marketing?

appraising

The most logical inbound marketing tool is your website. Do you have one? If not, you need to get onboard. But having a website isn’t the key to great results; getting one up and running is just the beginning. Your website has a hefty goal and it needs to wear many hats. A website needs to do more than just exist; it needs to perform. It needs to attract visitors, educate them and convince them to contact you for more information. I know what you’re thinking: easier

As we speak, there is a huge shift gaining momentum that is largely due to changing buyer behaviors, coupled with the influx of a new group of senior clients, those who are more apt to adapt to technology (i.e., the Internet). Today’s senior clients wish to consume information when they want it, how they want it and often without the involvement of someone beating on their doors. More importantly, they want to be educated and not sold to. This is an important threshold for you to comprehend in trying to reach today’s senior homeowner.

servicing

One word is the answer: technology. There are many tech-savvy things you can do to attract more clients and leads. These tools include search engine optimization (SEO), blogs, videos, YouTube, social media (Facebook, Twitter, LinkedIn) and Google Analytics. The best part is that technology is cost-effective when compared to outbound marketing.

secondary market

What is the best approach to capture more leads and have your clients knocking on your door rather than vice versa?

What is the logic behind the thinking that now is the time to consider expanding your inbound marketing?

fourth story

originating

Inbound marketing is a concept that focuses on getting consumers’ attention. The idea is to attract highly qualified senior clients to your business like a magnet instead of interrupting people with various forms of outbound marketing, such as direct mail, telemarketing, radio and television. New-age seniors (boomers) are not going to buy into us interrupting their lives and injecting ourselves into their business any longer. Yes, the good ol’ days are gone. You need to become the invited guest, not the unwanted pest!

Welcome to a new paradigm. The Web today is social and interactive. If you consider most websites to be just static, “blah” destinations, then you’re missing the boat. You need to consider integrating search, social media, content, blogging and more into your website.

legal

Marketing as we once knew it has changed. Traditional tools such as direct mail, seminars, TV advertising and print still work, but they can be expensive. The cost can lead one to ask the big question: Is it sustainable? If these tools are working for you now, I am not advocating that you stop. Trust me, there are no silver bullets in our business. But I believe inbound marketing can be an important part of your future success.

said than done. But if you put the effort in, it can be done. Or, if you’re not tech savvy, there are people out there who will do it all for you.

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overall conversion rates begin to rise. The efficiencies needed to make a call center profitable these days are easier to recognize and optimize when the loan officers and managers are all working on a single lead source instead of having three different and distinct lead sources that all have their own characteristics and workflows. Although it can be difficult to build from a single lead source because current demand for leads outpaces supply, if you can manage to focus for an extended period of time on whatever lead source you choose, that focus should pay off in higher conversion. x

The Reverse Review May 2012

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Kenneth L. Kanady

and

Jeffrey S. Taylor, CMB

A look at the secondary market and how a plurality of factors influences the reverse space

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The Reverse Review May 2012

Our industry continues to evolve and reshape itself every day. Loan officers,

counselors, processors, servicers and other professionals across the reverse space have come to realize that proactively learning is the only way to keep one step ahead of the relentless, continuous change in this market. As our borrowers and their advisors become more knowledgeable of the reverse product, we too need to stretch our own view of things commensurately. Over the years, most of us have come to master our respective jobs. Whether we’re taking appointments, counseling borrowers, underwriting loans or closing sales, we’re doing—so far—better today than yesterday. While always improving, we’ve got our reverse expertise down pat. The resharpening of critical competencies has become routine. So now is a good opportunity to begin broadening our view and expanding our knowledge of another key part of our growing industry, specifically the secondary market. This article is a high-level view of this critical component of the reverse market, a description of several of its moving parts and a look at how they are linked together.

By developing a basic understanding of the bigger picture, we become more competent and far more confident doing our work and engaging our borrowers. The ability to discuss such things as the secondary market, securitization or HMBS (just at a conceptual level, if ever needed) enhances professional credibility. Certainly, the vast majority of our borrowers could care less about such things, but their advisors or family members may care. In either case, being prepared with even a snippet of knowledge could not only help our borrower, it could also help us as reverse mortgage professionals develop a broader understanding of our business in its entirety. For example, the following questions from borrowers and their advisors can naturally be expected in greater frequency regarding reverse financials alone.

Such questions will no longer be relegated to just “what is,” but rather “why is,” “how does” or “how come.” “Why did the reverse interest rate change since we last spoke?” “This is the second time I have checked out a reverse mortgage for my client recently. Why have the costs gone up?” “Why is the lender giving my mother this rate and that other lender giving her a different rate?” “I understand the government, not you, sets reverse interest rates. What gives?” “Why do prices vary with different types of reverse mortgages?” “My father believes lenders are just trying to make more profit off of us by changing rates. Is this true?”

