The Reverse Review September 2008 by The Reverse Review

September 2008

THE

REVERSE review

A Whole New World John Lunde PAGE

“In today’s challenging markets, it’s imperative that you focus on the key metrics that drive your sales performance and re-double your efforts to be in the right markets and understand your performance within those markets.” It is also important to utilize data to create information and insights that help you drive your business forward with accurate and timely decisions.

CONTENTS

12 In the “Big Picture” of Sales Success... Monte Rose

16 To Blog or Not to Blog Ken Schreiber

18 Spotlight

Peter Bell, President of NRMLA

26 Behavior of Reverse Mortgage Borrowers

20 A Whole New World John Lunde

A case study by John Brodrick, Alex Teixeira, and Diogo Teixeira

30 Don’t Fly Too Fast, 23 Are You a You Might Break Strategic Planner? Your Wings Sam Collins Kathie Adler

ESSENTIALS 5 Note From the Editor

6 Ask the Underwriter

10 Industry Snapshot

33 Directory

34 The Last Word: Earthquakes, Heartbreaks, and Fannie Mae September 2008

Successful Companies Rely On ReverseVision THE

REVERSE

review

Co-Editors Aman Makkar & Erica English Copy Editor Harpreet Makkar Design & Production Jason Westbrook Printer The Ovid Bell Press

Advertising Information

Rates, specifications, and deadline information available. phone : 858-217-5332 email : advertising@reversereview.com

Subscriptions and Editorial Content phone : 858-217-5332 email : information@reversereview.com website : www.reversereview.com

Complete integration from origination to processing, underwriting, closing, and shipping.

THE

REVERSEreview 10801 Thornmint Rd Suite 250 San Diego, CA 92127

Highly scalable - for small entities to enterprises with correspondents and branches. Sales oriented graphical interface that integrates directly with Microsoft Word and Outlook. Direct export to Celink, RMS, Fannie Mae, UBS, Goldman Sachs, ReverseDocuments and others.

ReverseVision Inc. 3310 Pollock Place • Raleigh, NC 27607 www.reversevision.com (919) 834 0070 • info@reversevision.com

© 2008 The Reverse Review, LLC. All rights reserved. The Reverse Review, LLC is a California limited liability company and is the publisher of The Reverse Review magazine. 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, The Reverse Review, 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, 10801 Thornmint, Ste 250, San Diego, CA 92127

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editor’s note

Wow, the times are crazy ... Not just in the reverse mortgage industry, but in the world markets overall. Since joining The Reverse Review, I’ve been fortunate to learn a great deal about the industry and build some fantastic relationships. I spend most of my days on the phone with our authors and advertisers, brainstorming content for upcoming issues , working on advertising campaigns and helping reverse mortgage organizations create a brand for themselves within this space. As I came into this industry looking from the outside, I realized how fortunate everyone was to work within a space small enough where it is relatively easy to create your brand and make it very well known amongst your peers. The other great benefit of our small playground is there are so many innovators and entrepreneurs who are finding opportunities to help lenders grow and who are passionate about our senior clientele.

to allow them to travel and enjoy their retirement years, and we want them to be able to aﬀord the rising cost of living and healthcare. Sometimes we should take a step back and think about the real reasons why we joined the industry in the first place. It’s very easy to get caught up in the numbers, statistics, ranks, and the like. Each day we work, we can truly make a diﬀerence in someone’s life, and that’s what makes it all worth it.

Erica English Editor

Our fortune though goes further than becoming successful in this industry. I see us working together towards a common cause. We want to try and help as many seniors as possible. We want to reach out to them, educate them on their options, and make their lifestyle more comfortable. We want September 2008

ask the underwriter Ralph Rosynek

| this month’s question |

Can a Lender pay for the Borrower’s counseling session?

Caution is advised for all participants in the HECM process to be fully informed as to policy and procedure changes. The latest HUD Guidance available on counseling was recently issued further clarifying the participation of the Lender (and the Originator) in the HECM Counseling process: Notice for All HUD Approved Housing Counseling Agencies:

Recently, I have been engaged in many conversations regarding HECM Counseling. Borrowers and Originators continue to be confused by the various counseling positions which have shifted in the past year. Underwriting the file includes necessary reviews of compliance with HUD/FHA guidelines in addition to the “big 3” of appraisal, credit and title. Process, disclosure and borrower safeguards are as important as the property and profile of the Borrower(s). With respect to the Counseling Process review, there have been little or no adjustments or changes to the base policy and procedure which represents a significant consumer safeguard: •

HECM Counseling is required for all borrowers (which includes POA’s, Guardians, Non-Borrowing Spouses etc.) The HECM Certificate must be completely “complete” with required signatures of all parties prior to a Lender creating costs, fees and expenses for the Borrower(s) The HECM Counseling process is an independent process from the origination and does not provide for the participation of the Loan Originator or Lender The HECM Counseling Protocol used by Counselors provides for a wide range discussion of financial stability issues with Borrower(s) Counseling choices continue to remain with the Borrower(s) as to choice of face-to-face or phone sessions Counseling Certificates, when properly completed, remain eﬀective for 180 days, and the “dates” on the certificate provide benchmarks for continuing the HECM process

• • • • •

What has changed has been the degree of continuing education and “counseling readiness” each of the agencies and counselors has been raised to, the methodology for accessing counseling from both the Borrower and Lender perspective and the source(s) for payment of the counseling session.

The purpose of this is to provide clarification on HUD policy as it relates to HECM fees. The Housing and Economic Recovery Act of 2008 (H.R. 3221) was enacted into law on July 30, 2008. The new legislation prohibits lenders from paying either directly or indirectly for HECM counseling. This new policy is eﬀective October 1, 2008. HUD is aware that many HUD-approved agencies have relied on lender funding to support their HECM counseling program since funds from HUD’s grant program do not cover fully the costs of providing HECM counseling services and there are relatively few other funding streams available for this important service. In order to help mitigate the elimination of this existing funding source for HECM counseling, HUD will now allow HUD-approved agencies providing HECM services to require payment from the client for the counseling session upfront. An agency can also choose to continue to allow clients to pay the counseling fee at the closing of the loan. If the fee is waived as a result of financial hardship, the client will not be required to pay the fee upfront or at the loan closing. The language in the law does not prohibit lenders from providing funding for counseling services other than HECM. Please send questions or comments to: housing.counseling@ hud.gov My thanks to Jerry Mayer of HUD for his continuous stream of HUD based information and clarification. While this is in no way a “paid announcement or endorsement”, I encourage readers to take advantage of the wealth of information and resources provided by Jerry in his e-mail notifications - you can subscribe to his newsletter by contacting him at: jerrold.h.mayer@hud.gov.

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REVERSEVISION

ReverseVision ReverseVision Suite is the leading reverse mortgage origination solution for mid to large sized organizations. It covers all aspects of the origination process from prospect to closing and shipping.

Graphs

Workflow

End-to-end POS to shipping

Proprietary loans

Ease of use

Connectioins

ReverseVision Suite

Automatic update

z z z z z

Mobile

Enterprise solutions

Com p swit anies c Rev hing to er expe seVisio n r imm ience an e incr diate ease prod in uctiv their ity.

Complete integration from origination to processing, underwriting, closing, and shipping. Highly scalable - for small entities to enterprises with correspondents and branches. Sales oriented graphical interface that integrates directly with Microsoft Word and Outlook. Direct export to Celink, RMS, Fannie Mae, UBS, Goldman Sachs, and others. Business process driven workflow for best practices in the reverse mortgage industry.

Over the past 12 months more than 100 companies with over 2000 users switched to ReverseVision.

www.reversevision.com z (919) 834 0070 z info@reversevision.com ReverseVision Inc. z 3310 Pollock Place z Raleigh, NC 27607-7006

contributors Monte Rose

Ralph Rosynek

- Ask the Underwriter, page 6 Mr. Rosynek has been involved in mortgage lending for over 30 years with the last 5+ years exclusively providing reverse mortgage lending solutions. To contact Mr. Rosynek or to learn more about 1st Reverse Financial Services, Please visit www.1streverse.com or call 877-574-1000.

