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WHY REVERSE PROFESSIONALS NEED TO THINK OUTSIDE THE BOX PG. 18 THE PROCESS OF VERIFYING OCCUPANCY PG. 26 + KIMBERLY SMITH SITS DOWN IN OUR HOT SEAT PG. 16
w
THE
REVERSE april 2013
review
the rules Reassessing
The CFPB issues final mortgage rules that will impact business for reverse mortgage lenders.
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8 TRR
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The Reverse Review April 2013
From the Editor benefits of the fixed Saver and the Standard ARM, reminding us that there are still thousands of seniors out there who could benefit from a reverse. Plus, he points out, “The HECM product has been around since 1986 and grew profitably for many years without the fixed Standard option.”
A note from jessica guerin
As many of you are keenly aware, the advent of
April marks the end of the fixed-rate Standard HECM—for now, at least. Much of the content in this April edition of TRR addresses this fact, as several of our contributors assess various ways the industry can evolve without its most popular product. Nationwide Equity’s Ed O’Connor talks about the need for reverse professionals to develop some ingenuity to survive in the face of this change. Thinking outside the box, O’Connor says, and welcoming new players with innovative ideas, will enable this business to thrive. Maverick Funding’s Joshua Shein encourages readers to study up on the
Editor-in-Chief]
{ Jessica Guerin } Want to talk to Jessica? Reach her at jessica@reversereview.com.
Senior Publisher Reza Jahangiri
Publisher
Erik Richard
Editor-in-Chief Jessica Guerin
Creative Director Traci Knight
Copy Editor
Kersten Wehde
Marketing Director alycia colacion
Printer The Ovid Bell Press Advertising Information phone : 630.207.3882 email : jessica@reversereview.com Subscriptions email : information@reversereview.com Editorial Content email : jessica@reversereview.com © 2013 Reverse Publishing, LLC. All rights reserved. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, Reverse Publishing, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 3800 West Chapman Ave., Orange, CA 92868
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Feedback is very important to us here at The Reverse Review. Send us your thoughts on past articles or something that is on your mind and we will publish it in this section. information@reversereview.com
However the story plays out, it seems that many are confident that the reverse sector will evolve—as it always has—despite the challenge. As the industry adjusts, The Reverse Review will be here, chronicling the process and encouraging conversation about how the reverse mortgage product can better serve our nation’s seniors.
Meet the Team
t ay ec st onn c
Feedback
One Reverse’s Mark Acchione sheds some light on how the secondary market will fare in the wake of the moratorium. “Backend premiums for the prevailing Standard ARM margin have crept up significantly over the past six months with the fixed Saver following suit,” Acchione writes. “The timing couldn’t be better for an industry that is refocusing its efforts back to the ARM market.” According to Acchione, investor demand on Wall Street shows no signs of fading. “Fixed or ARM, smart investors love the HECM story and demand will always be present.”
l
FACEBOOK AND LINKEDIN
Table of Contents
TRR 4.13
29 | Marketing
Social Media in the Reverse Mortgage Industry Are outlets like Facebook, LinkedIn and Twitter worth the effort? Seamus McKeon
In this issue... 18 joshua shein
Originating
31 | Marketing The Key to Effective Reverse Mortgage Advertising How to connect with the senior consumer mark Erickson
08 | movers & shakers
The latest developments in companies across the reverse space
12 | TRR Turns Four
It’s our anniversary! Take a look at what we’ve accomplished in our third year of HECM coverage.
14 | NRMLA News
21 | Originating Ingenuity Why we need to think outside of the proverbial box
24 | Originating One-to-One Customer Service Is the Reverse Mortgage Niche Meeting senior clients in person can elevate your business.
Marty Bell
Greg Saffer
16 | Hot Seat
26 | Underwriting
Senior vice president of wholesale lending at AAG
Calculating gross living area Bill Waltenbaugh
42 shelley giordano Spotlight
34 | Legal
Ed O’Connor
Read about the association’s current initiatives.
Kimberly Smith
32 | Appraising Apples to Apples
The Process of Verifying Occupancy Tips for confirming principal residency Britany Luth
Power of Attorney Fraud How to protect your clients from financial abuse Alexander J. Chaudhry
36 | Legal The Importance of Vendor Management Tips for establishing sound contractual relationships
50 john larose
Last Word
Christopher J. Willis & Mercedes Kelley Tunstall
41 | HMBS Refocus Demand shifts to the ARM market Mark Acchione
44 | Reassessing the Rules
The CFPB issues final mortgage rules that will impact business for reverse mortgage lenders.
@
Want the online version? reversereview.com/magazine
Jim Milano april 2013 RE V
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CONNECTING with Financial E
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INSIDE
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WHY REVERSE PROFESSIONALS NEED TO THINK OUTSIDE THE BOX PG. 20 THE PROCESS OF VERIFYING OCCUPANCY PG. 28
+ KIMBERLY SMITH SITS DOWN IN OUR HOT SEAT PG. 18
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A look at the CFPB’s final mortgage rules
cover SE
“Most of the rules are set to take effect sometime next January, so the mortgage industry does have some time to adjust operations to ensure compliance with these new guidelines. Still, it would be wise to begin decoding and translating these complex new rules now. This way, companies have plenty of time to convert the mandates into workable policies and test their implementation well in advance in order to ensure a smooth transition.
R
FEATURE
THE
REVERSE review
APRIL 2013
THE RULES REASSESSING
The CFPB issues final mortgage rules that will impact business for reverse mortgage lenders.
reversereview.com
8 TRR
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The Reverse Review April 2013
Contributors
Marty Bell
Kimberly Smith
Mart y B e l l
K i mbe r ly Smi th
Jos h u a Shein
14 | NRMLA News g Marty Bell is NRMLA’s senior vice president of communications and marketing. This is Bell’s professional Act III after careers in books, journalism and the Broadway theater. Bell is the author of two novels and four nonfiction books, and his writing has appeared in publications including Playboy and New York magazine. Bell wrote and produced the awardwinning documentary film The Boys of Summer and produced 15 Broadway shows (including Ragtime, Fosse and Dirty Rotten Scoundrels) that won 27 Tony Awards.
16 | Hot Seat g Kimberly Smith is the senior vice president of wholesale lending at American Advisors Group. Smith began her career in the reverse mortgage industry with Financial Freedom before moving on to manage a wholesale division at Reverse Mortgage Lender Network. Smith also worked for Generation Mortgage Company, where she served as the executive vice president of sales before joining AAG in early 2013.
18 | A Change Will Do Us Good g Joshua Shein joined Maverick Funding last year to expand its national reverse mortgage network and establish its Maryland operations. Previously, Shein was CEO and president of 1st Maryland Mortgage Corp/Great Oak Lending Partners. Under his leadership, the company became one of the fastest-growing reverse mortgage companies in the U.S. Prior to that, Shein was a co-founder and VP at NAJO Emergency Products, a manufacturer of spinal immobilization products. He graduated cum laude from Ithaca College.
E d O ’C onnor
Gr e g Saf f e r
br i tan y luth
21 | Ingenuity g Ed O’Connor, CRMP, is sales manager for Nationwide Equities Corporation. He previously served as president of Advanced Funding Solutions. O’Connor owned an accounting and tax practice for 16 years. He still maintains his status as a licensed IRS agent and is the co-founder of the Long Island chapter of the National Aging in Place Council. O’Connor has a degree from NYIT and is a retired Nassau County police detective.
24 | One-to-One Customer Service Is the Reverse Mortgage Niche g Greg Saffer is owner of Premier Lending Group, based in Orange County, California. Saffer has a successful 12-year track record of closing conventional and government loans, with a specialty in reverse mortgage origination. A licensed real estate broker, Saffer’s top priority is providing unparalleled customer service and satisfaction, and he takes care to ensure that his clients’ financial needs are met.
26 | The Process of Verifying Occupancy g Britany Luth is the vice president of operations for Urban Financial Group, Inc., based in Tulsa, Oklahoma. She oversees Urban’s underwriting team and has Direct Endorsement underwriting authority. Prior to joining Urban nearly six years ago, Luth managed a nationwide title company. She obtained a B.S. in business management with a minor in marketing from Oklahoma State University.
S ea mus M c K e on
Ma r k Er i c ks on
B i ll Waltenbaugh
29 | Social Media in the Reverse Mortgage Industry g Seamus McKeon is a freelance social media consultant based in Los Angeles. He currently oversees Landmark Network’s social media presence, generating content for the AMC’s corporate blog.
31 | The Key to Effective Reverse Mortgage Advertising g Mark Erickson is the CEO of 7 Reverse Leads. He established a successful media and marketing company in 1989 that specialized in the telecommunications industry. Subsequently, he focused on the prepaid debit card industry and built marketing programs for a number of Fortune 500 companies. His newest program concentrates specifically on lead generation for the reverse mortgage industry. 7reverseleads.com marke@7reverseleads.com 888.369.8818
32 | Apples to Apples 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.
Joshua Shein
Ed O’Connor
Greg Saffer
eoconnor@ourcustomersfirst.com Britany Luth
Seamus McKeon
Mark Erickson
Bill Waltenbaugh
6
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516.984.3731
Contributors
Alexander J. Chaudhry
Christopher J. Willis
Mercedes Kelley Tunstall
Mark Acchione
Shelley Giordano
Jim Milano
John LaRose
A l ex a nder J . C ha udhry
Ch r i s top h e r J. W i lli s
Me r c e d e s Kelley Tu n s tall
34 | Power of Attorney Fraud g Alexander J. Chaudhry is general counsel of FNC Title Services, a multistate title insurance agency. Chaudhry works on areas of real estate law that impact title insurance agencies with a specific focus on issues associated with HECMs. He is responsible for corporate and transactional matters, licensing, and regulatory and litigation concerns. He recently worked with state insurance enforcement officers on cyberthreat issues facing the title insurance industry.
36 | The Importance of Vendor Management g Christopher J. Willis is a partner at Ballard Spahr LLP and a member of the firm’s Dodd-Frank Task Force and Collection Documentation Task Force. Willis’ practice focuses on consumer financial services and financial institutions law, including counseling clients and defending them in individual and class-action lawsuits. Willis writes and speaks regularly on unfair and deceptive trade practices, the Truth-in-Lending Act and mortgage lending litigation.
36 | The Importance of Vendor Management g Mercedes Kelley Tunstall is of counsel in the Consumer Financial Services group at Ballard Spahr LLP. Tunstall counsels clients on compliance with consumer financial services laws, including proceedings of the Consumer Financial Protection Bureau and the Federal Trade Commission. Tunstall is a member of her firm’s Collection Documentation Task Force and specializes in helping financial institutions develop, market and service financial products using new technologies and methods.
Mar k A cchi one
Sh e lle y Gi or d an o
41 | Refocus g Mark Acchione is managing director of capital markets at One Reverse Mortgage, the nation’s largest retailonly provider of reverse mortgages. Acchione is responsible for capital market operations located in Detroit, Michigan.
42 | Spotlight g Shelley Giordano is the director of business development at Security One Lending. She has served as a loan originator and sales leader in her 14-year HECM lending career. Giordano has spoken to audiences at the ABA, on CNN Financial, at the National Association for Home Builders and to numerous financial planning groups. She works with Women in Housing and Finance and was a panelist for the White House Conference on Aging in 2005.
Ji m Mi lan o
Joh n L a Ro se
44 | Reassessing the Rules g Jim Milano is a partner with the law firm of Weiner Brodsky Sidman Kider. Milano’s practice focuses on regulatory compliance for the financial services industry, particularly with respect to reverse mortgage issues. Milano is nationally recognized as one of the leading lawyers in the area of reverse mortgage law, and is a frequent speaker on topics of interest to industry members at various trade association conferences and webinars.
50 | Ensuring the Future g John LaRose is the chief executive officer of Celink, the nation’s largest reverse mortgage subservicer. LaRose also serves on the board of directors of the National Reverse Mortgage Lenders Association and is the co-chair of its Compliance Subcommittee.
Be a part of the conversation.
Write for us! ou Do y e what hav kes? it ta
We are looking for new contributors.
Share your thoughtful commentary with our readership today.
Email jessica@reversereview.com to learn more. reversereview.com
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The Reverse Review April 2013
Movers & Shakers Read about the latest developments in companies across the reverse space.
Hav e a c o mpan y u p dat e y o u w ou ld lik e t o s e e p u b l i s h e d?
Generation Mortgage Company Makes Move to Reposition Reverse Mortgages with CuttingEdge HECM Planning App Generation Mortgage Company has unveiled an interactive reverse mortgage planning app designed to demonstrate the HECM’s feasibility as a flexible financial retirement tool. Called “nu62,” the app graphically plots the correlation of home equity to personal consumption to a home equity credit line of growth over any period of time after age 62. It also compares a reverse mortgage’s performance to a traditional mortgage. The company hopes the app, which can be used by both loan originators and consumers, will help change the public’s perception of the HECM product by effectively demonstrating how borrowers can benefit over time. “The way we are presenting reverse mortgages now shows that seniors can plan their consumption either all at once or over time depending on their plan,” said GMC President and CEO Colin Cushman. “Nu62 shows brokers and borrowers both the risks and rewards of different consumption patterns. It makes the options transparent and easy to understand for the first time ever.” Cushman said the company plans to make the technology available to the industry this year.
