The Reverse Review March 2010 by The Reverse Review

March 2010

THE

REVERSE review

The Cold Hard Truth We Asked The HECM Fraud Unit Questions and They Answered! Michael Banner page

Fraud is an issue that continues to plague our industry and as Reverse Mortgage professionals we must be vigilant and educate ourselves on ways to detect and avoid predatory acts from occurring within our community. This month, Michael Banner had the opportunity to interview Inspector General Kenneth Donohue of the HECM Fraud Unit and discussed the issue of fraud itself, the different types that exist, ways to detect it, and the greater purpose served by the HECM Fraud Unit.

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© 2010 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, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127

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note from the editor

s the economy begins an upward climb, itâ&#x20AC;&#x2122;s already clear that weâ&#x20AC;&#x2122;re on a new and different road. There are fresh realities that are redefining the world of reverse mortgages overall, but especially the culture of our industry. Currently, there may seem like enormous obstacles are on the horizon for small businesses. Taxes are out of control, credit remains tight and banks are still stingy. Add the thorny and expensive topic of health care and things seem just downright gloomy. But guess what? There are more people than ever who are gutting it out, building strong relationships and keeping the faith. We are banding together and taking positive steps in an industry that helps our seniors.

The Reverse Review was privileged to take part in our spotlight interview with The HECM Fraud Unit, and see how the good people of the reverse mortgage industry are being protected in order to provide a safe and flourishing environment for the future. Finally, as the industry changes, so do we: weâ&#x20AC;&#x2122;ve launched a new version of our website with the hope of providing our growing community with an online platform that is more interactive and different than anything else in the reverse channel. Check it out! www.reversereview.com - We appreciate any and all feedback.

Erica English Editor-In-Chief

Which brings me to the feature of this issue.

March 2010 TRR

CONTENTS

14 Hispanics - The Untapped 24 HECM For Purchase: Market

Waiting on Texas

Bert Gonzalez

W. Scott Norman

30 6 Fool Proof Secrets to Improve Your Origination Efforts Sam Collins

18 FEATURE : The Cold Hard 26 Just What the Compliance Truth - We Asked The HECM Fraud Unit Questions and They Answered! Michael Banner Kenneth Donohue

Doctor Ordered A Preventative Dose of Reverse Mortgage Examination Guidelines

Weiner Brodsky Sidman Kider, PC

ESSENTIALS 5 Note From the Editor

8 Ask the Underwriter

12 Industry Stats

32 Ask the Servicer

33 Directory

34 The Last Word

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March 2010

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ask the underwriter Marching into Madness? Ralph Rosynek Getting back to basics and being able to view your situation through the eyes of a group of students in a classroom environment is a great way to take a moment, pause and try to sort some things out. I recently had the opportunity to teach a local reverse mortgage “101” class for new participants in our industry. The class was surprisingly populated by mostly new loan originators who either had no prior mortgage origination experience or were in the process of seeking additional knowledge to add this loan product to their “forward” menu of consumer offerings. With new state and federal licensing requirements, many loan originators have been hitting the books lately to complete required continuing education units. Somewhat unusual to this particular class were the discussions which evolved, and the overall tone of trying to make sense of the continuously moving HECM product with relation to serving seniors. The program features and benefits were well received, however, the road trip of originator frustration began with a timeline perspective of the last two years or so of changes, adjustments, reconsiderations and reactions that have occurred in our industry. A few of these “opportunities” spotlighted included: • • • • • • • • • • • • • •

The effects of the Wall Street collapse to an emerging industry Post Wall Street shifts in product availability and pricing GSE issues resulting in a weaker Fannie Mae and a stronger Ginnie Mae? HERA - immediate as well as ongoing timetables of changes Counseling Issues in flux related to protocol, effectiveness and access/ availability Declining property values and some very poorly devised consumer and originator “workarounds” which facilitated additional product changes and guidelines Changes in originator licensing requirements Government program assessment – issues of profitability and viability Ratcheting down principal limit and risk assessments and future possibilities Heightened regulatory and legislative actions placing additional disclosure and procedural requirements on reverse mortgage transactions The implementation of appraisal management companies RESPA changes, a new good faith estimate and its counterpart the HUD-1 “Change Events” – when is an application an application – and what kind of application is it HRAP and DELRAP, can the condo process be more confusing?

And then the madness for all (which certainly was not part of the class syllabus) began when one of the students finally asked the question – “with all of the fears, changes and instability it seems, how does this product benefit the senior any longer, and should we really consider offering it?”