David Bancroft

- Earthquakes, Heartbreaks and Fannie Mae, page 34 David Bancroft is the President of Omni Reverse Mr. Bancroft is a leading industry expert in the origination of Reverse Mortgages, FHA & VA Government Loans and uses his extensive experience to help promote the Reverse Mortgage industry. Omni Reverse was founded by Mr. Bancroft and his partners in 2002 to specialize in Government lending and is one of the largest originators of HECM Reverse Mortgages in the Country.

John Lunde

- Reverse Market Snapshot, page 6 - A Whole New World, page 20 John Lunde is President and founder of Reverse Market Insight, the premier source for market intelligence and analytics services in the reverse mortgage industry. RMI clients include five of the top ten reverse mortgage originators, both lender and independent servicers, as well as some of the largest financial services firms in the world. Find out more at www.rimnsight. net or call 949-281-6470.

Kathie Adler

- Don’t Fly Too Fast You Might Break Your Wings, page 30 Reverse Mortgage Specialist, Safe Harbor Capital, Long Island, NY. Kathie entered the mortgage industry in 2001 and Reverse Mortgages January 2004. Seminars and lectures at schools, senior centers, college, libraries, etc. Member of Long Island Center for Business and Professional Women, Holbrook Chamber of Commerce, Senior Umbrella-Suﬀolk, NRMLA.

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- In the “Big Picture” of Sales Success..., page 12 Monte Rose has helped hundreds of seniors obtain a reverse mortgage during the past 17 years. He is an accomplished speaker and widely quoted industry expert, appearing in financial publications and nationally syndicated media. He was head of national retails sales for Financial Freedom Senior Funding Corporation. Monte is a Certified Senior Advisor and a Certified Strengths Coach with Gallup University. For more information, call 800-516-0545 or email info@monterose.biz.

Sam Collins

- Are You a Strategic Planner?, page 23 Sam Collins is the President of Sam Collins Reverse Marketing, LLC and Founder of REMALO, the Reverse Mortgage Association for Loan Oﬃcers. REMALO is a web based National sales, marketing, training, and full service center, created exclusively for Reverse Mortgage Loan Oﬃcers, Correspondents, Branch Managers, and key executives, and brokers. www.remalo.org

Diogo Teixeira

- Behavior Of Reverse Mortgage Borrowers, page 26 Diogo is a private investor in reverse mortgage companies and other financial services. His previous work experience includes TowerGroup, Ernst & Young, McKinsey, and Bank One. He was educated at MIT and Harvard Business School.

John Brodrick

Ken Schreiber

- To Blog or Not to Blog, page 16 Ken Schreiber is a Nationally Recognized Mortgage Trainer and owner of Teleclass Riches Inc. Ken has built a very predictable high six figure income without excess overhead or ineďŹ&#x192;cient staďŹ&#x20AC;. Ken perfected the use of Webinars, Teleseminars and Video e-mail to create a flood of new clients and key referral sources eager to do business with him at his terms.

September 2008

- Behavior Of Reverse Mortgage Borrowers, page 26 John Brodrick is the CEO and founder of Your Home for Life and brings 20+ years experience in the mortgage business. A graduate of Barrington College, John is a past president of the Massachusetts Mortgage Association.

reverse mortgage industry snapshot Statistics Provided by Reverse Market Insight

Top 10 Rankings by Region

10 Regions, ranked by HECM unit volume YTD. Including rank change from prior YTD, as well as growth rates. Also includes active lenders and growth

Lender Distribution by YTD Growth Rate

Lender distribution graph and table, showing number of lenders growing at various growth rates YTD vs. prior YTD, including volume attributable to each group of lenders. Client Notices 1) 2) 3)

Help improve data quality in the Reverse Mortgage industry. If you believe your company’s numbers on this report are inaccurate, please email us (support@ rminsight.net) and we will review your feedback promptly. Please include your name, company and contact information along with a thorough description of the suspected inaccuracy. Thanks! If you received this report as a trial or sample and would like to purchase this report or future reports for your company, please visit: www.rminsight.net/MICreports. php If you’ve been looking for a source for Reverse Mortgage intelligence beyond MIC endorsement numbers, we’ve got just what you need. Find out more at www. rminsight.net/rmarket.php

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24 Month Penetration and Unit Volume 1.80%

12000

1.60%

1.20% 1.00%

Penetration

10000 Units

1.40%

0.80% 8000

0.60% 0.40% 0.20% 0.00%

6000 2006-8

2006-12

2007-4

2007-8

MIC Units

2007-12

2008-4

Penetration %

2 year trend graph of monthly HECM unit volume and industry penetration against 62+ homeowner households nationally. Appendix 1) All statistics based on retail originations from HUDâ&#x20AC;&#x2122;s Monthly HECM MIC reports 2) Loans are in unit volume, based on HUD reported mortgage insurance certificate issuance 3) Lenders are aggregated using HUDâ&#x20AC;&#x2122;s lender identification numbers and unique lender names, along with feedback from reporting lenders HUD Regions and Corresponding States/Territories Region 1 - New England Connecticut Maine Massachusetts New Hampshire Rhode Island Vermont

Region 3 - Mid-Atlantic Delaware District of Columbia Maryland Pennsylvania Virginia West Virginia

Region 5 - Midwest Illinois Indiana Michigan Minnesota Ohio Wisconsin

Region 7 - Great Plains Iowa Kansas Missouri Nebraska

Region 8 - Rocky Mountain Colorado Region 2 - New York/New Jersey Region 4 - Southeast/Caribbean Region 6 - Southwest Montana Arkansas North Dakota New York Alabama South Dakota Louisiana New Jersey Florida New Mexico Utah Georgia Wyoming Kentucky Oklahoma Texas Mississippi North Carolina Puerto Rico South Carolina Tennessee U.S. Virgin Islands September 2008

Region 9 - Pacific/Hawaii Arizona California Federated States of Micronesia Hawaii Nevada Region 10 - Northwest/Alaska Alaska Idaho Oregon Washington

In the “Big Picture” of Sales Success... Monte Rose In last month’s article I talked briefly about the three value enhancing strategies that directly impact sales productivity: (a) personal brand management, (b) skills development, and (c) extending one’s reach. Think of this approach as a portfolio technique – i.e., balancing or optimizing your “assets” (your time) based on your personal situation. In my experience, most successful producers consciously manage to incorporate activities from each category into their daily professional lives. The most notable leaders in the business have developed a “system” that blends their unique strengths, the niche/s in which operate, and the “methods’ to work these market segments. While the elite producers are able to leverage technology quite effectively, this is not the differentiating factor that distinguishes them from the pack. The key factor is the ability to consistently meld insight and action. Successful production is the combination of crafting an effective strategy and translating this into discrete tasks that can be consistently accomplished on a daily basis. If this sounds simple, it is. Which is not to say it’s easy. Some things that are “simple” are excruciatingly difficult to implement and sustain. Sometimes we falter because: (a) we run out of energy, or (b) we don’t have the skills and/or tools to manage the “noise” in our personal and professional

lives. In the latter case, most players typically do not know that they are bogged down by noise. They have become so accustomed to the static that they have acclimatized to it, unaware of the festering “tolerations” they continue to accept as part of their environment. Simple examples of these are not having an eﬀective personal time management system, having an inadequate customer follow up approach, or an inability to tackle procrastination behavior. More often these tolerations manifest themselves as self-sabotaging, call-reluctance behaviors that are easily helped by simple behavioral modification techniques. Is there a “framework” or method one can use to understand and improve one’s sales productivity? In the research my team has undertaken, we did find there is indeed a “general theory of productivity.” It is easily remembered by referring to the following acronym: P.E.A.R. It stands for Planning, Execution, Accountability, and Results. Planning has to do with questioning and understanding: (a) What to do, and (b) Why. This element must include activities that help you brand (i.e., establish a clear, strong, and consistent “signal” in the market), master the key skills (core competencies like product knowledge, kitchen-table facility, community building, leveraging technology etc), and lastly, extend your reach. Although this aspect, i.e. figuring the “what”, is actually the relatively easy part, most people