Email it to Jessica@reversereview.com.
in a timely fashion. Lenders will receive a list of all appraisal orders completed in any given month with detailed information about those orders, the payment amount received by/due to Landmark Network, and the amount and check number paid to the appraiser. “We want to help mitigate the risk of lenders when they utilize our services. We will ensure that they are able to see and document our payment practices so they know that they have paid us and we have then paid the appraiser,” said Landmark President and COO Hunter Gorog.
Reverse Focus Releases New Mobile App Reverse Focus, a technology and training provider for the reverse mortgage industry, has launched a mobile app designed to help reverse professionals stay in touch while on the go. The app, called Reverse Focus Mobile, offers users direct access to the latest industry news, videos, podcasts, e-learning tools and industry reports. “We know many of our members and visitors use their mobile phones consistently in the course of business,” said Shannon Hicks, VP of product development. “We are pleased to support them in the field with the tools and training this mobile app provides.”
AAG Welcomes Two Account Executives to Its Wholesale Lending Team
Landmark Network Launches Vendor Payment Program Landmark Network AMC announced the launch of PayView Report, a vendor payment program that adds transparency and security to the process of compensating appraisers. With the new program, lenders can ensure that their appraisers are being paid properly and 8
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American Advisors Group has welcomed Alison Calamia and Laurel Anderson to its growing wholesale team. Calamia has worked on both the retail and wholesale sides of the industry in her 20 years in the business. Prior to joining AAG, she worked as an account executive with Generation Mortgage Company and ran a servicing division for Standard Mortgage Corp. Anderson worked previously in the title sector as an account manager for Premier Reverse Closings before joining the
wholesale division at Generation Mortgage Company in 2011. Both Calamia and Anderson will serve as account executives for AAG, developing relationships with new partners to advance the company’s expanding wholesale channel.
Former Military Chief Appointed New Director of NewDay USA NewDay USA has appointed Admiral Michael Mullen to serve as its director as well as the director of its parent company, Chrysalis Holdings. Admiral Mullen formerly served as chairman of the Joint Chiefs of Staff from 2007 to 2011, and was principal military advisor to presidents Barack Obama and George W. Bush. Additionally, he served as commander of U.S. Naval Forces Europe, commander of Allied Joint Force Command Naples and vice chief of Naval Operations. In addition to its reverse mortgage services, NewDay provides loans to military personnel and veterans. “I am pleased to be a member of the NewDay USA leadership team, and look forward to contributing to this company’s efforts to help military families achieve and sustain homeownership, as well as their other financial goals,” Admiral Mullen said.
TowneBank Mortgage Welcomes Brien Brandenburg, Promotes Ron Heath Brien Brandenburg has joined TowneBank Mortgage as reverse mortgage manager. Brandenburg comes to the TowneBank team with more 15 years of experience serving the senior community through reverse mortgage origination. TowneBank has also promoted Ron Heath to the position of branch manager for the company’s reverse mortgage division in Raleigh.
Industry Update
April 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.House Continuing
Resolution Suspends Reverse Mortgage Loan Cap
The House of Representatives passed a continuing resolution (CR) that will once again suspend the cap on the number of reverse mortgages allowed outstanding under FHA insurance. The cap, currently set at 275,000 loans, will remain in effect through September 30, 2013; it has been suspended several times in the past five years through congressional appropriations and continuing resolutions. The Senate is expected to propose its own version of the CR in March. The cap was brought to the attention of the Senate in March when NRMLA CEO Peter Bell spoke of the necessity of having the cap lifted permanently. // March 10, 2013
2.Senate Committee Says OK to CORDRAY, GOP Unconvinced
The Senate Banking Committee voted to approve the recess appointment of CFPB Director Richard Cordray after months of opposition from Republican members of Congress. During the hearing regarding Cordray’s status, the committee voted 1210 in favor of his nomination. However, Republican members of the committee remained unconvinced that this approval was the best course of action and voted unanimously in opposition. The CFPB’s authority was called into question by a recent court case that speculated about the constitutionality of Cordray’s recess appointment; without a confirmed director, the agency is limited in its ability to oversee nonbank financial institutions. Now passed in the committee, the nomination will go to a vote of the full Senate. // March 19, 2013
3.CFBP Says It Will Study
5.HUD to Lenders: Prepare
A recent blog post published by the CFPB says the agency will investigate the cost of compliance for lenders. The comments come after many lenders reported accruing unsustainable expenses in an effort to remain compliant with regulations approved and enforced by the CFPB. The initiative began after reverse mortgage lenders and other financial services providers complained that the costs of compliance are in some cases causing irreparable damage to independent businesses. “We want to increase public understanding of compliance costs,” the post states. “As a first step, we will talk to banks across the country about the costs they incur to comply with consumer regulations for deposit products and services.” The bureau says it will weigh these costs against the benefits consumers receive from the regulations.
Because of sequester-related budget cuts, HUD is planning for seven days of employee furloughs between May and September of this year that will reduce expenses by an estimated $66.6 million. In a letter to multifamily industry partners, HUD Commissioner Carole Galante warned lenders to expect delays as a result of the shutdown. “At this time, the Department of Housing and Urban Development is taking every step to mitigate the effects of these cuts, but based on our analysis, it is likely that your organization’s business processes may be affected,” the letter states. “For example, the sequester will require the department to furlough staff and take reductions for systems maintenance and in other areas which may result in delays in processing mortgage insurance applications.”
// March 25, 2013
// March 13, 2013
Compliance Costs
4.Congressman Questions Legality of CFPB Funding
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) penned a letter this week questioning the funding of the CFPB in light of the controversy surrounding the recess appointment of CFPB Director Richard Cordray. “Given that the Dodd-Frank Act authorizes the Federal Reserve to fund CFPB only at the request of the CFPB’s director, the circumstances under which funds were transferred from the Federal Reserve to the CFPB must be called into question,” said a statement from Rep. Hensarling’s office. A federal court will decide the legality of the recess appointment. // March 12, 2013
for Delays, Temporary Closures
6.Ocwen Continues
Mortgage Serving Buy-up, Inks Deal With AllyBank
AllyBank announced it will sell a portfolio of agency mortgage servicing rights (MSR) to Ocwen Financial Corp. with an estimated price tag of $585 million. The transaction comprises MSRs with an unpaid principal balance of $85 billion as of January 31, 2013, and an estimated $5 million of agency MSR based on commitments through the end of February. Under the agreement, Ally also has the right to sell Ocwen its remaining MSR portfolio in a subsequent closing, a portfolio in excess of $30 billion by unpaid principal balance. The transaction is expected to close over the next few months and is also subject to approval by Fannie Mae and Freddie Mac. // March 13, 2013 reversereview.com
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The Reverse Review April 2013
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Roundup Here’s a look HECM stats
at the latest
Some Regions Defy HECM Endorsement Drop Trend
n e w s a n d s tat s affecting the market.
AARP REPORT
Housing Costs Increase for Boomers The AARP released an analysis of the 2011 Census Bureau data involving middle-income homeowners age 50 and older. The results indicate that fewer members of the baby boomer generation are paying off their homes and retiring. Instead, many of them are saddled with increasing housing costs and dwindling incomes.
Older, middle-income families spent 30 percent or more of their income on housing, up from 20 percent in 2000. The median monthly cost of housing is $1,460. 36 percent own their houses free and clear, down from 40 percent in the past decade. $174,500 was the average household net worth for homeowners in 2010, down from $246,000 in 2007.
HECM endorsements
dropped 6.9 percent in
February after January’s surge, but at 4,833 loans
the numbers were still well
above average totals for the the senior agenda
Half of Boomers Say They’ll Rely on Home Equity for Retirement The number of baby boomers who say they’ll need to tap into their home equity to achieve financial security has risen in recent years, according to Ameriprise Financial’s “Retirement Check-In.” Ameriprise says that the percentage of surveyed seniors who plan to utilize their home equity has risen since the recession from 39 percent to 47 percent. In addition to relying on home equity, many of those surveyed indicated they will work in retirement in order to make ends meet.
IN THE NEWS
U.S. News: Future Bright for Senior Homeowners Even though the housing market has yet to fully recover, U.S. News and World Report says things are looking optimistic for the nation’s seniors. The article pointed to several factors that indicated things are turning around:
past 11 months. Despite an
overall decline nationwide,
some regions broke the trend and experienced an increase from January to February.
Midwest - 11.3% Pacific/Hawaii - 10.5% Great Plains - 8.2% Source: rminsight.net
LEADING LENDERS
Three HECM Lenders See Jumps in Growth Several lenders have made noticeable gains in the past year, according to Reverse Market Insight. Here’s a look at the percentage of year-todate growth of the top three:
+40%
* Senior home equity rose in the third quarter of last year to $74 billion, the highest since the end of 2005.
* Home values among older owners reached $4.23 trillion during the third quarter, up from the previous quarter’s $4.16 trillion.
* The pace of migration among seniors increased in 2011 to the highest level in years, indicating an end to the recession-related real estate freeze.
+197% +124% reversereview.com
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The Reverse Review April 2013
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It’s our anniversary! We’re celebrating four years of HECM coverage.
thank you
from the editor
I would like to thank our valued community of readers, writers and advertisers for helping to make this magazine the leading publication for reverse mortgage professionals. Our dedicated staff works hard every day to bring you valuable content, insight and news to keep you informed of the numerous issues that continue to affect this ever-changing industry. Without feedback and contributions from people like you, we would not be able to successfully accomplish this goal. Thanks for supporting us along the way!
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THE FORMER SENATOR TALKS ABOUT HIS HOPES FOR THE UPCOMING ELECTION.
jessica guerin
A Sit-Down with Fred Thompson The former senator talks about his hopes for the upcoming election. 12
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J U LY / A U G U S T 2 0 1 2
shelley giordano
Financial Planning & the HECM Why experts are saying the reverse mortgage can solve the retirement income puzzle
The Reverse Review
has made some great strides in its fourth year. Here’s a list of what we’ve accomplished in the last 12 months:
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The Appraisal Problem How mounting issues in the appraisal sector could spell trouble for reverse mortgage lenders
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The Underwriter’s Experience How the demanding role of the HECM underwriter makes this job the profession’s gold standard
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Seniors are living longer, health care costs continue to rise, and many seniors own their homes free and clear but have a significant amount of net worth tied up in their homes... I believe that the industry is poised to grow exponentially over the next five to 10 years.
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The secondary market for reverse mortgages has been unpredictable in recent years, but trends show investor demand is increasing and execution continues to improve, largely due to Ginnie Mae’s guarantee of full faith and credit of the U.S. government. - Theodore W. Tozer
Just this year, two independent studies were published by prominent economic researchers, both examining in impressive detail various ways in which home equity could be used. Data was collected, simulations were run and the analyzed results all pointed to one simple fact: The HECM product could be leveraged to help certain retirees attain a livable flow of income. - Jessica Guerin
I like things that break through artificial barriers. Sometimes people say, “Well, you have to be this or that; either you own your house or you sell your house.” This is an example of how you can get the best of both worlds... It’s a perfectly sensible way to deal with life cycle and economic needs. - Barney Frank
of the
E MORTGAGE MARKET
E WE AND WHERE DO WE GO FROM HERE? An in-depth analysis of the industry’s future
Ji m Mi l a n o Kenneth L. Kanady
and
Jeffrey S. tayLor, CMB
INDUSTRY EXPERTS, GOVERNMENT OFFICIALS AND ACADEMICS TESTIFY BEFORE CONGRESS ABOUT THE STATE OF THE PROGRAM.
*
jim milano
Reverse Mortgage Market: Who We Are and Where Do We Go From Here? An in-depth analysis of the industry’s future
jessica guerin
A HECM Hearing Industry experts, government officials and academics testify before Congress about the state of the program.
A look at the secondary market and how a plurality of factors influences the reverse space
Kenneth Kanady Jeffrey Taylor
Broading Perspectives A look at the secondary market and how a plurality of factors influences the reverse space
While any kind of underwriting can be a taxing pursuit, the job of a HECM underwriter is a particularly challenging one, requiring acute knowledge of stringent FHA standards and adherence to a specific methodology unique to the reverse mortgage loan process. HECM underwriters are specially trained to handle these kinds of government-insured loans, and a substantial amount of experience is required to develop a true command of the process. - Ralph Rosynek
reversereview.com
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The Reverse Review April 2013
NRMLA News
On the Docket Amidst the last-minute frenzy preceding the March 1 implementation of sequestration, both the House of Representatives Financial Services Committee and the Senate Banking, Housing and Urban Affairs committee held hearings in February to discuss the 2012 audit of the Mortgage Mutual Insurance Fund and the future of the FHA.