“Why can’t I lock in the rate? I remember doing so on my first home mortgage.” “What’s the real price of a reverse, anyway?” Of course, the answers to these and similar questions are deeply embedded within (and actively driven by) the secondary market. There is always a plurality of factors at play that influence the numbers involved in a reverse mortgage. It’s not just about lenders. Reverse Mortgage magazine, NRMLA’s flagship publication, recently published an outstanding article on the creation, history and dynamics of HMBS and the secondary market. Author Marty Bell simply defined the importance of this sector, stating, “HMBS provides the money for lending that broadens the availability of loans to seniors.” The article goes on to discuss the silent interdependencies that exist between the reverse investor community (i.e., the secondary market) and the primary market (i.e., the community focused on lending reverse mortgages to consumers, where most of us work each day). Even though the vast majority of seniors could likely care less about such matters, anyone directly engaging them (or their advisors) should be prepared to at least discuss a few fundamentals when warranted. In order to do so, we must first step back and begin broadening our own perspectives. It is often thought that reverse lenders are responsible for all financial factors associated with a reverse mortgage. While lenders directly impact reverse interest rates, costs and prices, they never do so in isolation. There are many factors that directly influence reverse business and financial decisions, including timing, risks, products, market expectations, leaders, technologies, government, etc. As a matter of fact, there is a plurality factors silently, relentlessly impacting reverse mortgages every day. Lenders are only one.

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There’s also a difference in viewpoints and priorities between borrowers and lenders.

Here are five: A. Plurality of Views B. P lurality of Players and Definitions C. Plurality of Products D. Plurality of Influences

What’s Really Important?

E. Plurality of Processes

A. Plurality of Views Most of us focus on the immediate next steps needed to help our seniors through the reverse mortgage process, from initial engagement, qualification and application, to closing, funding and servicing. As such, our priorities are concentrated on explaining reverse fundamentals, product features/benefits and loan requirements, or on fixing borrower problems. These are very important activities requiring highly focused attention.

&ms

terknow to

The following are a few reverseoriented definitions and industry players that may help foster a better understanding of the bigger picture: Insurer Government entity that guarantees investors the timely payment of principal and interest on HECM mortgagebacked securities (e.g., HUD) Issuer A mortgage company that has been approved by Ginnie Mae (the “guarantor”) to sell pools of HECM mortgage-backed bonds/securities to

Key financial factors are usually most important to borrowers and center on reverse interest rates, costs or principal limits (i.e., how much money they can get). These are very important factors to lenders, too. But lenders also need to consider those “silent” factors directly affecting borrowers that are seldom discussed, including FHA parameters, CFPB requirements, Ginnie Mae guidelines and the volume of issuers and investors (see graphic). The integration of these different views and priorities may seem unimportant, but each plays a role in the business of reverse mortgages.

B. Plurality of Definitions and Players Rates Costs Prices Securitization Investor Insurer Issuer Primary Market Secondary Market Principal Limit

Reverse loan officers, counselors and servicers often hear seniors (or their advisors) routinely misinterpreting the meaning of certain terms and concepts (e.g., price vs. cost, expected rate vs. initial rate, lender vs. servicer). This is only natural given the many complexities of the reverse market. Clarifying the technical differences is not needed every time, but when necessary, effectively addressing key concepts can make the difference between enhancing understanding or contributing to needless misunderstanding.

investors (e.g., Reverse Mortgage Solutions, Urban/Knight Financial Group, Sun West Mortgage Company, MetLife Bank)

guaranteed loans such as HMBS (Note that Ginnie Mae sets HECM investor guidelines and approves issuers of HMBS.)

reverse mortgages; sets and enforces the professional ethical standards for acceptable business conduct in the industry

Investor An enterprise or individual who purchases reverse mortgage bonds from approved issuers (e.g., commercial banks, foreign central banks, domestic mutual funds insurance companies, pension funds, investment banks)

onsumer C Financial Protection Bureau (CFPB) Government agency that enforces standards for consumer protection, including seniors purchasing reverse mortgages

HUD/FHA Federal organizations that insure HECMs and established HECM program standards

National Reverse Mortgage Lenders Association (NRMLA) The professional society of the reverse mortgage industry responsible for helping educate the public about

Primary market Deals with the issuance of new investment instruments (e.g., securities, stocks, bonds) that benefit a specific company or institution (Note that any reverse lender can sell his own stock or bonds to anyone.)