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do not consciously pursue and manage this dimension. Instead, absent systematic insight, they simply exhort the troops to “go out and sell.” When the troops come back empty-handed, they are lashed with the ever-familiar “Why are the numbers down?” coaching gem of a question. Oblivious to the laws of cause and eﬀect, the same managers typically have diﬃculty in changing the producer’s behavior/s because no systematic connection between action and result has been made. There is no “diagnostic framework,” much less diagnostic skills, in this kind of production situation. Planning is a “Second Quadrant” activity, to borrow Covey’s terminology. It includes actions that are important but not urgent. To review, Quadrant 1 includes those activities that are important, and urgent -- aka firefighting. Quadrant 3 includes those tasks that are not important, but urgent, and Quadrant 4 includes tasks that are not important and not urgent. In my coaching experience, the least successful producers tend to spend the most time in Quadrant 4. The most successful producers are those

who have the discipline and focus to spend the necessary and appropriate time in Quadrant 2. Sometimes Quadrant 2 requires not only fortitude, but faith in one’s own navigational sense. I say this because it’s extremely difficult to stay focused and take time out to review and plan amidst the chaos and difficulties created by a tight market. They have the ability to work “on” and “in” the business. While entrepreneurs and “top dog” producers mostly have to work “on” the business, replicating and extending their unique value-creating tactics -- as per Michael Gerber’s classic tome The E-Myth Revisited, I think most sales people necessarily have to be ambidextrous – combining effective shoe leather power and strategic leveraging of their time and resources.) Knowing what to do and why (the “Skills-Brand-Reach” portfolio approach) is the foundation of the planning process. It is also the basis of a sales coaching model that allows detailed observation of cause-and-effect. Strategic formulation is worthless without an “observation platform.”

September 2008

One has to make cause and eﬀect visible, before one can make it replicable. The key to the replicability of successful action, the secret to “making productivity predictable” lies in this critical concept. Eﬀort alone doesn’t cut it. You have to understand the “why” behind the “what.” And you cannot fully understand the why unless you have captured the dynamic between an action and its result, over time and over your unique “sample population.” I have made this qualifier because some techniques work consistently for some people but are maddeningly inconsistent with others. This phenomenon can be easily dissected if you have a good grasp of talent-based assessment methods, which is something that is not yet common practice in our industry.

“

Without a clearly articulated strategy, “activity” becomes the surrogate of eﬀectiveness.

”

The majority of producers and managers who fail to plan do so not because they don’t want to, but because they don’t know how, or they don’t have the tools to facilitate the process. Without a clearly articulated strategy, “activity” becomes the surrogate of effectiveness. “Working hard” becomes the de-facto operational model, and managing a sales force deteriorates to a numbers game of churning bodies to produce sales. With a commission-based system, this inevitably becomes the default “strategy.” I have seen this in big, medium-sized, and small companies – there is no monopoly to this disability. This pervasive state of affairs is currently being put to the test. With tough market and regulatory conditions, the natural instinct of sales organizations is to try to fully inhabit Quadrant 1 (run harder, or hammer harder), to the neglect of Quadrant 2 (insightbased activity). In succeeding articles, I will cover Execution, Accountability, and Results, and show you how to tie everything together: What are the keys to successful execution, What are the various types of accountability, the effective and ineffective ways of creating a “winning accountability mindset” (WAM!), and how to effectively measure, monitor, and learn from one’s results.

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To Blog or Not to Blog Ken Schreiber

nyone who has spent a remote amount of time on the internet has probably HEARD about blogs. Watching the cable news channels will even expose you to the word. But knowing the word and understanding how it can be beneficial to your business are two separate worlds. However, blogs are a great tool for you in the mortgage industry.

What is a blog?

How do I create a blog? There are a number of diﬀerent websites that oﬀer free blogging opportunities. You will probably want to set up your own domain name (i.e. My site www.teleclassriches. com/freecd). This can be accomplished through a hosting company or a domain company like Go Daddy. Once you have your personalized domain name you will only have to load a blogging template to the site. Depending on your hosting company, this may be done for you. One of the most common tools (and one of the easiest ones to

The term blog comes from a combination of the words “web” and “log.” Most blogs are basic websites, maintained by an individual and kept in a journal style in chronological order (from newest to oldest). The term can also be used as a verb to describe the act of adding content to a site. Many people think about a blog as an online diary. It has been used for that purpose, but more and more corporate America is finding the usefulness of the blog format. It is an easy way to have regular communication with a large number of individuals. Some companies have started a company blog – to keep employees up to date on the activities of the company. Other companies are using the blog to drive business through their doors. The great thing about a blog is that it can be anything that you want it to be – from a more personal note to your existing customers to a more professional, “how-to” site for potential customers.

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personalize) is Wordpress. If you are not comfortable setting up your own webpage then you might want to seek the help of a professional developer (or at least some assistance for one). The more you are willing to do yourself, or learn how to do, the less your blog will cost. There are a number of selfhelp books to guide you on the process and there are also plenty of blogs about blogging. Most hosting companies will allow you to upgrade as you need and will also provide individual products like site development on a product by product cost. For the most part, it is usually less expensive to buy a package than to purchase individual products. The direction you go will largely depend on the budget you have set for developing and implementing your blog.

“

A blog is just one more tool that you can utilize to bring attention to your company, your business and even yourself.

All Set Up and No Place to Go.

Do I really need a blog? A blog is just one more tool for you to utilize to bring attention to your company, your business and even yourself. The articles that you post will help draw potential customers to your business, but they will also help to inform your own customers about new services, products or other information that will help them achieve their financial goals. Having a blog is not mandatory for any company or industry. But, as technology continues to invade every aspect of society, it might be a good idea to consider a blog as another addition to your advertising system. The flexibility oﬀered by a blog, coupled with the exposure the Internet oﬀers a company or individual, makes creating a blog worth while. It can be done in a day, cost little to nothing and be maintained with just a few keystrokes each week.

”

Getting the blog set up is the easy part. Now you have to draw visitors to your site and keep their attention once they arrive. One of the best ways to do this is to regularly post content that focuses on the keywords which represent your company and industry.

It is not as important how often you post as it is that you post on a consistent basis. Your readers will begin to look for your posts on a regular basis. The great thing about some of the blogging tools is you can write your articles ahead of time and have it appears on your weekly schedule. Which will help you write them at your convenience or you can fill up your time slots when you have a burst of inspiration. There are classes and courses – both over the internet and at local community colleges – which will help guide your blog development. Anything you learn about a traditional website can be translated to a blog. Always keep in mind that a blog is simply a website written in journal form.

September 2008

SPOTLIGHT Interview with Peter Bell by Aman Makkar

I wanted to take this opportunity to thank you for taking the time to talk with us. Times in the industry are crazy right now with all the changes at Fannie Mae and Freddie Mac, and the bankruptcy of Lehman Brothers. Share with us some of your thoughts regarding the current state of the industry and where you think it is headed in the near future.

Peter Bell is President of Dworbell, Inc., a Washington, DCbased advocacy and communications company. Dworbell, Inc. provides comprehensive association management services to several national trade associations including the National Reverse Mortgage Lenders Association and the National Aging in Place Council.

Peter Bell: This is a particularly interesting and challenging time in the reverse mortgage business. We have all of the stresses of the economic malaise generally; we have the ongoing implosion around us of a number of financial institutions, a market where investors are skittish about any assets that are backed by US residential real estate, and we have a lot ethical issues and sales issues that lead people to question the integrity of the industry

National Reverse Mortgage Lenders Association (NRMLA) is a trade association for lenders involved in the origination and servicing of reverse mortgages.