NRMLA staff was in attendance at the House committee hearing, and NRMLA President and CEO Peter Bell testified on behalf of the reverse mortgage industry at the Senate Committee hearing. More than 40 House members from both parties took turns questioning the sole witness, FHA Commissioner Carol Galante, at a February 13 hearing called by new committee chair Rep. Jeb Hensarling (R-TX) and provocatively titled, “Bailout, Bust or Much Ado About Nothing? A Look at the FHA’s 2012 Actuarial Report.” In the wake of the report, which indicated that the MMI Fund was net negative $2.8 billion as a result of the HECM program, the tone of questioning volleyed back and forth for more than three hours between support (from Democrats) and concern (from Republicans). As participants and attendees entered the majestic hearing room, the mushrooming national debt was featured on flat-screen televisions on opposite walls. “Debt is the great existential threat to our nation,” Chairman Hensarling said in his opening remarks. “We need a sustainable housing finance system. But I fear the way FHA is operating today is an impediment.” In her testimony, Commissioner Galante, an accomplished housing developer prior to entering the public sector, reported, “Much of 14
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the progress that we are seeing in the housing sector has been possible because of the FHA, which has provided access to homeownership for millions of American families and without which the crisis would have been much deeper. In fact, Moody’s Analytics estimates that were it not for FHA’s presence during the crisis, house prices would have fallen 25 percent further than they did already. FHA’s contribution has not been without stress, however.” Galante went on to report changes to the fund—some implemented, some under consideration—intended to restore its health. Then the questions began flying. From the right came a good deal of suspicion. “We have not gotten good information,” said Rep. Randy Neugebauer (R-TX), recently appointed chair of the Insurance, Housing and Community Development subcommittee. “The FHA reported everything’s OK, but it isn’t. What is the true condition?” Rep. Michele Bachmann (R-MN) said the United States is “the brokest nation in the history of the world” and cannot afford to make loans to people who can’t or won’t pay them back. Rep. Sean Duffy (R-WI) accused the FHA of either not having the proper information or lying. Voices to the left of the chair staunchly defended both the fund and the FHA. “The fund is meant to be countercyclical,” said Rep. Carolyn Maloney (D-NY). “It expands in time of crisis and contracts when the market is healthy.” Ed Perlmutter (D-CO) thanked the FHA for keeping the housing market alive through the recession. Through it all, Galante remained above the fray, despite sitting at a floor-level table facing the members elevated on ascending risers like an orchestra. She attributed the fund’s deficit to the 2007-2009 crisis years’ books of business and said actuarial reports indicated the loans made since 2010 were the most profitable in the agency’s history. Reiterating additional changes that would add revenue and strength to the fund, Galante asserted, “We have confronted FHA’s stress at every stage of the lending cycle.”
NRMLA News
brought to you BY MARTY BELL: reverse mortgage lenders association
NRMLA Webinar Reports on the HUD Briefing
Following a HUD/industry phone conference on February 15 to explain the moratorium on fixed-rate, full-draw Standard loans and further actions being considered to strengthen the MMI Fund, NRMLA conducted a members-only webinar on February 19 to report on the call and answer questions about the changes. About 150 members participated in the call. Discussion and explanation of the additional changes will continue at NRMLA’s Western Regional Meeting on May 19-20 in Irvine, California.
Before the Senate
be made in accordance with the Federal Administrative Procedures Act and generally take up to two years to be implemented. If FHA is granted the authority to modify the HECM program through the issuance of Mortgagee Letters, in lieu of rule changes, program changes and enhancements could be implemented in a matter of months, not years.
The following is an excerpt from Peter Bell’s testimony on February 28:
There are a few adjustments that FHA can currently do by Mortgagee Letter, such as changing the principal limit factors— something that they are currently doing to essentially implement a moratorium on the fixed-rate (full draw) HECM Standard loan option. However, there are other thoughtful, longer-term solutions to strengthen the program that currently require pursuing the formal regulatory development process.
“One of the challenges HUD has faced in managing the HECM program has been its inability to move swiftly in making programmatic changes that could enhance the security and financial performance of the Mutual Mortgage Insurance Fund. Reverse mortgages are a relatively new concept and there has been a learning curve as HUD and the industry have observed how these loans perform. While some of the lessons to date have been translated into program improvements as described earlier in my testimony, others await implementation. Unfortunately, during the downturn, HUD was unable to move fast enough in making some desired changes. This is due to the circuitous route that HUD must follow to modify its regulations. Changes to many aspects of the HECM program must
Both Assistant Secretary for Housing/Federal Housing Commissioner Carol Galante, in recent testimony before this committee, and the 2012 Independent Actuarial Report on the Mortgage Mutual Insurance Fund, suggested that it would be helpful if Congress provided HUD with the authority to make such changes through the issuance of Mortgagee Letters. NRMLA urges Congress to quickly grant HUD that authority.”
NEWS FROM NRMLA
NRMLA member
In Committees A new Membership Committee has begun convening to discuss strategies for enhancing services, growing membership and retaining existing members. Member delegates from companies of all sizes are invited to participate. Volunteers need to be willing to allocate time to meet on a consistent basis, including monthly phone meetings, as well as outreach to potential new members. The committee is chaired by Sandy Tennekoon of Moneyhouse and Bob Sivori of Reverse Mortgage Funding, LLC. Any member delegate wishing to participate on the committee should email NRMLA’s Marty Bell at mbell@dworbell. com. The newly formed Public Relations Committee is finalizing an electronic survey that will help NRMLA better assess members’ communication needs and identify ways to communicate more effectively with the industry at large. The committee is distributing the survey to further understand individuals’ goals and to gauge the importance of various NRMLA programs, such as consumer education programs. “We feel this is the natural first step for the committee and are looking forward to receiving feedback,” says Chairman Jean Noble, director of marketing at Urban Financial Group. “The research will provide direction and help us build campaigns that have consensus and value to our members and the industry at large.” reversereview.com
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The Reverse Review April 2013
THE HOT SEAT
things you need to know or may have been wondering April 2013
the hot seat From her first job and her favorite movie to her thoughts about the reverse mortgage market, we get the personal and professional facts from Kimberly Smith, senior vice president of wholesale lending at AAG, in our monthly edition of The Hot Seat.
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Kimberly American Advisors Group P E R SONAL >
You can’t always believe everything you hear.
>
Something nobody knows about me is that I was a synchronized swimmer.
>
My favorite vacation was a trip I took to Nantucket.
>
My celebrity crush is Ryan Reynolds.
>
If I were a professional athlete I would be a dancer.
>
My favorite movie (this year) is Silver Linings Playbook.
>
I never miss an episode of Suits, Revenge or Scandal. I love DVR.
>
When I was younger I wanted to be a ballet dancer and a brain surgeon.
>
I can’t go without peanut butter.
>
My first job was substitute teaching.
>
My parents taught me how to never quit.
>
My iPod go-to is Flo Rida.
>
I’ve never liked chocolate.
>
The best lesson I’ve ever learned was that if something is worth doing, it is worth doing right.
>
The most memorable moment in my life was when I got married.
>
The worst purchase I’ve ever made was my first house.
>
The best purchase I’ve ever made was my current house.
>
My favorite book is any biography of a president. I am trying to read them all.
Senior vice president of wholesale lending
When I was younger I wanted to be a ballet dancer and a brain surgeon.
Professional >
People should seek a career in the reverse mortgage industry because we are poised for growth and limitless opportunity.
>
Reverse mortgage professionals can best support the public image of reverse mortgages by educating seniors accurately and treating each client as if he or she were their own grandparent.
>
The ideal characteristics of leaders in the industry are vision, intelligence and the ability to accurately and passionately represent our industry.
>
I would encourage a family member to consider a reverse mortgage because my grandma already has one and it has allowed her to age at home with dignity and grace.
I can’t go without peanut butter. reversereview.com
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The Reverse Review April 2013
ADJUST
originating A Change Will Do Us Good Jos h u a S h e in
A
cross the mortgage industry, everyone braced themselves for big change last month; the moratorium on the HECM fixed-rate Standard product took effect April 1. However, if you’ve been in this industry for any amount of time, you know that change is constant and the results are never as dire as predicted. (Remember the comp changes from Dodd-Frank or amendments to the GFE over the years?) Successful companies will adapt and embrace this change from the beginning. This is an opportunity to educate both ourselves and the greater senior community on the options and benefits of other product offerings. The moratorium on the fixed Standard came as a surprise to many, even 18
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though changes had been debated for some time. Conventional wisdom suggested that some adjustments would need to be made to the overall proceeds available to the borrower, and that tax and insurance escrow accounts and financial assessment would be the most likely outcome. The bottom line is that there is nothing that beats the security of a long-term, fixed-rate loan, which many seniors actually prefer, and we will have to use the resources offered by NRMLA and CIS (Coalition for Independent Seniors) to advocate for all products going forward, as there is a need for each and every one. It’s important to remember that the intent of these changes is to help our customers. According to the FHA, the fixed Standard has had a higher rate
According to joshua The bottom line is that there is nothing that beats the security of a long-term, fixedrate loan, which many seniors actually prefer, and we will have to use the resources offered by NRMLA and CIS (Coalition for Independent Seniors) to advocate for all products going forward, as there is a need for each and every one.
going to the source
originating
Relearning the ARM Since the fixed Standard became the most popular product in the industry, many professionals have allowed
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spotlight
( The adjustable-rate HECMs are and always have been strong products providing multiple alternatives to a borrower.
secondary market
( The HECM product has been around since 1986 and grew profitably for many years without the fixed Standard option.
The bottom line? Change will always come in this industry; that is simply a fact. Remember that the HECM product helps people and allows seniors to maintain their lifestyle as they age. Our businesses and the industry always adjust, improving and expanding with the changes of the greater housing market. Make sure your team understands this change is a positive one and understands that there are still thousands and thousands of seniors around the country we can help! x
legal
( With the fixed Saver, the borrower’s overall proceeds will be smaller, but the significantly lower mortgage insurance premium (MIP) associated with closing costs also result in major savings for the borrower.
*
appraising
( The fixed Saver, a fantastic product fit for many people, can finally grow. Make sure that you have the knowledge to fully promote this product, as it is a great option for many that would have previously chosen a fixed Standard.
Some sales professionals I have spoken to lately have rarely if ever closed an ARM HECM, as they always had the fixed Standard option available during their tenure. For many of these originators, they know only the basics of the fixed Standard and the proceeds it affords the borrower. As with any change in a product or option, the entire team, including the training, sales and marketing departments, must be coached and educated on how to adjust for this. It’s important to take advantage of the available resources to learn the ARM. Many of the large lenders are offering webinars, conference calls and training sessions with expanded discussion of the ARM products, including information on how to understand them better and how to explain them to borrowers. For many, this will be the first time speaking the language of the ARM, so they must be retrained to understand the complexities of the product. In turn, they will have to be able to explain it to our senior customers, so they must take the time to learn it in a complete manner and truly understand the options and numbers in an ARM HECM. Patience during this transition will pay off and lead to a stronger sales team and industry.
This change presents an incredible opportunity for all of us in the industry to be able to communicate the ways our products can benefit today’s senior. As we all know, the product and industry still suffer from a lack of understanding in the overall financial and professional community, with a lot of distrust and misconceptions surrounding the process. People fear losing their homes and the equity they have worked hard to build. This moratorium gives us a chance to reach out to referral sources and other contacts and “re-educate” them on the HECM and the changes that we are experiencing. Make the call or schedule the meeting, or send a letter or email to estate attorneys, financial planners, etc. Be sure you are fully knowledgeable about the product, and then work to educate these professionals. The more clearly they understand, the better it will be for you and the more it will benefit the industry as a whole. Their referrals are invaluable, and it helps to tell them about the benefits a HECM can bring to their clients. We always have the challenge of explaining and educating how the HECM makes a difference in people’s lives and truly impacts their future and senior years. Educating the doubters and naysayers is crucial for us all.
marketing
( T he fixed Standard has not been completely eliminated; this is a moratorium, which means that with some adjustments, it is possible the product will reappear in the future.
Preparing for Change
When Opportunity Knocks
underwriting
The main thing to remember is that given how small the overall penetration remains in the marketplace, there are still tens of thousands of seniors we could help. In order to keep your sales team up to speed, here are some important points to discuss internally:
the benefits of the ARM to fall into the background. Borrowers can still benefit from these products, as ARMs can provide flexibility and improve cash flow management. With the Standard ARM, the available proceeds from the loan remain at the same level as the fixed, and the Saver ARM offers the lower MIP, which lowers the cost of the loan as discussed above. For all ARM products, the option of a line of credit allows tremendous flexibility for the borrower. In addition, the monthly payment option helps the borrower manage cash flow and avoid using all of the proceeds at one time, ensuring that borrowers can age in their homes for as many years as they wish.
originating
of default, and the hope is that with this change more seniors will be able to remain in their homes and benefit from the HECM without defaulting on their loans. The reality is that this is continued fallout from the real estate and mortgage market implosion years ago. We all hope and expect that as the overall housing market continues to improve, we will see other adjustments over time.
The Reverse Review April 2013
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originating Is the elimination of the fixed-rate Standard also going to fall into that counterproductive category? Maybe not. Improvements to the stability of the MMI Fund over time will tell us the answer to that question.
Connecting with your client and really understanding what this is all about.
ed o’ c o n n o r
Fannie Mae wasn’t always wrong in the restrictions it placed on the market, but it was very narrow in its insight into the growth of the program. But keep in mind that it wasn’t Fannie’s role to take this program to the next level. That job falls squarely on the shoulders of the lenders in the space.