innie Mae (GNMA) G Government agency that securitizes federally insured or

Secondary market Deals with the selling of pools of investment instruments bundled together to investors around the world (Note that only approved entities are qualified to make such

instruments available to investors; these entities are called “issuers.” Ginnie Mae must also approve institutions that can offer reverse mortgage investment instruments to investors around the globe.) HECM mortgagebacked securities (HMBS) Ginnie Mae-issued securities (i.e., an investment instrument) designed to attract investors and promote needed liquidity, which help grow the reverse mortgage secondary market and lead to overall growth in the reverse space, making reverse mortgages more available to seniors 8

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The Reverse Review May 2012

Securitization The process an issuer uses to create a financial instrument (e.g., HMBS or bonds) by combining pools of assets and selling them to investors in the secondary market, which helps strengthen the liquidity of the reverse mortgage industry Value appraisal Assessment of the worth of a HECM consumer’s property on the market conducted by a professional appraiser

Property chargers Applicable tax and insurance requirements vital to maintain a HECM consumer’s primary residence Rate The percentage of interest charged to a senior on the money borrowed on a HECM Costs Total amount of charges/fees a senior ultimately pays on a HECM [This includes margin, origination fee, mortgage insurance premium (MIP), servicing fee,

counseling fee, credit report and appraisal fee—all of which are usually financed.] Price The amount of money investors pay for reverse mortgage loans or bonds on the secondary market (i.e., fixed-rate HECM mortgage-backed bond) Reverse consumer A purchaser of a reverse mortgage (i.e., a qualified senior)

Reverse lender HUD-approved provider of reverse mortgages to the senior market (e.g., Reverse Mortgage USA) Reverse counselor HUDapproved educator of seniors regarding HECMs

These are just a few of the many definitions, players and organizations that directly influence the overall financial health of our industry, as well as many day-to-day reverse mortgage business decisions.

Reverse servicer Company that provides loan servicing on the reverse mortgages sold to consumers

Clarifying the technical differences is not needed every time, but when necessary, effectively addressing key concepts can make the difference between enhancing understanding or contributing to needless misunderstanding.

C. Plurality of Products In the minds of most seniors and their advisors, only one reverse mortgage exists. However, there are several types of reverse mortgages in our industry. The most common among them is the Home Equity Conversion Mortgage (HECM), which is a government-insured mortgage that has several variations. There is also a “proprietary” reverse mortgage, which is a nongovernment-insured reverse mortgage offered by private banks and mortgage companies.

the following chart indices

Rates, costs, MIPs, etc. vary depending on the reverse product or program.

HECM Standard

Different types of HECMs include: 3 HECM Standard (traditional HECM) 3 H ECM Saver (modified HECM with lower up-front costs) 3 HEC M for Purchase (exclusively used for purchasing a different primary residence) 3 H ECM Refinance (for borrowers who already possess a HECM and wish to refinance to another HECM) The numerous HECM variations offer more choices for consumers, but they also create potential opportunities for confusion if they are not well presented and understood. There are several commonalities among all HECMs and there are also differences in the requirements for and benefits of each. Additionally, different indices, interest rates, settlement costs, fixed or adjustable programs and MIP schedules vary among HECMs. 38

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HECM for Purchase

fixed adjustable

HECM-toHECM (Refinance)

HECM Saver

D. Plurality of Influences At first glance, it’s easy to assume that reverse lenders are the driving force behind all financial elements regarding reverse mortgages. However, many entities across the spectrum impact reverse financials in both obvious and subtle ways. For example, just by viewing the standard financial components of a single HECM transaction, a telling story is revealed (see graphic on pg. 38). While lenders are involved in all phases of the reverse mortgage process, they are often closely focused on the margin, the origination fee and HMBS pricing. Many other industry players exert equally powerful influence in shaping and reshaping other financial factors, including servicers, appraisers, third-party organizations, HUD/ FHA, Ginnie Mae, the global market, issuers, investors and even reverse borrowers themselves. Each industry player influences things in small and large ways every day that borrowers seldom see (nor really need to fully understand). However, from a borrower’s point of view, reverse lenders are usually the “face of reverse,” because that’s who borrowers interact with throughout the majority of the origination process. As such, they are also often praised or blamed for everything, including financial factors, even though they are not solely responsible.

“No one entity can do it all in reverse—not even the biggest lenders, the smartest leaders or the best technologies. It takes an industry, and that includes a healthy secondary market.