It’s a challenge to deal with either of those two dynamics, either the tough financial situation alone, or the questioning of the ethical underpinnings of the business alone. When you put the two of those together, it becomes extremely challenging. That’s the position we’re in right now. I think people have to be aware of that and attune to that and recognize that things that might have been acceptable to do in a more robust market may lead to deeper questioning and deeper scrutiny in this environment. Reverse Review: Currently it seems we have barriers to overcome to rid the misconceptions of the reverse mortgage product, even to the so-called experts in the financial arena. What is NRMLA doing to educate professionals in the industry? PB: We do a lot of outreach in a lot of different directions on an ongoing basis. We’re constantly reaching out to major media outlets like CNN, Forbes, Wall Street Journal, Kiplinger; outlets that we consider to be opinion makers in the financial world. It’s a real challenge though. There are a lot of people that have a very strong opinion about reverse mortgages. They feel that the home equity is something that should be saved until the very last spending. So the concept of somebody in their mid-60’s to mid-70’s drawing on this equity for lifestyle spending instead of saving it for healthcare oriented spending…they think it’s a bad concept. Obviously we don’t agree with that. But it is an opinion, and it’s not necessarily an invalid opinion. It’s a very big part of what we do. Along with the policy side, the media and communications outreach is probably our largest area of activity. RR: Can you provide us with an update on the FHA Modernization Bill? PB: It’s a little bit hard to say exactly what’s going on because the bill is so vast. The HECM stuff is perhaps three pages in a 470 some odd page bill. HUD has the same small dedicated staff that has to work on all of these matters. October 1st is the beginning of the new federal fiscal year. There is a very aggressive effort underway at HUD to try and implement a number of provisions in conjunction with that new

fiscal year start. I do expect to see mortgagee letters popping out in the next week or two so we can have things take shape on October 1st. On loan limits there was a lot of confusion the way the bill was drafted on just what was intended. The drafters involved on the house side had a completely diﬀerent interpretation of what the language meant than the drafters on the Senate side. And folks within HUD had yet a third opinion. In the end what I think we will end up with and I hope to know this for sure later this coming week is a single national limit at 417,000. The mortgagee letter that we anticipate will do a few things. It will say that this is the single national loan limit eﬀective ideally October 1. Along with that it will implement the new origination fee limitation (2% of the first 200,000, and 1% of the balance thereafter up to the $6000 max). I also believe while this is not in the law, that HUD will also add into it an increase in the floor on the origination fee from the current $2000 floor. I’m hoping that will be $2500, but I’m not 100 percent sure. RR: Speaking of origination fees; does the limit cause originators to sell higher margin products which will cost the senior more in the long run? PB: It’s very likely that it could have that impact. We pointed that our continually through the discussions with AARP. They were just so dead set against growth in the origination fee. We said if you put pressure on the origination fee, you’re just going to force people to adjust their margins. There is a challenge in making policy in that unfortunately you have the make policy for the lowest common denominator. You can’t make policy for the 85% of people that do things right. Unfortunately you have to create policy to keep the 15% of people that do things wrong from doing things wrong and everybody else pays the price as a result of it.

PB: HUD will be issuing a mortgagee letter for that. If people are working with advisors at the moment prior to the mortgage letter coming out, I think that’s a risky undertaking. There’s a law in the books that’s says no, even though they haven’t put out the mortgagee letter yet. This is another example where policy had to be made for the lowest common denominator. There were a lot of very responsible uses of the advisor mechanism. [There were ] a lot of community banks which didn’t want to get fully involved in the program and chose to operate as advisors and now they’re precluded from doing it. So it’s a shame that they had to get shut out but it’s another example of that situation where HUD had to make policy based on the worst and those who were doing it right had to suﬀer as a result. RR: A lot of our readers don’t know you personally. Tell us a little about the personal side of Peter Bell. PB: Well, right now we’re in Teluride, Colorado this morning, and my wife, Sharon, of 27 years is sitting in the next room. I have this love of music, although I don’t play. I would never practice as a kid. I took lots of instruments, but never practiced. I don’t have any kids and I’m not much of a sports guy. I like being out here in the mountains and skiing in the winter. Music is my love. I spend a lot of time going to hear music in diﬀerent places. The other thing I enjoy is meeting people. If you asked me when I was starting my career what I wanted to do, I would have said that I’d like to do something where I’m involved in discussing the issues of our times, where I get to travel, and meet lots of people, and shape the way our society is. Closing thoughts: If you have the proper empathy for the customer in this business, you will succeed.

RR: What are your thoughts on the lack of production the industry is currently experiencing?

more on Peter Bell ...

PB: I think the lack of the production is partially due to the growth in the number of originators, but I think it’s deeper. I think it’s a mistrust of the industry generally, not jus the reverse mortgage industry. It’s a mistrust of financial services and the mortgage industry overall. A sense of an economy that is slowing down

Mr. Bell has served on numerous housing industry committees and HUD task forces and frequently testifies before Congress on housing and tax issues. He is an alumnus of Fannie Mae’s National Housing Impact Advisory Council. Mr. Bell is Treasurer of Homes for America, Inc., an Annapolis, MD-based nonprofit developer of aﬀordable housing. He is also serves on the Board of Directors for the National Housing Conference and is a member of the Editorial Advisory Board for Housing & Development Reporter.

On the one hand if you really understand what’s going on and you think home values are falling, this is probably a good time to get your reverse mortgage, before your value falls more. On the other hand the fact that things are going down does scare people and after the whole subprime meltdown, consumers don’t trust what mortgage people tell them. So even though people tell them don’t worry, you can’t lose your home, even if it goes down in value, I think there are a lot of consumers who don’t buy it. RR: Talk to us about the elimination of the HECM Advisor programs.

Outside of the housing industry, Mr. Bell serves as President of the Telluride Society for Jazz, a nonprofit organization that sponsors and hosts a major national jazz festival in Telluride, Colorado each summer. Mr. Bell is also a member of the Board of Directors for Western Jazz Presenters Network.

September 2008

A Whole New World John Lunde

Following up on last month’s beginning to the sales performance metrics guide, this article continues a multipart series about the most important measures of reverse mortgage success. Each article will walk through a specific area of the business, focusing on the key risks and opportunities to growing your reverse mortgage business. If you have any questions or would like to suggest topics for future articles, please contact the author at john@rminsight. net Last month we talked about the importance of ensuring that your key systems (CRM & LOS) capture the right data to manage one of the most important drivers of your reverse mortgage success – sales. This month, we’ll focus on what to do with that data once you’ve gathered it to create information and insights that help you drive your business forward with accurate, timely decisions. We’ve all noticed by now that the reverse mortgage business has experienced a glut of competition recently, and by any measure the effects are distressing. Almost 2,500 lenders endorsed one or more HECMs in the first eight months of 2008, up an astonishing 86% over Jan-Aug 2007. As you can see from the chart and table below, that has had two big effects on the business: 1) New lenders are by far the largest group of originators in the market; and 2) Existing lenders with negative growth rates vs. last year are the second largest group of originators (followed closely by exiting lenders as the fourth largest group). As if you needed further proof that the business is more difficult these days, the chart below translates the competitive effects above into a single indicator we can use as a health check for the industry: average loans per

lender per month. As you would expect with the dramatic growth in competitors, the last two years have seen a dramatic decline in this metric, from 14.4 to just over 7.2. So why do I bring this up in an article about sales performance metrics? To illustrate the importance of understanding your market context when making crucial business decisions that will affect your sales performance for a long time to come. As a company, it’s vital to adjust your perspective for performance to take this competitive wave into account. Measuring Success Everyone reading this article is familiar with the most basic measure of success for a salesperson, and indeed, it’s likely a majority or all of the calculation for how you pay each of your loan officers: funded loans. After all, it’s pretty easy to tell whether a loan is funded or not and the only dispute that typically arises might be who gets credit for the loan. More advanced companies might look beyond simple volume and use fallout ratios (percentage of applications that cancel) or turn times (business days from application to closing/cancel) to measure the quality and profitability of a loan officer’s business – loans that cancel incur unrecoverable costs and those that take too long to close/ cancel suck up resources that can make even a funded loan unprofitable. But as a manager or business owner, how do you gauge success for your overall sales channel performance in a given market? It’s not enough to know that your loan volume grew or declined in a market, because you could easily be laying credit/blame for a rising or declining market at the feet of Growth Rate -100% -99% to -1% 0 to 100% 101% to 200% 201% to 300% 301% to 400% over 400% New Lenders