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spotlight
We need to play to our strengths while recognizing our weaknesses so that with every client and every deal, we get better at what we do. When talking to our borrowers, we need to accentuate the positive and explain the negative. Thorough explanations are required in order to make clients feel comfortable about the loan. In order 8
secondary market
The FHA’s mission is to prevent that from happening to us now. I do think, however, that the FHA’s reluctance to continue lender approval, the loss of mini-eagle status and the TPO changes were counterproductive to the development of the HECM marketplace, especially from a product selection and quality standpoint.
But this can sometimes be a challenge. While we all like to think we are very good at what we do, the truth is that we all have different strengths and weaknesses. Some people are great at talking but can’t grasp the technical issues. Some people are great at technology but have a harder time connecting with humans. We have salespeople and we have teachers.
legal
Historically, the FHA’s role has always been to bring certain products to the marketplace in limited form, and then have the private sector develop something similar that would not require government insurance or involvement. We saw how that worked with the subprime market, which led to 97, 100 and finally 105 percent financing. Riding on the coattails of a soaring market, it took off. And boy, did it bottom out.
To address the topic, we need to start with what every other industry calls “sales.” While our job is more about educating the client about the product than selling it, the concept is similar and the main goal is to connect with the customer.
appraising
going to the source
Fannie Mae wasn’t always wrong in the restrictions it placed on the market, but it was very narrow in its insight into the growth of the program. But keep in mind that it wasn’t Fannie’s role to take this program to the next level. That job falls squarely on the shoulders of the lenders in the space.
At last month’s NRMLA conference, I had the opportunity to participate on a panel titled “How to Present Your Customers With the New Product Mix.” This is a topic I am frequently asked about, especially lately, and the crowd appeared eager to participate.
marketing
I
ngenuity, they say, is the mother of invention. We need some of that now. This industry needs people to think outside of the proverbial box about how our product can become better and, in turn, how those ideas can help the industry. As large companies departed from this space, some very innovative people stepped aside. Now, we need to rejuvenate ourselves. Our industry grew because there were some astute financial people who developed variances to our core product that allowed for growth and attracted investors. That was a good thing. There were also people who manipulated the products to their advantage, causing trepidation in the markets to the point that HUD has pulled a key product away from the consumer. That was a bad thing. Was HUD correct in doing so? From the simple, single standpoint of saving the reverse mortgage program, the answer is a very clear-cut yes, for now. But we’ll see how that unfolds. In the meantime, let’s get ideas—financially prudent, investable ideas—back into the marketplace.
underwriting
Ingenuity
*
originating
Now we need to think! Here’s a starter: How do you get an elephant into a refrigerator? (The answer comes later.)
The Reverse Review April 2013
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originating to ensure that they will be satisfied with their decisions, we need to build trust. I don’t consider myself a salesperson; I try to “sell” by educating my clients and building on that level of trust by keeping them constantly up-to-date and informed. Training, research and testing is incredibly important.
appraising
But what happens when the company a loan officer has worked for goes out of business and they have been trained solely by that company? Do they have the requisite experience to continue?
marketing
A lot of people think the reverse industry is headed for a downfall now that it has lost the big players and the fixed rate is gone. But honestly, it’s still a great industry and new ideas from innovative people can and will make it stronger and better. And about that elephant? Just open the door and put him inside. I didn’t say how small the elephant was, or how big the refrigerator was. It’s pretty simple! Now go forward (no pun intended) and think! x
underwriting
Nowadays, a HECM has many shades, and it’s important to stay on top of the details. So how do you enhance your product knowledge? Is it the number of loans you do? Is it the training you get from the company you work for? Is it from the ancillary companies we partner with and the training they can provide? Certainly, all of these factors are a part of the bigger picture.
*
originating
Speaking of important, how many people out there know what a HECM is? No, I am not talking about the definition of a reverse mortgage. I am talking about the actual product itself. We talk about the products—the L200, L300, Standard, Saver—to clients like we are talking about the weather. If you don’t think it’s confusing, try pretending that you are 84 years old and never had any kind of mortgage. Recently, the son of my client, a financial professional who was acting under power of attorney, mixed up what I was saying about the Standard versus the Saver—and that’s after I had outlined it in writing. We had to adjourn the closing for a new date.
How do you adapt to the changes from company to company, wholesaler to wholesaler? These situations highlight how important it is to manage your own product training and education. Our conferences are a great place for training, and reverse professionals can also brush up on product knowledge by reading this magazine and utilizing various online resources. It’s important to try to take advantage of all of these resources so that you can provide the best service for every client.
The point is, even professionals with extensive finance backgrounds can be confused about the nuances of the product. When I did my first reverse mortgage back in 1998, we had one lender and one product: a HECM. That’s it. No options, no yield spread premium, an extremely minimal service release premium, no principal limit protection and certainly no fixed rate. A HECM was a HECM was a HECM.
legal secondary market spotlight
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The Reverse Review April 2013
originating
One-to-One Customer Service Is the Reverse Mortgage Niche Gre g Sa ffe r
g t oin so o th g ur e ce
Most reverse mortgage borrowers are not technologically advanced. Therefore, in order to provide the best, most personalized service, in-person meetings can keep the mechanics of the process simple. Tailoring your marketing to local clients can move the loan along smoothly from the beginning.
T
he philosophy that oldfashioned, face-to-face meetings can still work is essential to the success of the reverse mortgage product. Technological advances have made the world less about the individual and more about the machine, and friendly interaction has become less important than the bottom line, leaving a large section of the population out of touch and underserved. When it comes to a reverse mortgage transaction, marketing locally and meeting a client in person in order to personally assess the condition of a property can give the savvy originator the upper hand. Marketing Locally It is essential for an originator to concentrate marketing within a reasonable distance from his or her location in order to facilitate one-onone customer contact. Keeping the
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client close is reminiscent of the days when doctors made house calls. The reverse mortgage product requires this same personal touch to ensure that your senior borrower is well educated about the product, and if the borrower and originator are close in proximity, the loan’s closing time can be reduced and the transaction will be more profitable. Most reverse mortgage borrowers are not technologically advanced. Therefore, in order to provide the best, most personalized service, in-person meetings can keep the mechanics of the process simple. Tailoring your marketing to local clients can move the loan along smoothly from the beginning. Face-to-Face With the Senior By meeting with a senior borrower in person, a loan originator builds trust. Personal contact can help senior clients feel confident that the
originator is working for their benefit. The education process of a reverse loan can be tedious, but the more effort spent in explanation, education and communication can help the client make the right decision for his or her golden years. During this meeting, clients should complete a detailed income-to-expense worksheet with the guidance of their reverse professional. This can be an eye-opening experience, as it is not uncommon for clients to be unaware of exactly where their money is going. The opportunity to sit at the client’s kitchen table and show them the reality of their expenses today can be an important step in closing the loan. I’ve also found that it can be helpful to involve other family members in the process so that everyone is aware of the current situation. This way, those who will be affected by the process are informed and educated,
originating “The opportunity to sit at the client’s kitchen table and show them the reality of their expenses today can be an important step in closing the loan. I’ve also found that it can be helpful to involve other family members in the process so that everyone is aware of the current situation. This way, those who will be affected by the process are informed and educated, and any questions or concerns can be addressed head on.
The Benefits of Seeing the Property Firsthand
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marketing
Thanks to technology, changes are happening to the reverse mortgage product and the procedures involved in the loan transaction. Regardless, a large percentage of the population still appreciates the personal touch of a face-to-face meeting and this is a simple thing a reverse mortgage professional can do despite any adjustments to the program. Many
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Not only does an originator who meets clients in person have the ability to build a stronger connection, he or she can also take the opportunity to assess the client’s property firsthand before an FHA appraiser gets involved. This could potentially save time and money because the originator can determine what requirements need to be met prior to the appraisal inspection, ensuring, for example, that working smoke alarms and carbon monoxide detectors are already in place and
possibly saving the appraiser from having to return to the property for a second inspection. Efficient closings benefit all parties involved in the transaction and seeing the condition of the property early in the game can save time and money at the end.
Happy senior clients can be loyal referral sources for those who genuinely work hard on their behalf, and building relationships one at a time can be profitable if you are persistent. Creating and nourishing this reverse mortgage niche may not be advantageous on a large scale, but it can be a profitable model that can boost your business while also providing a valuable service to a portion of the population that is sometimes overlooked. The mechanics of this practice may change as the reverse mortgage product changes, but the foundation will remain the same. Meeting a senior face-to-face will still be effective, educational and profitable for the dedicated reverse professional. x
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and any questions or concerns can be addressed head on.
seniors are not comfortable with change, and if an originator can put them at ease and educate them about the product, they have a better chance of winning them over and closing the loan.
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The Reverse Review April 2013
learn
Underwriting The Process of Verifying Occupancy B r i tan y Lu th
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ll reverse mortgage loan officers know that the borrower is required to live in the home as his or her primary residence. But those who also understand what steps are taken to confirm borrower occupancy are at an advantage. When you and your customers know what’s expected, you can anticipate and address any potential red flags before loan files are delivered to underwriting. Using this knowledge can help you streamline the loan process and ensure a positive experience for your customers. It can also reduce the risk of borrower default and may even help you close more loans. The Principal Residency Status Requirement The Code of Federal Regulations (24 C.F.R. 206.39) requires that HECM borrowers live in the property that secures their loan as their principal residence—defined as “the dwelling where the mortgagor maintains his or her permanent place of abode and typically spends the majority of the 26
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calendar year. A person may have only one principal residence at any one time.” The lender is required to document that the property is the borrower’s primary residence, and must include all documentation in the binder for HUD endorsement. The Review Process Once a reverse mortgage application is received, the underwriter will review all normal file documents to determine if there’s a question of occupancy. Indicators of occupancy can include: *H ow long the borrower has lived in the property as the primary residence *W hen the borrower acquired title to the property and who else is vested on the title *W hat mailing address is listed for the borrower throughout the file *W hat phone records exist for the property and any other real estate owned *W hat property tax records, including homestead and other county exemptions, are currently in place
* What is included on the listing or sales history of the property * What address is on the borrower’s driver’s license or other forms of identification * What current and former addresses are listed on the credit report * What other mortgages are reported on the credit report * What is indicated by the appraisal photos If after reviewing these documents there’s a question of occupancy, the underwriter may request explanations from the borrower, as well as additional supporting documentation that will be sent to HUD. This may include: * Utility bills for the property, such as electricity, gas, water, etc. * Other billing statements, such as cellphone, credit cards, etc. * Filed income tax returns * Occupancy inspection
underwriting The underwriter is ultimately responsible for performing a due diligence review of the loan and documenting to HUD that the borrowers occupy or intend to occupy the subject property. Failure to do so will result in the loan being uninsurable, or HUD requiring future indemnification of the loan.
Tips for Loan Officers
During the life of the loan, the reverse mortgage servicer will monitor occupancy. Once per year, the servicer will send a letter to the borrower’s home, which the homeowner must sign and return to confirm they’re living at the property. If the signed letter isn’t returned, and the servicer cannot reach the borrower by mail or by follow-up phone calls, an occupancy inspector will be sent to the borrower’s residence. If it’s found that the borrowers are not living in the property, the servicer may put the loan into default status and begin foreclosure proceedings.
( Explain the occupancy requirement to the
HUD Requirements for Failing to Comply
other residences, and if so, how those residences are used.
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( Ask if they have any
spotlight
The underwriter is ultimately responsible for performing a due diligence review of the loan and documenting to HUD that the borrowers occupy or intend to occupy the subject property. Failure to do so will result in the loan being uninsurable, or HUD requiring future indemnification of the loan. Fortunately, there are some steps that you as the loan officer can take before applications are submitted to help prevent delays in the loan process and avoid uninsurable loans. See the sidebar to the right for tips.
borrowers and ask them up-front if they live in the property full time (or, in the case of HECM for Purchase, if they plan to live in the new home as their primary residence). Make sure they understand that the loan must be repaid once all borrowers on title vacate the home.
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After a HECM for Purchase loan closes, the lender must certify to the FHA that the borrowers have moved into the property within this timeframe. Some lenders, including Urban Financial Group, perform occupancy inspections after closing to verify that the borrower is living in the home before the file is sent to HUD for
Post-Closing Occupancy Considerations
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The HECM for Purchase program requires that the borrower occupy the property within 60 days after closing. Since the buyers will not move into the property until after the loan is closed, none of the aforementioned documentation will be available. Therefore, the underwriter must use other research methods to confirm that the borrower will move into the property after closing. This may include determining the borrower’s reasons for moving, how many other properties the borrower owns and any businesses the borrower runs that may be far away from the new property. The underwriter must be reasonably assured that the home will become the borrower’s principal residence within 60 days of closing.
If the borrower has not moved into the property within 60 days of closing, the lender cannot submit the file to HUD for insurance. At that point, the lender must work with the borrower to get them to move into the property, or begin default proceedings when all attempts to rectify the situation have been exhausted.
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HECM for Purchase
insurance.