E. Plurality of Processes Many interconnected, interdependent processes also influence reverse mortgage financials. All of us are intimately close to one or more of these high-level processes during our daily activities in the reverse market (see graphic on pg. 38). From the time HUD develops, implements or changes a HECM (#1), to when a borrower obtains a HECM and enters servicing (#5), to the time an investor actually purchases an HMBS (#8), reverse financials are affected. Even though few of us are personally involved in every process, we should value just how closely coupled these processes are, as well as how interdependent they have become.

Driving Influences

When a problem occurs in any single step, the entire reverse mortgage system can be either adversely impacted or significantly improved.

No single entity, instrument or organization makes decisions in isolation... not even reverse lenders.

There are so many touch-points made so often by so many people in so many ways that it seems somehow magical watching it come together over and over again. But no magic is involved; it’s all hard work by lots of good people.

Financial Components Index Margin Adjustable Interest Rate Fixed Interest Rate National Lending Limit MIP Principle Limit Origination Fee Servicing Fee Counseling Fee Appraisal Fee Credit, Title, Flood Fees, etc. HMBS Price

Key Influencers / Drivers Market-driven Market/Lender-driven LIBOR-based, Borrower-selected Market-driven HUD/FHA-driven HUD/FHA-driven HUD-driven, Borrower, Appraiser, Market-based Lender-driven Servicer-driven HUD/FHA-driven Appraiser-driven Third party-driven Ginnie Mae, Issuer, Investor & Lender-driven

Now, take a second and place yourself in the process step(s) closest to your own work, using the graphic. Then look around. We are more interdependent on the effectiveness of each other’s work than we see on a daily basis. Simply broadening our perspectives and looking around now and then is a humbling and exciting thing. No one entity can do it all in reverse—not even the biggest lenders, the smartest leaders or the best technologies. It takes an industry, and that includes a healthy secondary market. In conclusion, a plurality of factors influences every dimension of a reverse mortgage, from how a senior chooses a lender to why an investor purchases a specific HMBS. Three key takeaway messages may be helpful: 1. We should try to stretch ourselves to better understand the bigger picture of the reverse mortgage industry. 8 reversereview.com

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Many interconnected processes There are so many touchpoints made so often by so many people in so many ways that it seems somehow magical watching it come together over and over again. But no magic is involved; it’s all hard work by lots of good people.

influence reverse mortgage financials.

Ginnie Mae Approves HMBS Issuers

Investors Purchase HMBS

Ginnie Mae Creates / Refines HMBS

HUD Designs & Implements HECMs for the Marketplace

HUD Approves Lenders & Counseling Agencies

Borrowers Obtain HECM & Loan Admin/ Servicing

Counselors Educate Borrowers

Lenders Approve Borrowers & Property is Appraised

2. The secondary market is a vital, driving force that is absolutely instrumental in ensuring sustainable liquidity and long-term viability of our entire industry. 3. Our understanding, empathy and ability to convey the basic concept of plurality can strengthen our own professional confidence. As much as reverse mortgages continue to be explored by seniors and their adult children, transparency and an understanding of all the factors that impact the industry should be paramount for all—especially the professionals who serve them. x

Do you have what it takes? It takes a lot to create an attention-grabbing, informative article and we know there are people out there who can get the job done. The Reverse Review is on the hunt for contributors to join the team and be a part of the industry’s premier publication.

Email information@reversereview.com to start the conversation and possibly see your name in print!

THE

REVERSE review

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Associated Mortgage Bankers, Inc.

Partner and Grow Become a reverse mortgage partner today!

Wholesale Program aNo HUD Approval Required aFree Technology a24 Hour Underwriting aDedicated Account Executive aMarketing Material aLicensed Mortgage Bankers in: CA, CO, CT, DC, FL, GA, HI, ID, MD, NJ, NV, NY, OR, PA, TN, TX, VA, WA and WY

Guiding Your Financial Future

When you consider the number of leads and clients you’ve been forced to turn away when approached with someone who was an ideal candidate for a Reverse Mortgage, you’d quickly discover that a large stream of income has slipped right through your fingers. Now, Associated Mortgage Bankers can help you capitalize on Reverse Mortgage opportunities by showing you how to turn home financing opportunities into a steady flow of revenue through our unique platform. As a non-FHA approved or FHA approved mortgage broker, Associated Mortgage Bankers can provide you with the ability to:

aGenerate an additional source

of revenue, with minimal effort

aReceive top-notch industry

training on the FHA market

aRevisit your existing book of

Become a reverse mortgage partner today!

business for new opportunities

Call Melissa Jedlicka or visit us online today!