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Lenders

YTD MIC

243

Last YTD 2,197

517

36,446

58,183

329

16,622

12,328

4,237

1,816

1,222

350

1,060

226

8,543

798

1,397

9,899

your sales force. A better indicator would be market share since that implicitly takes into account the overall market change, but even that becomes less useful in times of extreme competitive landscape change such as we are seeing now. While there isn’t a universal solution that will fit all companies and markets perfectly, a more enlightened measure takes both market change and competitor change into account. We use this metric with many clients to show relative performance in each of their markets and oﬀer information that breaks through the clutter of market declines or competitor growth. Once your sales force understands that you will hold them accountable for their own performance in their markets against their competitors - rather than for market performance and new competitor growth that they can’t control – you’re one step closer to having a productive conversation that leads to true sales performance. So how do you calculate this key metric? An example is probably the easiest way to explain. First, let’s look at a growing market: Sales Performance Metrics Total Loans in Market Company Loans in Market Company Market Share Total Competitors in Market Loans Per Competitor In Market

Last Year

This Year

% Change

1,000 100 10.0% 100

1,200 110 9.2% 140

20.0% 10.0% -8.3% 40.0%

10.0

8.6

-14.3%

Sales Performance Metrics Company Adjusted Performance

100

128

28.3%

Company Adjust Performance Calculation Current Company Loans 110 x Past Loans per Competitor 10.0 / Current Loans Per Competitor 8.6 = Current Adjust Performance 128 After reviewing the example above, the first point that stands out is that all three sales metrics are vitally important in understanding the whole picture and making appropriate decisions. Funding volume growth shows that the company in question is successfully increasing total volume, and hopefully, revenues. Any analysis that stops there, however, would miss the fact that the company’s market share declined as the market grew faster than the company. That’s great from the standpoint of the company identifying a good market ahead of growth, but may also be a sign that key competitors are investing in the market and growing their share, while the company analyzed here could simply be riding the wave of a favorable market but ultimately is in danger of being left behind. Lastly, the new metric under discussion here shows that if all competitors (including new entrants) achieved similar volumes, the company outperformed in delivering a 28% gain in performance over the average competitor experience.

September 2008

So what is this telling the company in question? The company is in a good market, but one where competitors are growing faster than unit volume. The company’s sales and marketing eﬀorts have successfully outperformed this landscape though, managing to grow volume in the face of a tougher competitive environment. So let’s look at a situation where life isn’t as rosy for the sales team. In the following example, all factors are the same except that competition has decreased while volume increased at both the company and in the market overall. Sales Performance Metrics Total Loans in Market Company Loans in Market Company Market Share Total Competitors in Market Loans Per Competitor in Market Company Adjusted Performance

Last Year

This Year

% Change

1,000 100 10.0% 100

1,200 110 9.2% 80

20.0% 10.0% -8.3% -20.0%

10.0

15.0

50.0%

100

-26.7%

exploded upward and successfully used the tools outlined here to evaluate where individual sales reps were sinking and swimming on a case by case basis using detailed zip code level reporting. One sales rep in particular was outperforming in an extremely challenging market and received additional marketing support to ensure he stayed afloat. He ended up generating impressive conversion rates on the additional leads as he was re-energized by management’s commitment to success. While not every lender will have the same story, the opportunity for informed decisions is apparent every day in every company. In today’s challenging markets, it’s imperative that you focus on the key metrics that drive your sales performance and re-double your eﬀorts to be in the right markets and understand your performance within those markets, in context with what is happening. Now that summer’s over and we’re all back refreshed and recharged, let’s finish the year strong. Have a great month!

Notice that both the funding volumes and market share are exactly the same, and yet the story is very different here because the competitive landscape has changed. The substantial reduction in competitors is a clear indication that this should have been the easiest market for the company’s sales and marketing efforts to succeed, and yet they underperformed the average in the market. While most companies would reward this performance, this is a situation that merits attention to what is going wrong – other companies in the market are obviously growing much faster than the company and the company’s volume growth is likely attributable simply to a lack of competition in the market rather than performance gains by the sales team. Practical Applications Both of the above scenarios are fairly positive in that we’re analyzing growing markets. While there are still many markets that are growing, the fact of the matter is that industry volume has grown less than 3% so far this year and it’s the declining markets that are making our phones here at the office ring. Particularly in combination with the enormous growth in competitors we discussed at the start of this article, it’s no wonder we’ve already had plenty of opportunities to use this tool in the real world to help industry leaders make better decisions about their sales force. One client here in California was seeing volumes decline at the same time the number of active lenders

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Are You a Strategic Planner? So what is a strategic plan? Have you ever created a strategic plan? Do you have a strategic plan now? Do you have an idea of how much it might be costing you without a plan? Traditionally, we hear of strategic plans in terms of a project five, ten, fifteen years. Well, I don’t know about you, I just want to know what’s going to happen next year or sometimes next month. That’s hard enough. So why is strategic planning important? Without a plan, how are you going to assure that your reverse mortgage business is going to sustain growth? How do you know that you’re going to be in business at the end of 2008 – 2009 if you don’t have a plan? So we can either, throw a bunch of stuﬀ on the wall and hope that it sticks or we can come up with our own plan.

Sam Collins Now that we’ve recognized what we have to do to get past procrastination, you are now ready to move forward with your strategic plan. However, there are some things which get in our way and prevent us from being successful: 1. 2. 3. 4. 5.

Communications Leadership No plan behind the idea Passive Management Motivation and Personal Ownership

Communication tops the list because most often we fail to communicate our strategic plan. We keep it a secret! That’s right. If nobody knows what the plan is, how can they follow it.

Now let me also say that there’s no perfect approach to planning. None of us are perfect. Everyone has his or her own strengths and weaknesses. Most of us procrastinate in getting our plan started. It’s only natural to procrastinate, since it’s easy to put oﬀ something we feel is just not that exciting. Below is a list of things to help you get past procrastination:

Your vision defines where your company wants to be in the future. For example, your vision may be to do 20 reverse mortgages a month or to expand into 10 states. It could be to have 10 branches across 10 states, etc. You have the idea. A vision or mission will help define your strategic plan, without it there is no plan.

• Create a “to do” list. • Break objectives into small steps. • Maybe you don’t want to do this thing at all. Remove it from your “to do” list. • Delegate the matter to someone else. • Notice the critical self-talk – how much energy is being wasted? • Schedule your time. • Be realistic. • Ask yourself “Will doing this support my goals?”

Foundation + Operations + Management Plan = Strategic Plan Foundation: Like any good plan, whether it’s building a house or a business, you must have a good foundation. Somewhat like having a three-legged stool. If you take one leg away, you land flat on the floor. Here are the main ingredients to help establish a good foundation:

September 2008

Mission • Purpose, why your company exists • Vision • Defines where your company wants to be in the future • Values • Main values protected by the company, reflects culture and priorities There are some additional areas to focus on in order to identify your foundation: • SWOT Strengths, Weaknesses, Opportunities, Threats • Competitive Analysis How can you beat or AVOID the competition? • USP (Unique Selling Proposition) Why do business with your company? What makes you diﬀerent You must define your strengths, weaknesses, opportunities and threats. Once you have identified these areas, you are well on your way. Your competitors would be happy to know you have no plan. Why? They want your business! Do a competitive analysis of your competition. Build on their strength and identify their weak areas.