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I guess I froze for a moment, because I went back and looked at the whiteboard utilized to layout the above list and realized this question was not the typical query of the past. There wasn’t a need to deal with the “it’s expensive” issue, the misconception about the bank holds title to the home or the one about what the seniors do when they run out of loan proceeds – these were all missing from the list. For the first time, someone relatively “new” to the HECM way of life stood up and asked what about the senior. The moral of the story is that (with so many cooks in the kitchen trying to protect the senior) to date it appears we have actually thrown up some serious additional barriers which are preventing seniors from achieving their ultimate goal in accessing the HECM product – remaining in their home and/or attaining financial stability. One can’t help but recognize the need to “help” but too often we have recently seen that helping in the form of legislative and regulatory efforts addressed toward controlling a small element in the market can result in lack of access for a much broader and “needier” group of consumers. Despite the madness of the discussion and class interaction, I took comfort that in the summation of the class comments and perspective, the lesson learned about the HECM product by the students is that despite the adversities, the product does serve both a needed and valid purpose for many seniors who desire to remain in their homes and maintain financial stability. No doubt our industry will continue to experience change resulting from a number of perspectives. The fact remains that education continues to spark the question, “is there a method to the madness and at the end of the day, has the senior been served?” I encourage you to remain educationally and legislatively involved in our industry to serve seniors and provide needed input as new issues arise.

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contributors Ralph Rosynek - Ask The Underwriter, page 8

Ralph Rosynek is President and CEO of 1st Reverse as well as a HECM DE Underwriter. 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.

John Lunde - Reverse Market Snapshot, page 12 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.rminsight.net or call 949.281.6470.

Bert Gonzalez - Hispanics - The Untapped Market, page 14

Bert is a recognized economist, author and marketing expert in the finance field since 1985, who is frequently interviewed on television and radio for his market and economic insight. Born in New York in 1964, Bert is also the founder and CEO of CityOne Mortgage Bankers, where his proven strategies in the HECM industry, have resulted in record growth and profitability. www.reversesystems.com. 305.406.2323.

Michael Banner - The Cold Hard Truth - We Asked The HECM Fraud Unit Questions and They Answered!, page 18 Founder of LoanWell America, Inc., Michael is one of few Reverse Mortgage professionals accredited to teach continued education classes to CFP’s, CPA’s, attorneys & insurance agents. Michael has been interviewed by the Wall Street Journal, Tampa Bay Business Journal & the Reverse Mortgage Wire. A member of NRMLA’s State $ Local Issues Committee & sits on the Board of Directors of FPA of Tampa Bay. For more information: Michael.Banner@loanwellamerica.com or 877.700.0555.

Kenneth M. Donohue - The Cold Hard Truth - We Asked The HECM Fraud Unit Questions and They Answered!, page 18 Kenneth M. Donohue has been IG since 2002. After retirement from the U.S. Secret Service, Mr. Donohue was named Chief of Investigations for the Resolution Trust Corporation. Afterwards he consulted in the private sector. A graduate of St. Thomas University, he and his wife Kathleen have four sons and one grandson.

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contributors HECM For Purchase: Waiting on Texas, page 24 - W. Scott Norman Scott Norman is the President-elect of the Texas Mortgage Bankers Association. In 1999, Scott founded the Texas Association of Reverse Mortgage Lenders Association where he managed three successful campaigns to amend the Texas Constitution to enhance reverse mortgage lending in the Lone Star state. Scott served on the NRMLA Board of Directors from 2005 until 2009. 512.423.4545. www.texasmba.org. Just What the Compliance Doctor Ordered - A Preventative Dose of - Joel Schiffman Reverse Mortgage Examination Guidelines - page 26 Joel Schiffman is a member with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. Mr. Schiffman can be reached at schiffman@wbsk.com or by telephone at 949.798.5570. Just What the Compliance Doctor Ordered - A Preventative Dose of Reverse - Fed Kamensky Mortgage Examination Guidelines - page 26 Fed Kamensky is an associate with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. Mr. Kamensky can be reached at kamensky@wbsk.com or by telephone at 202.628.2000. 6 Fool Proof Secrets to Improve Your Origination Efforts, page 30 - Sam Collins 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 or 877.262.7656. Ask The Servicer, page 32 - Ryan LaRose Ryan LaRose is the Executive Vice President of Celink, an independent reverse mortgage subservicer. Ryan has over 12 years of servicing experience; exclusively in reverse mortgage servicing since 2005. In addition, Ryan is an active member of the NRMLA servicing and technology committees. Visit his website at www.CeLink.com or contact him directly at 517.321.5491. The Last Word, Page 34 - Dave Bancroft Dave Bancroft - David Bancroft is the Executive Vice President of Sales for Security1Lending and former founder and President of Omni Reverse Financing Inc. 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. OmniHome Financing 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. www.S1L.com or 800.628.5093. March 2010 TRR