888-684-0960 | www.ambmortgage.com

Associated Mortgage Bankers Inc. is a licensed mortgage lender also DBA as CalCon Mutual. The following states require disclosure of licensing information. (If your state is not listed, it doesn’t require a specific license disclosure or we are not currently licensed in that state.) California – Licensed by the Department of Corporations under California Finance Lenders Law – License #603J070; Colorado –to check the license status visit http://www.dora.state.co.us/ real-estate/index.htm Georgia Residential Mortgage Licensee (#29819; New Jersey – Licensed Mortgage Banker – NJ Department of Banking; New York – Licensed Mortgage Banker, N.Y.S Department of Financial Servicers, license # B500812; Oregon License No ML5108; Pennsylvania – Licensed by reversereview com the Department of Banking-License # 31797; Texas, Texas Dept of Banking ; Virginia Licensed by Virginia State Corporation Commission, License MC5518. Restrictions may apply. Equal Housing Lender, Associated Mortgage Bankers Inc Nationwide Mortgage Licensing System Number 24794

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The Reverse Review May 2012

Opinion

last word

Want to comment on this article? Comment online at reversereview.com.

The Reverse Mortgage: A Smart Option, Not Just a Last Resort Joh n S m a l d o n e

ow many times have you heard from the media or attorneys, financial planners and accountants that a reverse mortgage should be a last resort for seniors? Too many times, I bet! We as an industry of professionals need to start educating our seniors and those who advise them that this notion is simply wrong. The reverse mortgage is not just for those in dire need; it can be an extraordinary tool for seniors interested in alternative financial options to secure their retirement. Smart programs like the HECM Saver bring to the table an option that can fit a particular need for certain seniors. The Saver has its own selling points. For one, the closing costs are much less than the standard reverse mortgage. Yes, the interest rate is higher and the amount the senior receives is less, but the Saver still fits a particular niche. It works perfectly in a situation where a senior is looking to use the loan for a specific purpose, like to buy a boat or vacation home. The Saver also works well when one has a lot of home equity or if the home is owned free and clear. Certainly, these are not last-resort situations. I worked with a senior the other day whose home was valued at $396,000 with a first lien of $67,000. This senior had a very decent retirement income and very little debt. But he had health problems that could become disabling sometime in the future. His problem is not a last-resort situationâ&#x20AC;&#x201D;quite the contrary! He was not desperate; he simply wanted to take precautions. After reviewing his need and objective, I advised him to get

Going to the source

| TRR

... there is another category of seniors who have a more secure financial status and who are looking for alternative methods to supplement their income or savings. These seniors can benefit greatly from the ARM product ...

a standard adjustablerate mortgage (ARM). He intends to put the money in a line of credit so he can see a substantial growth rate from month to month, creating a nice security cushion. Originators often look for loans that fit squarely into the last-resort category. They tend to cater to seniors who have a tremendous amount of debt and are in dire need of relief. These individuals turn to a reverse mortgage as a last resort. But there is another category of seniors who have a more secure financial status and who are looking for alternative methods to supplement their income or savings. These seniors can benefit greatly from the ARM product but

arenâ&#x20AC;&#x2122;t helped much by the more profitable fixed-rate product. Even though an originator can make more on a fixed-rate loan, they need to concentrate on what product is best for the senior, not what is best for them. The reverse mortgage can be a smart option for seniors who simply want to tap into the taxfree home equity they have worked for years to build. It can offer qualifying seniors hardearned financial freedom in their retirement years. As professionals in this industry, itâ&#x20AC;&#x2122;s important that we educate the public about the potential benefits of a reverse mortgage and the different programs that can match their needs. x

Your direct path to growth in the

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The Reverse Review May 2012

Enterprise Lending Solutions, Document Services and Compliance Solutions In every enterprise, there is an underlying rhythm â&#x20AC;&#x201C; a cadence â&#x20AC;&#x201C; in the execution of mortgage loans. Those companies that have seamless system integration and dynamic data flow across the enterprise are in rhythm and optimize their efficiency at every step. Their business flows in absolute harmony to increase productivity, retain customers, maintain compliance and reduce costs. Now your company can catch the rhythm and reach a whole new level of performance. Mortgage Cadence is orchestrating the ultimate mortgage origination performance by providing a true Enterprise Lending Solution (ELS) that handles both forward and reverse lending, as well as multiple business channels. With the Mortgage Cadence suite of solutions you have access to full end-to-end loan origination functionality, automated underwriting, business rule management,

Mortgage Cadence gives you the flexibility to easily adapt to industry changes and capitalize on new business opportunities; creating a more efficient, agile and profitable enterprise. | TRR 44

product and pricing, workflow automation, document services, and Web portals within one integrated platform. No other system in the market today can deliver this level of fully integrated performance tools and compliance support to accelerate the tempo of your enterprise.

888.462.2336

mortgagecadence.com