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The underwriter will also perform his or her own research through various third-party systems that provide confidence levels and predictive indicators to assist in confirming owner occupancy. This research is used in conjunction with all other documentation to create a more complete picture of the potential situation and minimize the likelihood of closing on a non-owner-occupied property. It is important to note that documentation is key and even if the borrower has a great story to justify any anomalies, actual documentation must be present and verifiable in order to move the loan forward.
( If their mail is sent to another address, find out what that address is used for. ( Provide a letter of explanation in the file to explain any circumstances that may raise questions about the borrower’s occupancy status. x reversereview.com
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The Reverse Review
MITIGATE RISK
April 2013
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© 2013 Landmark Network, Inc. All rights reserved.
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marketing Social Media in the Reverse Mortgage Industry: Who Benefits the Most? Sea m u s M c Ke o n
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spotlight
It’s hard to determine exactly who benefits most from social media use in the reverse mortgage industry. When you look at all of the individual parts, identifying the most value from social media is hard to pin down. But when you back up, zoom out and look at the industry as a whole, it doesn’t matter whether you’re a loan officer, a borrower, an appraiser or even a company blogger, the person social media benefits the most in this market is you. So what are you looking to get out of it today? Why not tweet about it? We will. x
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Borrowers are people. They want information and they want it accurately and instantly. Companies are made of people, and they have a message. These institutions want to get their messages out in real time
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So who within the reverse mortgage industry utilizes and benefits from social media? Is it loan originators? Appraisers? Borrowers? Lenders? The answer depends on how one defines “benefits” and the scope of the industry itself.
Similarly, borrowers have the ability to narrow down their decisions on lenders based not only on the sweetest deal, but also a growing sense of familiarity and trust with the different companies that are reaching out to them via social media. The recommendations of friends are now much more easily accessible, and your cousin’s best friend’s word often means a little more than the promises of a loan officer with a large advertising budget.
With the advent of individualized marketing, companies can design and deliver advertising campaigns directly to the browsers of people already engaging in similar services or topics their companies address.
Blogs can provide content that readers are looking for, and most of this content can be disseminated piecemeal as users share the information most pertinent to them. This can push information around and around, potentially influencing industry thought as more people view it. By utilizing social media sites like Facebook, Twitter or even traditional blogs, you can weave a web of information, creating familiarity between reverse mortgage providers, potential borrowers and even the family members who influence potential borrowers. Familiarity with any source of information breeds trust, and this sense of connection can be essential to generating business.
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The mortgage industry is huge. It’s large enough to have had its very own financial crisis that became the most centrally discussed issue in America for a number of years. It acted as a linchpin of the economy at a time when the economy outweighed almost every other concern for most Americans during a pivotal presidential election. The reverse mortgage industry is, naturally, a smaller slice of that pie. It caters to the needs of a portion of Americans who are unlikely to utilize the Internet, and thus social media, although that number is certainly growing.
to as broad a segment of the population as possible, and specifically to those looking for information about services they provide. With the advent of individualized marketing, companies can design and deliver advertising campaigns directly to the browsers of people already engaging in similar services or topics their companies address. If you read a blog about reverse mortgages, your browser’s cookies will likely be accessed by companies like Google that will then tack on advertisements for reverse mortgages to your future search results. Lenders are now able to zero in on a market of people who are already actively looking for their services. That’s a pretty big bonus.
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ocial media is all the buzz in the advertising and marketing worlds, and nowhere is this talked about more than on social media itself. Facebook is one of the fastest growing companies; Twitter has played a vital role in revolutions both successful and unsuccessful; and Google+, well, they made pretty nifty commercials for a little while. But what place does social media have in the reverse mortgage industry?
The Reverse Review April 2013
Announcing Generation Mortgage Company’s Broker Processing Services!
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What are the advantages to using GMC’s Broker Processing Services? • Allows you to focus on originating loans and acquiring new business • Work with designated and experienced reverse mortgage processor • Low Cost - $550 charged only on FUNDED loans • Secure, user-friendly system allows you to check for updates regularly • Processor is available to answer lender specific questions, status updates, review loan scenarios and provide feedback
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NMLS #1319. © 2013 Generation Mortgage Company. All Rights Reserved. For state(s) legalese, visit www.generatiomortgage.com/statelegalese. 30 | TRR Services not available in all states.
marketing
The Key to Effective Reverse Mortgage Advertising
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People are really only interested in what a product will do for them and how it will make their lives better, happier or more complete. Remember, it’s not about the product or service itself (a reverse mortgage, in this case), it’s about the benefit it could bring people. With this in mind, a marketing campaign should always highlight the positive end result. You want to create a mental image in the minds of consumers that enables them to envision themselves enjoying the result of your product or service.
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It is an axiom in the advertising industry that “the more you tell, the more you sell.” However, the specific words you use and the way they are delivered are a crucial component. It’s important to remember that human beings are biologically programmed with primary desires, including the enjoyment of life. Targeted marketing with this in mind allows you to tap into the very essence of human nature.
Senior consumers are very discerning buyers. An effective way to get past their automatic defense system is to pair the benefits they will receive with easy-to-understand information. An effective marketing campaign should give the consumer more information than can be contained in a 30-second sound byte; it should really educate the potential buyer. Through various marketing campaigns, we have found this to be particularly effective when it comes to big-ticket items. This is especially important considering a senior’s home is often their single largest asset, and that the terms surrounding a reverse mortgage loan can be complex and confusing. A properly educated consumer is a superior prospect, and evidence of this effort to educate also helps lenders and third-party originators navigate compliance issues, which significantly reduces the time, effort and costs associated with originating reverse mortgages.
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One of the keys in advertising is realizing that truly effective marketing is in getting people to act—and act now! The cleverest ad campaign is essentially worthless if it doesn’t prompt people to buy.
Beating the Automatic Defense System
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The Key
“People buy because of emotion and justify with logic. Force an emotional response by touching on a basic want or need.” -Young & Rubicam
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or more than 20 years I have been creating marketing campaigns in several industries that, fortunately, have been very successful. Our company is currently focused on the reverse mortgage industry and the massive potential that 79 million baby boomers bring. The intent of my article is to provide you with marketing ideas that have proved effective and are easy to implement. I hope I can offer you some insight into how you can achieve better results from your advertising efforts.
It is important that all of us in the reverse mortgage business make an effort to thoroughly educate senior consumers as it will not only help advance the product but promote a positive image of our industry. In conclusion, the key for generating solid leads is a definitive, multifaceted marketing program that clearly demonstrates the benefits of reverse mortgages and provides comprehensible information about the product in order to educate potential buyers. To quote an old Chinese proverb, “The beginning of a journey starts with the first step.” x reversereview.com
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The Reverse Review April 2013
value
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Apples to Apples
includes a walkout or is located mostly above grade. In November 2003 the American National Standard Institute (ANSI) published a 16-page document that provides even more guidance regarding the method for calculating GLA. This document, known by many in the industry as the ANSI Standard, can be purchased and downloaded for $10 at homeinnovation.com/about/ bookstore.
Bill Wa lt e n baug h
I
am sure everyone has heard the phrases “apples to apples” and “apples and oranges.” These are idioms used to describe similarities or differences. When it comes to valuing real estate, it’s essential that apple-toapple comparisons be made. For this reason, a significant amount of effort is put toward defining and describing the square footage of a property. Gross living area (GLA) is the calculation used when appraising single-family residential property. This shouldn’t be confused with gross building area (GBA), used for two- to four-family structures and commercial properties. To be clear, GLA is the topic that is covered in this article. 3 Per the Appraisal Institute Dictionary of Real Estate Appraisal, GLA is the total area of finished, abovegrade residential space, excluding unheated areas such as porches and balconies. 3H UD expands on this definition with the following: “Gross Living 32
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Area (GLA) is the total area of finished, above-grade residential space. It is calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space. Finished basements and unfinished attic areas are not included in total gross living area. The appraiser must match the measurement techniques used for the subject to the comparable sales. It is important to apply this measurement technique and report the building dimensions consistently because failure to do so can impair the quality of the appraisal report.” 3 The Fannie Mae Selling Guide goes even further, stating, “A level is considered below-grade if any portion of it is below-grade— regardless of the quality of its finish or the window area of any room.” In short, to be counted as part of the GLA, the finished space needs to be heated and located entirely above grade. It doesn’t matter if the area
Finished lower-level space may, however, add significant value to a property. These areas, often finished with the same quality as abovegrade rooms, can add notable utility. This below-grade area needs to be calculated and adjusted for separately from the GLA. The main reason for the differentiation has to do with the potential for an inconsistency in quality in these areas. For example, two homes constructed by the same builder may be identical in their above-grade quality, but the finish in the basement can differ significantly. After purchase, one owner may have this area finished by professionals with high-quality materials, whereas the other is finished with less skilled labor using lower-quality materials. Although the homes are very similar above grade, it is not an accurate comparison if the lower levels of these homes are included in the GLA and adjusted at the same rate. Separating this area from the above-grade square footage makes it easier to account for these differences. Like anything else in valuation, there are always exceptions to the rule. For example, a berm-style or underground home can’t be reported as zero rooms, zero bedrooms and zero bathrooms with a GLA of zero. I’ve also seen homes with only a small area above grade. An A-frame design that is mostly below grade with only a small loft area above grade can’t accurately be compared to the market if the GLA
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going to the source
legal
7 Reverse Leads
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At the end of the day, consistency is the best policy. Whichever method or calculation used, it is most important to ensure an apples-to-apples comparison is made. x
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Similar concerns can arise with properties that have accessory dwelling units (ADUs). Unless all of the comparable
properties also have ADUs, comparing similar-sized properties—one without an ADU and one that includes the square footage of an ADU in its GLA—can be misleading. In other words, the primary living areas of these properties are going to be much larger than the primary living area of the properties with the ADU. In these cases, it is better to exclude the ADU square footage from the GLA and adjust for it separately like any other accessory, such as an outbuilding or pool.
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“Appraisers may deviate from this approach if the style of the subject property or any of the comparables does not lend itself to such comparisons. However, in such instances, the appraiser must explain the reason for the deviation and clearly describe the comparisons that were made.” Another challenge when determining GLA has to do with large enclosed areas that are finished and heated but are limited in overall utility with respect to market expectations. For example, enclosed areas that house in-ground pools can, in some cases, double the size of a property. However, it isn’t accurate to compare a home with 1,000 square feet
of traditional living area and 1,000 square feet of enclosed pool area with a home that has 2,000 square feet of traditional living area. The latter would have a larger kitchen, larger living room, larger bedrooms and may even have additional rooms, such as a family room. This type of home attracts a different market segment and is not a good representation of the typical buyer of the home with the enclosed pool. In this case, it is better to exclude the square footage of the enclosed pool, find comparable properties that are similar to the traditional GLA and make separate adjustments for the added value of the enclosed pool area.
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In short, to be counted as part of the GLA, the finished space needs to be heated and located entirely above grade. It doesn’t matter if the area includes a walkout or is located mostly above grade.
reported is the small loft area. As such, Fannie Mae provides the following guidance for these unique circumstances:
Exceptionally qualified reverse mortgage leads
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pply! u S d e it im L e at: Call NOW or visit
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reversereview.com
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The Reverse Review April 2013
protect
legal Power of Attorney Fraud
Al e x a n d e r J . C ha udhry
A
s the HECM program becomes more popular, public reports of financial crimes against seniors who have access to greater funds as a result of the loan are now more prevalent. The FBI, HUD and state attorneys general are keenly aware that dishonest actors are exploiting HECMs to defraud senior citizens. A common scheme recognized by law enforcement is the financial abuse of a senior by a family member holding a power of attorney (POA). This article suggests ways that reverse mortgage professionals can help prevent such egregious abuse. Quality reverse professionals always have their senior clients’ best interests in mind when helping them decide if a reverse mortgage is the right choice. However, the substantial cash proceeds that can result from the loan can leave room for fraudulent activities. When senior citizens are exploited, it is not dishonest loan officers or mortgage companies that are the greatest threat. Rather, children, siblings, grandchildren or 34
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other family members are most likely to take advantage of senior borrowers. According to the National Center on Elder Abuse, as many as 5 million senior citizens are taken advantage of each year. Sadly, 60.4 percent of all perpetrators of financial elder abuse are adult children. Understanding POA The benefits of a power of attorney are well known, but the risks associated with this legal transaction are often overlooked. Power of attorney abuse is the misuse by the agent of the authority granted by the principal. This means that the agent is making a decision or taking an action that is not in the principal’s best interest. Often, power of attorney fraud occurs when an agent spends the principal’s money to benefit the agent rather than the principal. Similar to the relationship between a professional athlete and a sports agent, every agent with power of attorney has a legal duty to act as a fiduciary for the principal. Courts have explained
the fiduciary relationship to mean that the agent must act in the utmost good faith and with undivided loyalty toward the principal, and must act in accordance with the highest principles of morality, fidelity and fair dealing. In matters connected to the agent, the agent must serve only the principal; the agent cannot act for his or herself or in the interests of others. Consistent with this legal duty, an agent must not make a gift to himself or to a third party of any money or property that is the subject of the agency relationship, unless specifically authorized to do so under the power of attorney. An agent who violates this duty may have committed one or more crimes, including exploitation, embezzlement, fraud, larceny and theft, and may also be civilly liable for damages. When POAs Are Part of a Reverse Transaction Although the common law automatically imposes a fiduciary duty on every agent, most power of attorney documents do not explicitly specify this duty in the document.
legal When it becomes clear that a power of attorney will be used in a reverse mortgage transaction, there should be a discussion with the agent about the duty owed to the principal, a review of the power of attorney document, and written instructions provided to the agent explaining his or her responsibilities, powers and limitations.