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The great thing about the Hispanic Market is that the big guys don’t know how to capture it, sell to it, or service it properly. This leaves the door wide open for small to medium sized firms to dominate this demographic. Is it profitable? You bet it is! THE PROOF Consider this factual case study. A small Florida company, having never closed a HECM before January of 2008, launched their initial marketing campaign focusing mainly on Hispanics in perhaps the most fiercely competitive market in the country. The strategy propelled them to number one in their home city, topping Wells Fargo and Bank of America in only their twelfth month1, and as high as 16th in the nation2 after only twenty months. In their second year of HECM originations (Fiscal 2009), their Hispanic market strategy would make them number three in the entire state of Florida, behind only the two previously mentioned behemoths who have branches on almost every corner.

The RESPA Challenge

Their results took the State by storm, and prove that a market, which almost every lender perceives as an inconvenience because of the language barrier, can pay off handsomely. One more telling detail demonstrated in the table below is that they hit those numbers generating business from primarily one city and one demographic. What better proof is there? That’s the power of the untapped Hispanic customer. Here are some numbers at the end of fiscal 2009 complied for HUD’s HECM Endorsement Report for September 2009 and HUD’s Neighborhood Watch Website for comparison. Lender

Nationwide

Markets Florida Miami

Bank Of America

8644

1240

490

Small Florida Mortgage Co**

449

428

419

Wells Fargo

18997

1001

363

Guardian First Funding

834

355

120

Genworth Financial

764

113

Generation Mortgage

1595

**98% of CityOne’s HECM’s were made to Hispanic borrowers. In the table above, Genworth & Generation, who may not be focusing on Florida retail business, are shown mainly to highlight the ratio of the number of retail markets they’re in (FHA Field Offices) as compared to their total nationwide retail loan volume. When compared to the subject company, the dominance of the marketing strategy in the geographic area the subject does business is staggering. Just imagine what the nationwide numbers would be if they had launched in five or six heavily Hispanic areas of the country simultaneously. If they only produced 60% of their Florida numbers in five other markets, they would have added 1,284 loans and ranked eighth in the entire nation for fiscal 2009. Concentrating on Hispanics is a powerful market strategy! A GROWTH STRATEGY Market and census research abounds with proof that the Hispanic Market is large and growing at an astounding rate. Here is some data. • • • •

Hispanics are now the largest Ethnic Group in the United States 40.4 Million Hispanics in the U.S. 13.83% of the total U.S. Market 1 out of every 8 U.S. residents is Hispanic

Stricter RESPA rules, lower principal limits, a more complex FM1009 and other changes pose a serious challenge to our industry. Lenders will take on additional responsibilities and need to be meticulous while working with brokers. Brokers will lose all or most of the YSP and any mistake made in the GFE could cut into their origination fee as well. But there is also good news around the corner... ReverseVision Inc.

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March 2010 TRR

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• •

10.7 Million Hispanic Households By 2050, Hispanics will comprise 25% of the population in the U.S (Source: Current Population: U.S. Census October 2000) Hispanics Show the Highest Growth in Homeownership in the U.S. Race/Ethnicity

% Growth

White

+4%

Asian/Other

+7%

Black

+9%

Hispanic

+13%

(Source: Simmons Hispanic Univision Study) I know what you may be thinking. Those 11 million Hispanics households are still a whole lot less than the rest of the population. Although statistically correct, catering to this market, as our case study has proven, is like finding that small fishing hole that no one knows about; it’s not the Atlantic Ocean, but it’s full of fish, and you just may be the only one with your line in the water. The market is tremendous now, but it will become even better over time. Here is some more eye opening information that projects future homeownership by the Hispanic population. In a 2003 comment from the Congressional Hispanic Caucus Institute, quoting US Census Bureau figures:

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“The homeownership rate for Hispanics in the U.S. (46.1%) continues to lag significantly behind the nation’s overall rate (68.1%), as well as that of non-Hispanic Whites (74.6%). Over the past 10 years, however, Hispanic rates have improved, and in some cases Hispanic homeownership has grown at a rate three times higher than that of other non-Hispanic groups.” A brand new report out of the University of Southern California (USC) called, The Homeownership Potential of Mexican-Heritage Families states, ”84 percent of Latino renters ‘strong’ desire to buy a home and 55 percent plan on buying in the next five years. As a result, the Tomas Rivera Policy Institute (at USC) estimates at least 1.5 million Latino households will buy homes by 2010.” Based on this information it is reasonable to surmise that since 50% of American Hispanics are in Texas and California, half those buying homes will also be in those two states- so 750,000 Hispanic households could buy homes in those two states by 2010. All this looks great for the forward market, but don’t forget that forward borrowers become reverse borrowers, and a good portion of these buyers are surely close to becoming HECM Eligible. From my perspective, the Hispanic community looks like a pretty good basket to put some of your eggs in. SE HABLA ESPAÑOL? Our case study proves that the traditional message of “Se Habla Español”, indicating your company can do business in Spanish just doesn’t cut it. First & foremost, to implement a successful plan, you have to let go of your preconceived notions on how to handle the

Hispanic client. Particularly when dealing with the older generation, strategies that apply to the younger and hipper Latino, or simply translating marketing campaigns and materials just don’t work. Lately, some of the big companies have been trying to capture their share of this lucrative market. Just walk into any BofA branch in a predominantly Hispanic neighborhood, and you’ll see that the Spanish posters and translated materials are there, however, they are still light years away from understanding the culture and nuances that are the key to success in truly capturing this market. For example, Bank of America has Spanish signs and personnel in their branches, yet in an interview with a branch loan officer I discovered that they don’t follow through to processing and customer service. As ridiculous as it may seem, when a non-English speaking Hispanic applies for a mortgage or reverse at most large lenders, all the correspondence and processing is in English, necessitating translation to the borrower through branch personnel or family members.

The RESPA Opportunity

To do it right and dominate the Hispanic Market, you have to abandon the traditional approach of hiring a token Hispanic to handle the random call, to a full service Hispanic division. Hispanic ads, materials, originators, back office, correspondence, and even phone menus and messages on hold. The great part is that any Hispanic personnel you hire to do this can also cater to your traditional English-speaking clientele, so you don’t need a complete duplicate workforce, just enough bilingual people to handle your projected business. Next, you have to understand what marketing and sales processes Hispanics respond to. No, it’s not all the same across cultures, and assuming Hispanics watch, listen to and respond like Anglos is pure folly. Heck there are even differences among Hispanic sub-groups! Do Hispanics like doing business on the web? Will they apply for a mortgage over the phone? Do they toss their junk mail as quickly? Do they respond to celebrity endorsements? These questions and more must be asked and answered to avoid costly mistakes. I’ve structured these types of processes and campaigns personally, and it’s not as difficult as it sounds. The reason most companies can’t turn their Hispanic marketing campaign into millions of dollars of revenue like our small Florida lender has, is that they don’t commit to doing it right. The old “let’em learn English” or “if they want what I have, they’ll come”, is not only a failed policy, but also, any smidgen of truth those statements could have had, just got blown out of the water as we saw in this case study. If you’re interested in the kind of numbers that can be produced in this niche market, but don’t know how to get started or you’re just too busy to do it, get someone to do it for you. If not, you may wake up one day to find that a company, not unlike the one we highlighted here, is in your backyard feasting on the business you chose to ignore. Trust me; it happened in Florida, and I’m sure that the lessons learned from this “little company who could” will not be overlooked for much longer. Folks, this is the number one niche within our niche, and right now, it’s still up for grabs. January 2009 HUD HECM Endorsement report ranked CityOne as first in Miami above both BofA and Wells Fargo. 2 HUD HECM Endorsement report for August 2009

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March 2010 TRR

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nspector General Kenneth Donohue of the HECM Fraud Unit has taken the time to answer questions regarding the cold hard truth surrounding the sensitive issue of fraud and how it can affect our industry. I asked direct questions and I got back direct answers. This is exactly what our industry needs right now. It’s well worth reading, its well worth heeding… I would like to start with a brief statement about our organization and our work. The Department of Housing and Urban Development Office of Inspector General (HUD OIG) is established to provide independent and objective reporting to the Secretary, Congress, and the American people through its audit and investigative activities.We are charged specifically with identifying and combating waste, fraud, mismanagement and abuse in the administration of HUD’s programs and operations including, among others, the Federal Housing Administration. The HUD OIG’s goal is to ensure that the billions of taxpayers’ dollars appropriated by Congress for HUD programs along with the FHA’s insurance premiums are used efficiently and effectively. The housing and mortgage crises over the last few years resulted in HUD and its programs being placed front and center in dealing with the complex issues created from this critical economic situation.The HUD OIG’s Office of Investigation has increased the number of open single-family mortgage fraud criminal investigations by 82%. Together with the FBI, we now have more than 1,500 criminal investigations involving mortgage fraud.The HUD OIG is actively investigating HECM fraud cases involving literally dozens of targets, hundreds of loans and some big names in the industry.