HUD Foundation Specialists

M Manufactured actured Hou Housing sing Troubleshooters T rouble FFoundation Inspections, Upgrades & Repairs EEngineer Certiﬁcatio C ons

Are you different? I bet you are, but have you defined it with your USP or Unique Selling Proposition? You need to have your USP written and verbalized in 1-3 sentences why your senior client should do business with you and not your competition. Your USP should roll off your tongue without hesitation. Now, you are getting somewhere, but you are nowhere unless you have defined your target market. You may be saying, “Of course I know my target market, they are homeowners above the age of 62.” Not so fast. You may want to qualify them a little better to make sure your chances of success are increased. Also, your marketing area may well define and dictate how you target. So, maybe you need a good list provider to give you some specific demographic breakdowns. You probably have a good idea of why your company exists, but have you defined it and have you defined where you want it to be in the future. You must establish values that reflect the culture and priorities of your company. Establishing values is basic when it comes to dealing with seniors, but once you have it in your plan and others know your standards, then you have a well-based foundation to build upon. Operations: Your goal should be to get to the application stage of your senior relationship. Once the application is taken, it does you no good unless you have the right operations to complete the loan application and get it to closing. So, establishing a plan for good operations is essential. Management Plan: A good management plan must have a strong marketing plan and must include the following: Marketing 1. What has/has not worked? 2. Is your marketing consistent? 3. Are you willing to invest? Before spending too much money, you may want to determine what really works. You can determine this very simply, merely by testing. Lack of testing is probably one of the biggest reasons most strategic plans fail. Most of us are too anxious to get started. Once started, we complain the marketing program failed, but what actually failed was us. So, make sure to test. Other than testing, the next biggest failure is lack of consistency. Often we will do a one-time mailer and think that is sufficient. Not so! Your senior client has never heard of you, besides they are getting tons of literature everyday and at the same time they are opening your mail over the trashcan.

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Next, you must be willing to invest to get the results. Once does not cut it. Set yourself a budget and stick to it. Track every dollar, every lead, and make sure you don’t give up. To get your plan moving in the right direction, please take the following into consideration: 1. List 5 opportunities that you are not taking full advantage of. 2. Identify resources that you may not be utilizing. Next you will want to get started on your strategic plan: Consider: • Public Relations Do you know what is newsworthy? Is this a priority? • Professional Development (Are you staying up to date with education?) • Operations/Equipment (Do you have the latest, greatest technology tools for reverse mortgage providers?) • Lenders (Are you associated with the best lenders, with multiple product venues?) • Goals – Dream BIG (but please be realistic, big is not always better!) • Actions Steps (Tactics) • Monitoring/Accountability (keep records and make sure you know what is working)

• Revisions (if something is not working, tweak or change it) • Budget (Set down a budget and stick to it) • Are you leveraging your time? • How many “revenue generating” activities/hours are you dedicated to each day? Once you have set up your Strategic Plan, be sure to avoid the following mistakes: 1. 2. 3. 4. 5.

Too focused on “today” Doing everything yourself Working “in” the business vs. “on” the business Too future focused Not reviewing/revising

Like you and me, most loan oﬃcers originate loans, own their business, run their business and wear many hats every single day within that business. Sometimes they get caught up in the day-to-day stuﬀ. Because they have to do everything and be everything; how can they hold themselves accountable? Can you imagine if you really had a plan in place; so that you didn’t have to go into the reactive mode? You could just be proactive all the time. It’s true it can happen and your success will follow when you have a Strategic Plan in place. Best of luck!

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www.OMNIReverse.com The Nation’s Largest Independently held Reverse Mortgage Originator

September 2008

Behavior of Reverse Mortgage Borrowers A case study by John Brodrick, Alex Teixeira, and Diogo Teixeira.

We analyzed borrower behavior and characteristics for all reverse mortgages we have on file. The results may indicate what kind of borrower behavior other originators can expect. Borrower Characteristics We compiled a random sample of data on 212 loans originated since 2005. Of these, 9 were Cash Accounts and 2 were Homekeepers, leaving 201, or 95%, as HECMs. Only 2 of the HECMs were refinances. 90% were in Massachusetts, 10% in New Hampshire. • • •

Single borrower = 118 (55.6%) Couple borrower = 94 (44.4%) Total individual borrowers = 306

The average age of all borrowers was 75.4 years and ranged from 62 to 98. Within couples, the youngest averaged 73.2 years and the oldest 76.4 years. Six couples had an age diﬀerence of ten or more years with Couple #212 being 29 years apart (he 91, she 62). This is interesting because the HECM calculations make no distinction for gender and are based strictly oﬀ the youngest borrower’s age. For example, our youngest couple, aged 64 and 63 respectively, have a far greater joint life expectancy than Couple #212. We had no cases of two borrowers who weren’t a couple (e.g. no senior plus adult child borrowers) and only one case of three or more borrowers on a single loan. Fifteen of the loans had a trust involved (7%) and eight (4%) had a life estate involved. About 5% involved a repair set-aside. Cash Accounts Of our 9 Cash Accounts, 7 were jumbos averaging $1,134,000 appraised value and ranging from $2 million to $600,000. Two others had values in the HECM range but did not qualify for a HECM. Three of our 9 cash accounts were for multi-family residences. (Of the HECMS, 30 or 15% were for 3- or 4--family residences, (none for 2-family), which are fairly common in Massachusetts.) HECM Appraised Values & Maximum Claim Amounts For our HECM loans, the average appraised value was $358,923. The highest value was $1,565,000 and lowest was $140,000. Because the average value is so high, many loans

were limited by the county limits. (Of course, the limits varied by county and even changed from 2005 through 2008.) For 123 of our 201 HECM loans, the appraisal was below the applicable limit. But, for 78 (or 39%) of the loans the appraisal exceeded the limit. These naturally tended to be in the higher cost Boston suburban areas. (The average single family assessment for all of Massachusetts in 2007 was $404,000.) In our loans, above-limit appraised values were: Above $600,000

9 loans

$500-600,000

16 loans

$400-500,000

20 loans

$362,790 – $400,000

26 loans

Below $362,790

2 loans

(e.g. home located in a lower cost county)

For those loans where the appraised value exceeded the limit, $9,065,000 of value was wasted, or an average of $127,676 per loan. We were able to use this analysis to determine if our entire historic portfolio had been generated using the new origination fee structure dictated in S. 2331, the Housing Reform Bill, we would have lost on average about $900 per loan, or a revenue reduction of about 15-20%, a serious issue since the new legislation had no eﬀect on our costs. Borrower Behavior at Closing Our borrowers clearly displayed three tendencies at closing: • • •

About 22% selected the term or tenure option. Paying oﬀ liens at closing is very common – 79% did so. Not taking all of the available money and leaving something in the line of credit.

Term and Tenure We had 38 borrowers (or 19% of the HECMs) choose the tenure option. An additional 6 borrowers chose the term option, with term length ranging from 5 to 15 years. The average monthly payment across all term and tenure borrowers was $914.63, and ranged from $160 to $5000. (In this latter case the 86-year old borrower chose a term of 55 months, taking no lump sum and eﬀectively exhausting the line of credit.) The highest tenure payment was $1595.41 to an 83-year old.