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The “agent” or “attorney-in-fact” is the person who acts on behalf of the principal through the power of attorney document. Sometimes this person will be a spouse or family member.
A “durable power of attorney” is a POA that remains valid even if the principal becomes incompetent.
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spotlight
ing ord acc Alex to
The “principal” is the person who authorizes another person to act on his or her behalf through a power of attorney document. Generally, this will be the senior borrower in a HECM transaction.
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terminology you should know A “power of attorney” is a legal document through which the principal authorizes an agent to act on behalf of the principal. The agent’s authority terminates when the principal becomes incompetent.
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Steps such as these help reverse mortgage professionals create both documentary and testimonial evidence that can be used if there is a criminal or civil proceeding to demonstrate that the agent knew his or her conduct was unauthorized. If the agent commits abuse, the testimony about
Reverse mortgage professionals provide senior clients with the ability to tap into their home equity through a HECM. In some situations, it is necessary to complete the transaction through a power of attorney because of the client’s failing health. By understanding the risks involved in using a power of attorney and by taking appropriate action, reverse mortgage professionals can help prevent the financial abuse of their elderly clients, assist in the civil or criminal prosecutions of the abusers, and help insulate themselves and their companies from potential liability. x
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The loan file should contain notes documenting the purpose of the reverse mortgage transaction and detailing exactly what the loan proceeds will be used for. The file should clearly indicate that the purpose of the loan is to benefit the borrower and that the loan proceeds will only be used for this purpose. Often, the agent will be a family member who lives with or cares for the senior borrower; take caution to explicitly state that the loan proceeds cannot be used for the agent’s benefit despite this arrangement.
the power of attorney discussion and a copy of the confirming letter and related documents will be compelling evidence against the agent in any civil or criminal case. Moreover, this type of evidence will help protect the reverse mortgage professional from allegations that he or she had notice that the agent would misappropriate the funds or that the agent would breach the fiduciary duty and defraud the senior borrower.
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When it becomes clear that a power of attorney will be used in a reverse mortgage transaction, there should be a discussion with the agent about the duty owed to the principal, a review of the power of attorney document, and written instructions provided to the agent explaining his or her responsibilities, powers and limitations. This discussion should be confirmed in a letter to the agent summarizing the conversation. If the power of attorney identifies an alternate or successor agent, a copy
of the letter can also be sent to this individual to give notice that the power of attorney will be used for a reverse mortgage transaction on behalf of the principal.
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Agents can sometimes be unaware that they may not use the principal’s money or property for their own benefit. In a reverse mortgage transaction, this means that the agent is not permitted to use loan proceeds to benefit his or herself. Reverse mortgage professionals can reduce the risk that an agent will abuse a power of attorney by explaining and educating the agent about his or her responsibilities and limitations as power of attorney. An agent who knows the rules is more apt to play by them.
The Reverse Review April 2013
legal
The Importance of Vendor Management Ch ri s t o p h e r J . W i l l i s a nd M er ce de s K e lle y Tu n s tall
process your company will follow in managing the relationship with the vendor. Due Diligence Your company should ask thorough questions and know enough about the vendor to confirm that it is able to meet all regulatory requirements that apply to the products or services being provided and that it has the processes and procedures necessary to continue to meet those requirements. The due diligence process starts by looking at the products or services being provided by the vendor and determining what laws, regulations and company policies and procedures apply. For example, if a vendor is managing customer information on your behalf, then that vendor is subject to the Gramm-Leach-Bliley Act and its implementing regulations, including its data security provisions. Once you have identified applicable law, provide to the vendor your policies and procedures related to such applicable law and ask the following questions:
A
crucial element of managing any mortgage business is ensuring the stability and management of your vendors. The foreclosure crisis demonstrated to regulators that lack of sufficient vendor management by mortgage companies was a sizable contributing factor of the crisis. As a result, regulators have provided more guidance on proper vendor management activities and have indicated that supervision examinations will spend a significant amount of time reviewing each company’s vendor management processes and procedures. This article provides practical advice on how to meet regulatory expectations in choosing, vetting, contracting with and managing your vendors. To RFP or Not to RFP There is a significant regulatory upside to putting requests for proposals (RFPs) on services needed by your company out for bid. When looking at vendor selection through the regulatory lens, having written responses from prospective vendors is excellent documentation of the expectations of both parties from the start. In this case, it is crucial that the RFP ask the kinds of due diligence questions discussed below. In an RFP response, the answers to these questions may not provide sufficient detail for due diligence, but will provide enough detail for your company to better select a vendor that has practices in keeping with regulatory requirements. Even if there is no RFP, it can be helpful to gauge the ability of the vendor to meet the regulatory requirements of your company by having them complete a questionnaire, or (at the very least) having them review a document explaining the due diligence 36
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. What policies and procedures does the vendor have in place regarding applicable law? .. Has the vendor reviewed your company’s policies and procedures regarding applicable law and can it confirm that it is able to comply? ... What systems will the vendor use to provide products and services? .... Will vendor employees ever interact with your company’s systems, visit your company’s facilities for work purposes or receive your customer information? If so, are the vendor’s employment and hiring policies consistent with your company’s policies? Once you have received responses to these questions from your vendor, it is up to you to implement the
legal
going to the source
appropriate controls and oversight to manage the vendor and any weaknesses the due diligence may have revealed. It is also important to make sure that you build in contractual protection. The Contract: Compliance and Contingency Planning
..... A mechanism for complaints received by the service provider to be communicated to the other party, either individually (in the case of certain types of complaints) or in the aggregate (to allow the detection of any trends in the complaints, a potential warning sign of underlying compliance issues) Contractual relationships come to an end, sometimes because of a conflict between the
Conclusion In today’s regulatory environment, managing vendors is a crucial part of your success in the mortgage business. Being able to demonstrate your company’s commitment to managing vendors through a strong due diligence process, solid contracting, and continuing and consistent auditing and oversight will mean easier examinations and interactions with regulators. x
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spotlight
.... A requirement that the service provider give prompt notice of the occurrence of certain compliance-related events, such as governmental investigations, litigation, or a disciplinary proceeding against it
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secondary market
... “Enforceable consequences” for a compliance violation that is not appropriately remedied, such as the right to terminate the contract and/or be indemnified for the consequences of the violation
A sound contract is a necessary element to successful vendor oversight, but it must be followed by an audit and oversight function that is tailored to the risks of the particular service provider. An audit should test any consumer interactions for compliance problems, and should also assess the functioning of the service provider’s own quality control and self-monitoring processes. In this regard, service providers that pose higher compliance risks should receive more attention than lower-risk vendors. Collection-related vendors are likely to receive an especially high degree of scrutiny from the CFPB and other regulators, and so audit processes covering those service providers must be especially robust.
legal
.. A term allowing for audits of the service provider’s operations, including on-site, document and system access
Walking the Talk: The Audit Process
appraising
. A requirement that the service provider must maintain the appropriate licenses and provide evidence of the currency of its licenses to operate
marketing
From a compliance standpoint, the contract must go well beyond a simple requirement for the service provider to obey any applicable laws. Depending on the nature of the service being provided, the contract should contain the following provisions:
underwriting
When looking at vendor selection through the regulatory lens, having written responses from prospective vendors is excellent documentation of the expectations of both parties from the start. In this case, it is crucial that the RFP ask the kinds of due diligence questions discussed below. In an RFP response, the answers to these questions may not provide sufficient detail for due diligence, but will provide enough detail for your company to better select a vendor that has practices in keeping with regulatory requirements.
First, the contract must contain certain compliance-oriented provisions that the CFPB and other regulators will look for. But just as important are the provisions that will come into play in the event of a break-up in the relationship with a service provider, especially for compliance-related reasons.
originating
After the due diligence process, the next critical task in vendor management is the contract. Here, there are two important considerations:
parties. When a parting of ways comes about because the service provider is suspected of committing a compliance violation of some sort, it can create an uncomfortable position for the other party, which can be caught between threats of litigation from the service provider and the reality that defending against those claims could create a public record of violations that may impact both parties. Several forward mortgage servicers and GSEs learned this lesson when a number of foreclosure law firms in Florida became the subject of governmental investigations. When the servicers and GSEs terminated the law firms, litigation over allegedly unpaid legal fees ensued. That litigation could have been prevented, or the risks associated with it substantially lessened, by contracts with appropriate provisions to allocate the risks arising in a compliance-related termination of the relationship. So, although the regulators are giving a great deal of attention to contract provisions designed to promote compliance, it remains just as important for parties to plan for what happens if the relationship ends because of compliance issues.
The Reverse Review April 2013
The Industry is Evolving and So Are We No matter how the industry evolves, Liberty Home Equity Solutions, Inc. is deeply rooted in the values that our company was founded upon nearly a decade ago. We have helped change the lives of over 25,000 senior clients, supported the growth of over 1,000 business partners, and grown to be one of the leading lenders of Home Equity Conversion Mortgages in the U.S. Throughout the years, we have been committed to: • Building better futures for seniors, business partners, and associates • Delivering exceptional customer service with integrity, personal care, and value • Making a difference in the lives of our clients
Let us help you reach your financial goals.
© 2013 Liberty Home Equity Solutions, Inc. 10951 White Rock Road, Suite 200, Rancho Cordova, CA 95670. NMLS # 3313, (800) 218-1415. For a complete list of licenses, visit www.LibertyHomeEquity.com Formerly Genworth Financial Home Equity Access, Inc.
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You Deserve Life, and the Pursuit of...
,
marketing underwriting
...new ways to grow.
originating
...a company that cares.
appraising tech legal
*
legislative
...financial independence.
secondary market spotlight
To learn about LIBERTY, visit our new company sites: www.LibertyHomeEquity.com www.LibertyHomeEquity.com/partner
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The Reverse Review April 2013
Your direct path to growth in the
Reverse Mortgage market.
s s s
Wholesale Lending Correspondent Lending Aggregation Partnering
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RMsnAv.com
secondary market
Refocus Ma r k Ac c h io n e
I don’t expect demand for HECM paper to slow as we change direction toward ARMs. The forward MBS market is so oversaturated these days that lower volume bond investors are putting much more focus on the niche product. Today’s investors put more attention on products that are within reach. Maintaining the volumes needed to satisfy that demand will become more important in the coming months.
marketing appraising legal
&
re.fo.cus verb
*
secondary market
to change the emphasis or direction of the volumes needed to satisfy that demand will become more important in the coming months. Fixed or ARM, smart investors love the HECM story and demand will always be present. The level of demand, on the other hand, will be impacted by the supply originators have to offer the Street. A fundamental shift to the Standard ARM and Saver products will reduce overall supply by volume. Furthermore, HECM originations have been on the decline, by count, since 2008. Both variables could spark frustration in the market that could impact premiums paid for production. However, as Albert Einstein said, “In the middle of difficulty lies opportunity.” The potential for growth is off the charts, penetration levels are still extraordinarily low, available equity is on the rise, and above all, the demographic of folks turning 62 heading into the next decade is astounding! Pair all of that with a sustainable product that has broader support from Congress, HUD, the industry and the consumer and you have the recipe for the ultimate success. I look forward to being a part of it. x reversereview.com
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spotlight
I don’t expect demand for HECM paper to slow as we change direction toward ARMs. The forward MBS market is so oversaturated these days that lower volume bond investors are putting much more focus on the niche product. Today’s investors put more attention on products that are within reach. Maintaining
According to mark
underwriting
Aside from a few brief moments following Bank of America’s exit, liquidity for the fixed product has grown to a point where the demand exceeds the supply. A similar trend is currently building in the ARM market. In the past couple of months my desk has been flooded by inquiries for paper from various dealers. What’s interesting is that the increasing axe for ARMs began before HUD announced its intent to consolidate the fixedrate Standard product. Back-end premiums for the prevailing Standard ARM margin have crept up significantly over the past six months with the fixed Saver following suit. The timing couldn’t be better for an industry that is refocusing its efforts back to the ARM market.
Want to see more stories like this? Visit reversereview.com.
originating
I
n March 2008 our industry changed direction fundamentally with the announcement of the fixed-rate HECM. Other than a shift in the ARM index from CMT to LIBOR, it was the first material alternative we were given to offer our clients. The product started off slowly as the few lenders that adopted the product early on kept initial rates well above the PLF floor. This was expected as it is difficult to price a new product with little, or in this case absolutely no, historical performance data. In mid-2009 the fixed product quickly gained traction. Investors became more comfortable with the compiling performance data and before we knew it, the fixed product constituted 70 percent of all endorsements, a trend that continues today.
HMBS
The Reverse Review April 2013
spotlight article april
Why are reverse professionals hesitant to pursue financial planners?
on editi
anything new. Just think about the penguin that dives first into dark, deep, frigid waters, not knowing what dangers may await him. No wonder many of us are on the sidelines, content to watch others take that first plunge into the financial planning community. We understand our own hesitation, yet may not empathize with a similar reluctance on the part of financial advisors. We know that there is a growing body of evidence suggesting that the housing asset provides a credible buffer to early portfolio depletion in the retirement distribution phase. Yet time and again, we leave a meeting with a financial planner whose interest has been piqued without a referral for a HECM Saver line of credit to help his clients ride out volatility troughs. We can be discouraged when financial planners do not act on the growing evidence that home equity can enhance their retirement distribution planning. First, let’s take a look at what work has been done to prove that housing wealth conveys portfolio protection.
Change Is Good. You Go First. By Shelley Giordano
I
n our collective quest to reinvent the HECM market, we must dig deep within ourselves to find the courage to try something new. We know it is crucial that we reach the clientele traditionally not served by our industry. We agree that change is necessary to ensure a sustainable HECM program. Yet new referral partners, new studies, new vocabulary and new client needs all require us to amend our established routine. This change can be very difficult to undertake even though the desire is there. Why the reluctance to make the change? In particular, why is there a hesitance in engaging financial planners on a professional level? Randy Pausch, the famous Carnegie Mellon University professor and author of The Last Lecture, understood that change often provokes inertia and even fear. He was known for awarding stuffed penguins to students who took the biggest chance, regardless of the outcome. In addition, the professor memorialized the “First Plunge.” He acknowledged how reluctant we may be when first in line to try 42
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For many years, Barry Sacks has been investigating the selective use of home equity draws in turbulent market conditions to assure cash flow survival. He published a seminal study, along with Stephen Sacks, in The Journal of Financial Planning in February 2012 proving that hackneyed media advice is unequivocally wrong. His math destroys the notion that a “wait and see” approach makes sense. Financial planners, he proves, are misguided if they plan to invoke the HECM as a last resort. In August 2012, in the same publication, Harold Evensky, John Salter and Shaun Pfeiffer published their innovative approach to portfolio survival. These investigators verified that a “standby” HECM Saver line of credit will impart many benefits. For example, the non-cancelable line that grows automatically without regard to future home values should be attractive to many retirees. With the onset of the low-load Saver, financial planners can create a three-bucket retirement strategy without disagreeable upfront cost. This approach provides maximum portfolio protection with a payback to the line when the portfolio rebounds, thereby protecting home equity as well.
spotlight article
Rather than get frustrated and give up, let’s show a little heart. The looming boomer generation will be making its way through retirement for many years to come. They need us to help their trusted advisors explore alternatives to conventional retirement planning. This change is going to be tough; the individual financial planner may show some reluctance. But rather than give up, think of professor Randy Pausch, who stated in his last lecture, “Brick walls are there for a reason. They give us a chance to see how bad we really want something.”x With thanks to Michael Truitt and HERS Bill Evans.
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*
spotlight
Now this is a mismatch if ever there was one. Clients hire planners to help make sure there is enough money to last
No wonder we are working so hard for referrals. We must understand that we are asking financial advisors to break the cornerstone of their own training.
secondary market
A standard remedy for anxiety associated with low-probability hazards to life, limb or pocketbook is insurance. In this case, the insurance is provided by the federal government with the HECM/reverse mortgage program. But the senior must
This reluctance is even more frustrating when juxtaposed against a recent survey commissioned by Ameriprise. Its results assert that 47 percent of respondents plan to use home equity to help fund their retirement.
legal
“Millions of seniors retire with a modest nest egg that they intend to use up during their retirement years, but face the risk that their funds will be fully depleted while they are still alive. They may follow the advice of a financial planner who tells them how much of their fund they can draw each year consistent with a low probability of running out of money. However, a low probability of going broke can be a source of continued anxiety.
This loose coalition of powerful thinkers, coupled with positive studies about HECM for Purchase potential, has caused many of us to sense some positive momentum. Though we are certainly not at the proverbial tipping point, there are some green shoots suggesting a change for HECM in financial planning. But we have a long way to go. Financial planners are just not willing, on a significant scale, to take the first plunge.
I challenge you to ask this question the next time you are lucky enough to have a conversation with a financial advisor. Go ahead, ask. Ask him how debt and housing were treated in his training. He may respond that he was taught to eschew all discussion of debt in retirement. And he may respond that he was trained to absolutely ignore the home as an asset!
appraising
Interestingly, professor Guttentag advocates “insuring” access to one’s home equity by setting up a line of credit early in retirement:
And what about HECM for Purchase? Are we at last getting some traction on this revolutionary FHA purchase-money program? Perhaps so, judging by the two articles published recently in the Wealth Management Journal and Kiplinger. The articles feature circumstances in which the HECM for Purchase solved a problem. In both cases clients were reluctant to bury so much of their savings into the home, but had very specific reasons why they needed the opportunity to buy a particular home. The HECM for Purchase clearly cracked the code.
As professionals working to partner with financial advisors, let’s gain some understanding as to why this change, so obvious to us, is difficult for planners. We can thoroughly empathize with the natural human tendency to avoid change, but what we may not know is how a financial advisor may have been trained.
marketing
3 Lack of support from consumer organizations whose attitudes toward HECMs range from ambivalent to hostile
Finally, a revered thought leader in financial planning and accounting circles, Michael Kitces, is touring the country with a fresh look at reverse mortgages. Mr. Kitces echoes the work done by the previously mentioned investigators and also extols the unique feature a reverse mortgage offers someone wanting to leverage home equity. In a HECM, the homeowner is not required to deleverage what he is leveraging by having to make monthly payments.
the entire retirement span. Many fully expect that their home equity will come into play to achieve that goal. Yet, for the most part, they read that they should use their homes as a last resort, a strategy proved to be the very worst way to use home equity if liquidity is the goal. And many planners, even if they may be aware of housing wealth as an antidote to early portfolio exhaustion, seem reluctant to use this strategy.
underwriting
3 Negative media coverage from illinformed writers that stokes fears of losing one’s home
use the program properly… A HECM can be used to insure against running out of money by electing a credit line for the maximum amount available.”
originating
Jack Guttentag, the “Mortgage Professor” and professor emeritus of the University of Pennsylvania, publishes often on the misunderstandings that cling to the HECM program. Particularly adept at describing mortgage terms and idiosyncrasies (as you might imagine from his moniker), the professor is almost militant in his assertion that the program suffers an undeserved bad reputation. For example, he calls for HUD to improve community outreach to those whose information channel has been limited to biased and misguided news reports. He states that there “are millions… whose lives would be enriched with HECMs who haven’t taken them.” Guttentag says the reason they haven’t is that they are either unaware of the program’s existence, or they are aware of it but their impressions of the program are based on poor information:
The Reverse Review April 2013
the rules Reassessing
The CFPB issues final mortgage rules that will impact business for reverse mortgage lenders.
I
n football, the higher your score, the better. In golf, the lower your score, the better. In baseball, if your batting average is .500, you are doing very well. And in boxing, the less you get hit, well, the less it hurts.
A Breakdown of the Rules
If you were to extend this sports analogy to the business of reverse mortgages, you could say that the industry scored three out of seven—that is, of the seven new mortgage rules recently released by the CFPB, the reverse sector dodged just under half. It’s no slam-dunk or home run, but in my view, three out of seven ain’t bad.
P
he Loan Originator Compensation T and Qualifications Rule
P
The Mortgage Servicing Rules
P
An ECOA Appraisal Rule
Most of the rules are set to take effect sometime next January, so the mortgage industry does have some time to adjust operations to ensure compliance with these new guidelines. Still, it would be wise to begin decoding and translating these complex new rules now. This way, companies have plenty of time to convert the mandates into workable policies and test their implementation well in advance in order to ensure a smooth transition. 44
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In January, the CFPB issued seven final rules that are designed to further regulate lending practices in the mortgage world. Of these seven rules, only three will directly impact the reverse mortgage sector:
Thanks in part to the dedicated efforts of NRMLA’s team, the other rules do not directly impact the reverse mortgage business. Still, it is worthwhile to examine these new guidelines as they may indicate the direction of future changes to the HECM program. P
he Ability to Repay and Qualified T Mortgage Rules
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A new HOEPA Rule
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An Escrow Rule
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A Higher-Priced Appraisal Rule
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The Loan Originator Compensation and Qualifications Rule—No Longer S.A.F.E. Before Dodd-Frank gave rise to the CFPB, the Federal Reserve Board was tasked with regulating consumer credit practices, including certain aspects of mortgage lending. The board first proposed placing restrictions on loan originator compensation in 2010, and then, just after the Dodd-Frank Act took effect the following July, it finalized those rules. As modified by Dodd-Frank, violation of the new Loan Originator Compensation and Qualifications Rule will have severe consequences that some might call draconian. The Dodd-Frank Act upheld the board’s rule against steering and compensation based on the terms of a transaction, and it also reaffirmed the limit on dual compensation, which states that a loan originator (LO) may be paid by the consumer or by the lender, but not both. The CFPB’s new mortgage rules effectively put many of Dodd-Frank’s guidelines regarding LO compensation into action. It revised the definition of a “loan originator” and defined key concepts such as the “term of a transaction” and a “proxy for a term of a transaction.”
Definitions according to the new rule: Loan originator: With respect to a particular transaction, a person who for compensation or other monetary gain, or in expectation of compensation or other monetary gain, arranges, negotiates or
WHO QUALIFIES AS A LOAN OFFICER UNDER THE NEW RULE?
otherwise obtains an extension of consumer credit for another person. This would include a person who, in expectation of direct or indirect compensation, performs any of the following activities: no.1
Offers, arranges or assists a consumer in obtaining or applying to obtain a loan
no.2
Negotiates or otherwise obtains or makes an extension of consumer credit for another person
no.3
Through advertising or other means of communication represents to the public that such person can or will perform any of these activities
no.4
no.1
A proxy for a term of transaction: A factor that consistently varies with a transaction term over a significant number of transactions
no.1
A factor that the loan originator has the ability to add, drop or change in originating the transaction
no.2
How This Impacts Compensation
Under this definition, a loan originator could include an employee, agent or contractor of the creditor or mortgage brokerage company. Except for certain loan originator qualification standards discussed below, it does not include a lender unless the lender brokers a loan.
Under the bureau’s new rule, a loan originator is defined more broadly than before, meaning that once these mandates take effect, it will be easier for persons to “trip” the definition of loan originator and be forced to abide by the new compensation rules.
The bureau’s rule asserts that anyone who purports to be someone who can help in the loan process is in effect a loan originator. This would include any oral or written action directed to a consumer that can affirmatively influence the consumer to select a particular loan originator or creditor to obtain an extension of credit.
When it comes to compensation, the new rule states that a loan originator can only be paid based on a fixed percentage of the amount of credit extended, and such compensation may be subject to a minimum or maximum dollar amount. For reverse mortgages, the bureau’s rule dictates that the loan amount can be either:
A term of a transaction: Any right or obligation of the parties to a credit transaction.
no.1
Takes an application
1
Takes an application
Importantly, the phrase “in connection with a particular transaction,” which is present in the current rule, has been removed from the bureau’s final rule. This means persons engaged in loan originator activities will be covered regardless of whether any specific consumer credit transaction is consummated.
The maximum proceeds available to the consumer under the loan 8
Offers, arranges or assists a consumer in obtaining or applying to obtain a loan
Negotiates or otherwise obtains or makes an extension of consumer credit for another person
Through advertising or other means of communication, represents to the public that he or she can or will perform any of these activities
no.2
no.3
no.4
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The maximum claim amount as defined in HUD’s HECM regulations if the mortgage is an FHA-insured HECM
no.2
no.3 Based on the appraised value of the property, as determined by the appraisal used in underwriting the loan, if the mortgage is not an FHA-insured HECM
Like the original compensation rules set forth by the Federal Reserve Board, the CFPB’s rule applies only to closed-end credit as defined under Regulation Z. Thus, reverse mortgages structured as closed-end credit, most typically fixed-rate loans, will continue to The bureau’s be subject to the rule asserts that rule. Open-end anyone who credit plans, most purports to be typically variablesomeone who can rate reverse help in the loan process is in effect mortgages, are still a loan originator. exempt.
A loan originator’s compensation may not be based in whole or in part on a term of a transaction, or a proxy for a term of a transaction. This encompasses compensation that is based on the terms of a single transaction completed by a single loan originator, multiple transactions of a single loan originator, or multiple transactions of multiple loan originators. Compensation policies will need to be re-examined. In April 2012, the bureau issued a bulletin stating that lenders can make payments to their loan originators under a deferred tax advantaged compensation plan, such as a 401(k). The bureau’s recent Loan Originator Compensation Rule extends that guidance to allow payments to loan originators under non-tax-advantaged, deferred compensation plans as long as it does not exceed 10 percent of the LO’s total compensation. However, there is a de minimis exception to
this limit for branch managers who do not originate more than 10 loans a year. Under the new rule, LOs can also offer pricing concessions, but these are limited only to situations in which there are unforeseen increases in closing costs from non-affiliated third parties. Qualification Standards Persons who meet the definition of loan originator will also be forced to adhere to strict qualification standards, and their employers will be required to ensure that their employees are meeting the necessary requirements. This would mean that unique identification numbers for both the individual and the company must appear on several of the documents associated with any loan they handle in order to track those responsible for the transaction. This requirement applies to creditors as well.