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About 25% of our term/tenure borrowers chose a specific, rounded, monthly amount and had the line of credit calculated accordingly. But 75% worked in reverse, first selecting a round amount for line of credit and/or lump sum and having the term/tenure amount be a calculated, usually odd, amount. For example, borrower #146 chose a lump sum of $25,000, a line of credit of $100,000 and was left with a monthly tenure payment of $862.46. Tenure or term borrowers tended to be a little older, averaging 79.3 years, or 3 years older than the average. Due to the higher age, only 35% were couples– as opposed to 45% for all borrowers. Our oldest tenure borrower was 98. Of the net principal limit, term and tenure borrowers (on average) allocated: • 5.3% for lump sum payments • 15% for lien payoﬀs • 27.2% for the line of credit • 52.5% for the NPV of the term or tenure payments themselves 12 of these 44 borrowers (or 27%) left themselves with no line of credit. Only 14 had no liens to be paid oﬀ. Lump Sum The lump sum is an area where borrowers have clear choices. Our borrowers chose lump sum amounts as follows:

None

23%

$350 (e.g. to pay for the appraisal)

10%

$350 - 9,999

14%

$10,000

10,001 - 19,999

12%

$20,000

$20,001 - 49,999

14%

$50,000 - 99,999

100,000 +

The highest lump sums generally occurred with Cash Accounts; the largest was $325,000. The highest HECM lump sum was $294, 317, which was 100% of the net principal amount. We had only two borrowers (or 1%) who neither paid liens off, elected term/tenure, or wanted a line of credit and the lump sum effectively equaled the net principal limit. The average lump sum was almost $27,000 but was only $22,432 excluding the cash accounts. Lien Payoffs Only 21% of our loans had no lien payoff. The remaining 79% of borrowers paid off an average of $76,650. Most money went for first mortgages but an unknown share went for tax or other liens. The high was $526,393 (from a cash account) and the low was a nominal $5. About 28% of the payoffs were above $100,000.

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Line of Credit Selection The line of credit absorbs whatever net principal limit doesn’t go to lump sum, lien payoﬀs, and term/tenure NPV. (Net principal limit is calculated after closing costs and servicing set-aside are deducted from the principal limit.) 87% of our loans had a line of credit. The exceptions either had large liens or large lump sums and displayed a high proportion of term/ tenure loans. Excluding cash accounts, our largest HECM LOC was $263,200 to the same 98-year old mentioned above who had a tenure payment. Our lowest LOC was $415. The median LOC was $100,000 and the average was $92,243. HECM borrowers who did not choose a term or tenure plan appear to act reasonably conservatively. Their net principal limit was divided as: Paying oﬀ liens

34.3%

Lump sum at closing

13.3%

Line of credit

52.4%

This is not the whole story. Lien payoffs are mandatory and of course is a major reason for seeking an RM. What about beyond that? Of the monies left after lien payoffs at closing, a mere 20% is actually withdrawn at closing. 80% is reserved for future use. Of course, borrowers have no choice, in a sense, as to the size of the line of credit. They have to get it and the line per se costs nothing. All they can do is not access it if they don’t want it. But, it seems clear most borrowers are not so drowning in debt or burdened by other expenses that they need to use most of the money at closing. Borrower Behavior after Closing Borrower behavior after closing involves these questions: 1. When do borrowers withdraw how much from their line of credit? 2. Do borrowers ever change their plan? 3. To what extend do borrowers pre-pay? 4. Last, what do they do with the money? Our project allowed us to shed some light on these questions, even if definitive answers require more work. In particular, the fungible nature of money makes identifying RM expenditures difficult. We were able to review a sample of HECM borrowers whose line of credit ranged from 20 to 29 months old. Conclusions were: • 84% had made at least one withdrawal from their line of credit, but 16% had not; failure to do so was not related to how old the line was. • Of 118 separate withdrawal events, 101 (or 85.6%) were $10,000 or less. • 17 withdrawals (or 14.4%) were greater than $10,000; the

• •

largest being $50,000. (In addition, one borrower made two $30,000 withdrawals on the same day.) The average withdrawal amount was $6844 and the median was $5000. On average, there were about 4 withdrawals per person. The most active person in our sample took 13 withdrawals in 19 months. The average time between withdrawals was 3.8 months and the median was 2 months.

One withdrawal pattern is for the borrower to take out a large sum of money (greater than $20,000) within a month or two of closing and then not touch the LOC for an extended period of time. Apparently, they wish to minimize transaction hassle. A second pattern involves the borrower not making any withdrawals when the LOC becomes available, perhaps because the money they received in a lump sum from the closing is suﬃcient to provide for them for several months. Yet, after a year or so, the borrower makes their first withdrawal, and then more frequent withdrawals follow. A third pattern is a borrower with no or very limited withdrawals - less than 10% of availability. The logic here is straightforward—the borrower doesn’t currently need cash, or wants to maximize the line growth. For our sample, the average original LOC was $106,474. Subsequent line growth raised the current line to an average of $121,069. Yet, the average total amount withdrawn from the line (including accrued interest) was $28,066, meaning only 23.2% of the available money had been withdrawn. As a distribution, 1. About 10% had less than 20% of their LOC left after about 2 years. They tended to have lower original lines, averaging about $30,000. 2. Another 10% had between 20% and 50% of their line left 3. About 37% had between 50% and 90% left 4. About 43% had over 90% left, half of whom had 100% left. Two examples: 1. Borrower #8 (85 years old), had an original LOC of about $212,000, left untouched for the first 18 months, but then began making $1000 withdrawals on alternate months. 2. Borrower #32 (74 years old) started with a line of $24,000 and drew almost all of it the first month. Most borrowers aren’t totally rigorous in withdrawing money, i.e. $5,000 every other month. They tend to be fairly erratic, both in frequency and amount. Otherwise, they could have opted for a tenure/term plan. The majority of withdrawals (85.6%) are in even figures (e.g. rounded to the nearest 500), suggesting general usage for goods and services, not anything specific. The remaining 14.4% of the withdrawals are very specific amounts (e.g. $6,404), suggesting the borrower was paying one or more specific bills, such as taxes.

September 2008

Borrowers with a tenure plan tended to utilize the line just as much as borrowers without one. Approximately 2/3’s of tenure plan participants make frequent withdrawals, about equal to those without tenure plans. A key issue is whether borrowers will exhaust their LOC before mortgage termination. The average age of the borrowers in our data set was 78.6, with a weighted female-male life expectancy of about 10 years. Given 23% of the lines had been withdrawn in about 24 months, the average borrower will use up the line in about 8 years, two years short of termination. But, there is a clear dividing line between those spending down the line quickly and those not doing so. We estimate that approximately 50% will exhaust the line prior to termination and will therefore have a balance close to or exceeding the original principal limit. Changes Out of 31 observed borrowers, we picked up: • 1 borrower changed their plan: adding a $3000 monthly term payment 7 months after closing • An 85-year old borrower repaid $50,000 about 2 years after closing, eﬀectively doubling their line of credit. While these are individual stories, our estimation would be that repayment and plan changes occur in no more than 5% of accounts. Spending the money Our respondents indicated general areas where the RM money had gone. In order, the areas were (multiple answers allowed): Home repairs

66%

Taxes & insurance

48%

Debts, e.g. credit cards

34%

Utility costs

27%

Automotive

23%

Food & household

21%

Medical expenses

20%

Travel

16%

Clothing & personal items

12%

Gifts

12%

Charity

Annuities or other investments

Nursing or rehab

Major purchases

Long-term care

64%

Somewhat pleased

18%

Neutral

Somewhat dissatisfied

Very dissatisfied

We could find no particular correlation between satisfaction level and line usage or other financial metrics. However, our sample was small. Summary Lien payoffs and line of credit usage remain the most valued components of a reverse mortgage. However, frequent line of credit withdrawals, and the fact that they are, on average, so much larger than typical term/tenure payments, mean up to half of all borrowers will exhaust the line prior to termination. In those cases, they might have been more financially prudent to have selected the tenure option. Our analysis had insufficient data to prove (or disprove) a hypothesis that those who take a larger lump sum at closing tend over time to withdraw more from the line than those who don’t. In other words, either financial necessity or standard of living increases incent them to “prime the pump”, so to speak, toward extra spending. The diversity of borrower behavior is clear and makes a strong argument for additional reverse mortgage products. The HECM today is a “one size fits all” arrangement. It is flexible but most borrowers don’t use the flexibility. The low limits mean substantial borrowing power is lost and certain higher home value segments likely see less utility in the product. The withdrawal patterns imply up to half of borrowers will exhaust their lines prior to mortgage termination. This could have a serious impact on their life style, once they are accustomed to the line. However, we could not analyze this issue from our database of current borrowers. The general satisfaction of borrowers is also evident, as is the variety of expenditure purpose. Practical, but not “dayto-day” expenses seem to take priority. Items that could be deferred, especially repairs and taxes, are way ahead of some items that get more attention in the media, such as annuities or long-term care. The extremely heavy emphasis on paying off liens is not new news, of course, but does serve to make the point that, for many borrowers, a reverse mortgage is mainly a conversion of a forward mortgage. The main benefit is simply elimination of payments. Others have already proposed convertible forward mortgages and our research would seem to support that idea.

Evaluation Borrowers’ opinions of their RM are partially a function of their understanding of the RM. We recorded the following:

Extremely pleased

All in all, reverse mortgages have a valued role to fill in the future. But the product needs expansion and diversification to completely meet the variegated needs and behavioral patterns of borrowers.

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Don’t Fly Too Fast, You Might Break Your Wings Kathie Adler Every day you and I talk with a senior citizen who has a different slant on what they are looking for in the twilight of their years. At a time in life when the things you thought mattered really don’t, you come full circle to find out what your real needs are. Every one of us has come across a senior friend who needs more than we can sometimes give. However, we all realize it’s important to be there, to listen, to care. That is, if doing what we do is more than a job--- if it’s a mission. What is the heart of the Reverse Mortgage industry? What are we really looking to accomplish besides getting a paycheck? I share this story about what it’s meant to come alongside a senior friend who has less time left in life than we do. Many of us have stories just like this. I share this with you, my readers, in the hopes that all of us will have a deeper understanding of what this business can mean to just one person-- the person you may meet tomorrow-- the person you may never see again. Growing up on Long Island, I have memories of my aunts, uncles, and grandparents. Back then things were very different. The cost of living didn’t choke you. It seems we respected our elders much more than society does today. As I interacted with my grandparents, they seemed secure. Not rich, just secure. Their life seemed carefree and stress free. My grandparents were welcomed into the homes of my aunts and uncles to live there as they aged. I marvel at the great respect we had for our elders. Somehow, in America, many cast off their elders with a wink and a nod, and the appreciation for their rich history just isn’t there. The stress of daily living in the 21st century has caused many of us to rush around and forget what’s right in front of us.

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We, who come in contact with the senior community, are in the unique position of interacting with the most interesting people who have a story to tell.

we did. We were always conscious of that fact. Charlie’s mom lived well into her late 90’s, and we were certain Charlie might hit 100.

As regards my intense belief in Reverse Mortgages, and I mean no disrespect, but today we have nursing homes--now called Skilled Nursing Facilities . Ask yourself if this where you want to spend the rest of your life? Most seniors would say, “No.” Surely, nursing homes have their place. But we all know that many of them are understaﬀed and infections spread more easily in such an environment.

Spending time with Charlie became more enjoyable. Each time I’d take Charlie to dinner he’ d say “But I should be taking you to dinner!” My answer was simple: “When I invite you out to dinner, I pay!” Charlie was unkempt, he didn’t always dress right, his clothes didn’t match, but I was always proud to be around him. Charlie became my mission in life, one more person to help, one more person to give a little joy to before the twilight of their years became sunset. In his own inimitable way, Charlie would say, “I like you. You like me. I think we’ll get along.”

Being in the senior industry, we also know that a senior citizen with one-on-one daily in-home care along with a Reverse Mortgage to help pay for it, can help a senior citizen remain in the community with all their friends, stay in familiar surroundings, and perhaps live a longer life. Nosocomial infections do not exist in their home to attack them. They are taken to the bathroom when they want by their caregiver, not when the aids want to bring them. And let’s face it, who can argue that a home cooked meal tastes much better than in a facility. Now, to the point of my story. I’d like to tell you about my friend Charlie. Charlie was an interesting 93 year old senior, born in 1914, who I met through a Reverse Mortgage postcard program. His gruﬀ voice on the phone masked his true gregarious personality. When I met Charlie for the first time, his family was curiously absent. Instead, his caring neighbor was there to check me out. Charlie later told me the story of how he wasn’t very nice to his children years before. But it was such a long time ago. Apologies were made--- all to no avail. Ten grandchildren and four daughters were not visiting Charlie anymore. This made him very sad. His neighbors took their places and made sure Charlie was given the provisions he needed. They cleaned his house. They took him shopping. They visited him twice a day. One neighbor served Charlie home-cooked meals while he enjoyed her baby. Other days he’d sit at the local body shop and chat with the guys to quench his loneliness.

In my nearly five years of meeting seniors, I have found one thread, one thing my senior friends want: not to be alone---to have friends and family that need them. In my daily visits to Charlie, he showed his appreciation by saying the sweetest things, which I shall never forget. “How can I ever repay you? I’m so glad you’re here. You really made my day!” One day I walked through the front

Charlie got his Reverse Mortgage and the frown he wore when I first visited began to change to smiles. But he was even happier that we had become friends. I would take him out to dinner, we went to breakfast, we went to lunch, we spent hours and hours watching TV until ten o’clock in the evening. And then he would beg me not to leave. Mostly Charlie liked to talk. He was as sharp as a tack, the sharpest elder I have seen in many years. I started visiting Charlie every day, so often that my husband became a Reverse Mortgage widower! And then even my husband visited Charlie! At 93 years old, Charlie had fewer years to live than September 2008

door of Charlie’s house, and Charlie grinned. In his typically gruﬀ voice he said, “I need to call a carpenter to cut a hole in my ceiling.” I was puzzled. “Why, Charlie? Do you want to put a skylight in?” He answered, “No. I need a carpenter to cut a hole in the ceiling because when you walk through that door, the heavens open up and the angels come down.” It nearly brought me to tears.

Charlie touched me on the shoulder. He was going to wait in the car for me. I will never forget the words he spoke: “Don’t fly too fast. You might break your wings.” This time I did cry. And do you know what? Maybe that’s what it takes.

Each time I heard words from Charlie, I thought to myself: “Here we are. We talk about helping our community. We talk about community service. Yet we have the opportunity right in front of us to serve by serving our senior population; the people who made America great. Do we just get on with the transaction and then walk away?”

Charlie died of septicemia within three months of being admitted to a “skilled nursing facility”, something that broke our hearts. He had his Reverse Mortgage. He was just beginning to enjoy his life again. He was waiting for his money to stack up so he could have a live-in aid. But Charlie never got his wish. His family made other decisions for him--- and he never came back home. Every time I visited Charlie in the nursing facility, he would tell me, “I’m going to die here.” I told him I didn’t think so. He begged the nurses, ‘When do I get to go home? Tomorrow? Can’t I just leave?” One day, all his friends were barred from ever visiting Charlie again. The last we would see of Charlie was him sitting in his wheelchair begging to go home.

One day I couldn’t fulfill my daily visit, so I invited Charlie to come with me on my run to Kohl’s, Verizon, and beyond. “Okay. I’ll go.” I lifted Charlie’s wheelchair into my car. I could get things done quicker if I could whizz Charlie around the stores rather than he use his cane. At the Verizon store,

I like to think that those short months we spent together were as sweet for Charlie as they were for me. I thought I’d have more years with Charlie. For sure, his neighbors thought so too. Now, I picture Charlie just as I remember him. And that he is not flying too fast either.

Here was a man who wanted company so badly, who so appreciated spending time with someone so much, even if they only had the title: Reverse Mortgage Specialist. Just a Reverse Mortgage specialist? That’s all? We are so much more.

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