I don’t often get reverse mortgage counseling,
but when I do, I choose QuickCert. A HUD-Approved Housing Counseling Agency
888.383.8885
OPS@QUICKCERT.ORG Telephone counseling nationwide!
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rule book
Entities engaged in lead generation and marketing activities, as well as the companies that do business with such entities, will need to pay particular attention to their activities to ensure that they do not inadvertently engage in loan originator activity. If they do, they’ll need to make sure that they meet these new loan originator qualification standards. Failure to meet these standards will give rise to severe civil liability that could impair the collectability of the loan.
While the qualification standards under the new Loan Originator Rule do not impose licensing requirements, every loan originator organization must ensure that each LO in its employ is licensed and registered in compliance with laws related to the S.A.F.E. Act, if applicable. Thus, entities engaged in lead generation and marketing activities, as well as the companies that do business with such entities, will need to pay particular attention to their activities to ensure that they do not inadvertently engage in loan originator activity. If they do, they’ll need to make sure that they meet these new loan originator qualification standards. Failure to meet these standards will give rise to severe civil liability that could impair the collectability of the loan. New Mortgage Servicing Rules The bureau’s new mortgage servicing rules, issued under both TILA and RESPA, impose nine new requirements for mortgage servicers, but only three and a half of these new rules apply directly to reverse mortgage servicers. New early notice requirements for ARM adjustments apply only to closed-end, variable rate loans, and this would include HECMs if they were structured in such a manner. But nowadays almost all closed-end HECMs are structured with fixed interest rates, and so this requirement will rarely apply. Therefore, we’ll count that rule as half. Below is a summary of the servicing rules that will have a greater impact on the reverse sector.
Disclosure Requirements Disclosure requirements for reverse servicers will be impacted by new guidelines. Under the current RESPA rule, persons making federally related mortgage loans must disclose to loan applicants whether the servicing of their loans may be sold or transferred to another person at any time while the loan is outstanding. The Servicing Disclosure Statement, which must be distributed during origination, has been modified under the bureau’s Mortgage Servicing Rule. Forced-Placed Insurance The new Mortgage Servicing Rule also requires reverse mortgage servicers to have a reasonable basis to believe the borrower has failed to maintain hazard insurance covering the collateral securing a loan. The servicer will be required to provide several notices and follow detailed timing requirements for informing the consumer of the need for force-placed insurance coverage and for removing this insurance if deemed unwarranted. If a borrower provides proof of hazard insurance to the servicer, the servicer must cancel the force-placed insurance policy and refund any premiums assessed to the borrower for overlapping periods during which coverage was placed. Finally, charges for force-placed insurance must be for services actually performed and must bear a reasonable relationship to the expense incurred by the servicer. Handling Assertions of Error Under the new Mortgage Servicing Rule, reverse mortgage servicers
will be required to follow detailed procedural requirements for responding to borrower assertions of error with regard to the servicing of a loan, and to provide written responses to requests for information from borrowers. In part, they must acknowledge a request for information or a notice of error within five days, and they must correct the error or conduct an investigation within 45 days. ECOA Appraisal Rule Dodd-Frank amended the Equal Credit Opportunity Act (ECOA) to require creditors to automatically provide mortgage loan applicants with a copy of appraisals and other written valuations prepared in connection with the dwelling’s lien. This amendment also requires creditors to provide applicants with a disclosure at the beginning of the application process. The new ECOA Appraisal Rule recently issued by the bureau implements these requirements. Under the new rule, creditors must notify mortgage loan applicants within three business days of receiving an application of their right to receive a copy of appraisals developed in connection with the making of the loan. Creditors also must provide an applicant with a copy of each appraisal and other written valuation promptly upon its completion, or three business days prior to the loan closing (for closed-end credit) or the opening of the account (for open-end credit), whichever is earlier. The rule does permit the consumer to waive the timing requirement, but if this is done the creditor must still provide the applicant with a copy of all appraisals and other written valuations at closing or when the account is opened. Mortgage Rules That Won’t Impact Reverse—for Now The remaining rules issued by the CFPB won’t directly impact the reverse sector. Some of this is because of the 8 reversereview.com
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The Reverse Review April 2013
according to jim
1 The association has been dogged in its efforts to assure the bureau recognizes the differences that exist between forward and reverse mortgage loans, claiming that because of these differences the reverse sector should not be subject to rules that won’t work for this niche mortgage product. This argument helped stave off some of the rules, but it doesn’t mean the reverse industry won’t face further regulation in the future.
nature of reverse mortgages, and some of this is a result of NRMLA’s valiant work. The association has been dogged in its efforts to assure the bureau recognizes the differences that exist between forward and reverse mortgage loans, claiming that because of these differences the reverse sector should not be subject to rules that won’t work for this niche mortgage product. This argument helped stave off some of the rules, but it doesn’t mean the reverse industry won’t face further regulation in the future. More mandates are in store for reverse mortgages, and a quick assessment of new rules for the forward market may help us prepare for what’s to come.
This criteria includes the borrower’s: Current or reasonably expected income or assets
no.1
no.2
Current employment status
Monthly payment on the covered transaction
no.3
no.4
Monthly payment on any simultaneous loan
no.5 Monthly payment for mortgage-related obligations
Current debt obligations, alimony or child support
no.6
Ability to Repay and Qualified Mortgage Rule The Dodd-Frank Act amended TILA to require a lender to determine a borrower’s ability to repay a loan before approving a residential mortgage. The CFPB’s new rule puts this principle into effect,
VOTED THE
mandating that a lender must review at least eight criteria to assure the borrower has the ability to repay a loan.
2
011
Monthly debt-to-income ratio or residual income
no.7
no.8
Credit history
12 20
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TE
BEST TITLE COMPANY
toll-free: 800.542.4113 www.PRClosings.com 48
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A lender that fails to meet this requirement will be subject to civil liability under TILA and administrative enforcement action. The collectability of the loan could be impaired for the life of the loan in the face of foreclosure (because TILA, as revised by the Dodd-Frank Act, gives a borrower of an improperly underwritten loan a defense against foreclosure by way of recoupment or set-off in the face of foreclosure, with no statute of limitations). As an alternative to underwriting a loan pursuant to the above criteria, a lender could make a “qualified mortgage,” and if certain conditions are met, be afforded a conclusive presumption of compliance with the Ability to Repay Rule (i.e., a “safe harbor” from TILA liability). There are several types of qualified mortgages created and defined under the final Qualified Mortgage Rule (all of which carry a limit on points and fees of 3 percent of the loan amount, among other things). However, because a borrower is not required to make monthly payments under a reverse mortgage, the Ability to Repay requirements do not apply, so there
While not all of the CFPB’s seven new rules governing residential mortgage lending and servicing apply to reverse mortgages,
the bureau did state that it will issue proposed regulations specific to reverse mortgages in either 2013 or 2014. For an inkling of what those rules might look like, interested parties should look back to rules proposed by the Federal Reserve Board in the fall of 2010 (which were never finalized) and the bureau’s report on reverse mortgages issued in the summer of 2012.
is no definition of a qualified reverse mortgage under the final Ability to Repay and Qualified Mortgage Rule. Thus, the 3 percent limit on points and fees does not apply to reverse mortgages.
priced mortgage loans for at least five years. The Escrow Rule amends existing regulations to implement this statutory change. Reverse mortgages are also exempt from this rule.
HOEPA and Counseling
Conclusion
Reverse mortgages have been and continue to be exempt from the highcost mortgage rules under the Home Ownership and Equity Protection Act (HOEPA). The Dodd-Frank Act did not change that. The bureau did, however, propose the implementation of new counseling disclosure rules that would apply to reverse mortgages, but thanks to objections from NRMLA, reverse mortgage lenders will be exempt from the requirement to provide a list of counselors within three days of a consumer’s application. Of course, reverse mortgage lenders must continue to provide counseling disclosure in the manner required by the FHA HECM program rules.
While not all of the CFPB’s seven new rules governing residential mortgage lending and servicing apply to reverse mortgages, the bureau did state that it will issue proposed regulations specific to reverse mortgages in either 2013 or 2014. For an inkling of what those rules might look like, interested parties should look back to rules proposed by the Federal Reserve Board in the fall of 2010 (which were never finalized) and the bureau’s report on reverse mortgages issued in the summer of 2012. Other than speculate, there is little else we can do but trust that our friends at NRMLA will continue to work with the CFPB to ensure that the bureau’s future mandates will help and not hinder the continued offering of HECMs and the return of proprietary reverse mortgages.
Higher-Priced Appraisal Rule The Higher-Priced Appraisal Rule requires additional procedures for home-secured loans that meet the definition of a higher-priced mortgage loan (for first lien loans, a loan with an APR that is 1.5 percentage points in excess of the average prime offer rate, or APOR). However, after meeting with staff members from several federal agencies and submitting comments on the industry’s behalf, and because the higher-priced calculation does not fit well with reverse mortgages, and detailed appraisal requirements and protections exist under the FHA HECM program, NRMLA was able to convince the agencies to exempt reverse mortgages from this rule. Escrow Rule Dodd-Frank also amended TILA to require creditors to establish and maintain escrow accounts for higher-
For the time being, reverse mortgage companies should count their blessings and be thankful that NRMLA’s comments to these rules led to the industry’s exemption in some cases. Thanks to our dedicated association, more than half of these rules do not apply to the reverse mortgage industry. Despite this win, there are still new rules that we must implement, including important rules regarding LO compensation and appraisal disclosures, and lenders would be wise to assess their practices now in order to make room for new procedures. x This article represents the views of Jim Milano, and not those of the law firm of Weiner Brodsky Kider PC, or its clients. This article is meant to give a concise overview of new regulations finalized by the CFPB. It is not intended as legal advice.
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The Reverse Review April 2013
reflect
last word
I
was introduced to the term “negative entropy” by a human resource development consultant who works with Celink. As she explained, entropy is defined as the degradation of matter and energy. The idea is that everything moves toward its inevitable end. Organizations are no exception to that rule. The best way to summarize entropy is “nothing lasts forever.”
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Ensuring the Future joh n l a r os e
So how does an organization keep itself from extinction? The answer, as she explained, is found in the practice of “negative entropy.” When an organization regularly infuses itself with fresh ideas and thinking, through invigorated or reinvigorated associates, it is practicing negative entropy. It is ensuring that as people move on, whether through natural movement, attrition, sickness or death, new people and new energy are being brought in to take their place. Proactive recruitment and succession planning counteract entropy by infusing the organization with new life. The reverse mortgage industry will prevent its own extinction by employing this practice as well. We must recruit the best and the brightest into our ranks. With this new talent will come fresh ideas, thinking and insights—new life. Reverse mortgages have been described as complex loan products, and they are. Einstein is credited with saying, “We cannot solve our problems with the same thinking we used when we created them.” Our industry challenges have to be viewed by new eyes without past experience or prejudices, and by integrating the vast experience and knowledge of our current industry professionals with the energy and enthusiasm of emerging professionals, we protect our industry’s future. Organizational leadership compels us to recruit energetic, enthusiastic 50
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associates—those ready, willing and able to support our mission and fulfill our vision. It encourages us to craft a succession plan for each organizational leader, one that ensures that as people move on (as people will do), replacements have been groomed and the requirements for each position are clearly defined. I’m at official retirement age. There are moments when I’m mentally and physically ready to claim that prize. (Should I mention that I’m writing this from Florida?) There are other days, however, when I’ve never felt more invigorated or motivated to keep moving our company and our industry to higher ground and expand our presence. On those days, retirement is out of the question. But I am also a realist. I know that the best gift to
Celink will be to spend the remaining days of my work life grooming my successor, encouraging every one of our associates to stay on mission, and expanding our organizational and industry vision for the future. This imperative to plan for the future hit home in an incredibly personal way when my mom passed away on February 1. Parents are a personal example of creating a succession plan and my mom and dad were exemplary leaders and teachers. Dad had an exceptional work ethic (up at 5:30 a.m. and home at 7:30 p.m.) and a great faith that made him a risktaker. He loved spending time with Mom and their grandchildren. Mom loved unconditionally, treated friends like family and loved to get a little crazy with us growing up, regularly admonishing us, “Don’t tell Dad!” My father predeceased Mom and I knew he looked to me to care for her in his absence. I was his successor. Until her death last month, I visited her almost monthly in Arizona or Tennessee, and it was never a burden. Mom and Dad taught by example the importance of taking time and caring for family. In an insightful article from the January issue of The Reverse Review (“Embracing Change in 2013”), Steve McClellan wrote, “Jack Welch once said, ‘Change before you have to.’ I think that’s wise advice. We cannot simply sit around waiting for policymakers to make changes that will safeguard our industry—we need to be proactive.” The best safeguard for the future of the reverse mortgage product and industry is the proactive practice of negative entropy in new hiring, reinvigorating current associates and creating succession plans for those who will assume future leadership. As our industry and product continue to evolve, let’s commit to evolve with them. x
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