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We continue to be leaders in investigating mortgage fraud. In December 2008, HUD-OIG and the FBI partnered to form the National Mortgage Fraud Team (NMFT). Working closely with the National Mortgage Fraud Team, the Financial Crimes Enforcement Network (FinCEN), the United States Secret Service, and numerous other federal and state law enforcement partners, the NMFT has established more than 70 regional working groups and task forces around the country. The NMFT allows our agencies to bring together their resources, including HUD’s FHA databases, FBI Intelligence and FinCEN data, in order to identify mortgage fraud trends and fraud schemes, create investigation target packages, and provide field agent support. HUD-OIG has also taken a leading role in the interagency Financial Fraud Enforcement Task Force established by President Obama’s November 17, 2009 executive order, and in the Task Force’s Mortgage Fraud Working Group. 1. What are the most common types of fraud taking place right now in the Reverse Mortgage market place? Current HECM fraud schemes range from false statements regarding occupancy of the subject premises, to straw senior borrowers, to grossly over-inflated appraisals. These frauds run the gamut -- from crimes involving single loans to organized criminal enterprises churning dozens of HECM loans. The most common schemes that our agents are encountering involve straw buyer senior schemes. Typically, fraudsters purchase low cost, often uninhabitable homes, and flip those properties to unsuspecting seniors. They then often convince seniors that the homes are free, through special (and non-existent) HUD or American Association of Retired Persons (AARP) programs as part of the federal government’s rescue programs. Once the senior is signed up, the property is quitclaimed to the senior and paperwork is drawn up for the senior to take a HECM against the newly-owned property. Of course, this fraud also involves an inflated appraisal, sometimes as much as 1,000% of the true fair market value. To justify the increased appraised value, fraudsters may do some cosmetic repairs to the home, and then file a lien against the property for an amount equal to the expected HECM net proceeds. When the HECM loan is closed, the fraudsters pocket their ill-gotten gains and leave the senior in a home, sometimes with no heat or air conditioning or working plumbing. A new variation of this scheme involves the HECM for purchase program. Rather than quitclaiming the deed to a senior, fraudsters will “sell” the home to the senior, again at a grossly over-inflated price based on a fraudulent appraisal. The fraudster will typically create bogus down payment documents for the senior as part of the purchase scheme. As in the traditional HECM straw senior scheme, the fraudsters can walk away with tremendous profits and the senior and HUD are left to suffer the losses. Our agents and auditors are actively pursuing these schemers as it is critical to the vulnerable segment of our population and the American taxpayer for us to protect the integrity of the HECM program and the FHA insurance fund. 2. Other than the above, what should we be looking for in the future? You can expect that HUD OIG will continue to work with federal, state and local law enforcement partners throughout the country to combat HECM program frauds. Our fiscal year 2010 overall investigative priorities include specifically focusing on the HECM program and frauds committed against senior citizens. Agents are working closely with the Conference of State Bank Supervisors to coordinate multi-state and multi-jurisdiction reviews, audits and investigations of HECM lenders. We will also take a close look this year at HECM appraisals to determine if HECM appraisals, even appraisals on otherwise legitimate HECM loans, have been overstated. In addition, we are working closely with HUD and the Senate Committee on Aging to improve legislative program requirements in order to close any loopholes that may allow such frauds to occur. We would very much like to enlist and encourage your assistance in providing leads on fraudulent activities identified by your members and readers. You can report these to our HUD OIG Hotline at 1-800-347-3735. 3. The issue of cross selling is certainly the most sensitive subject in the reverse mortgage industry. How do we monitor this while still sending the message to financial professionals that cross selling financial | TRR ofMarch 2010products is in fact illegal?

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The Housing and Economic Recovery Act of 2008 (HERA) added new protections for seniors to prevent lenders and other parties from pressuring or requiring them to purchase certain inappropriate financial products with the proceeds of the reverse mortgage or as a condition of eligibility for the reverse mortgage. Financial professionals have an obligation to put the seniorâ&#x20AC;&#x2122;s best interests first. However, we continue to receive complaints that lenders are requiring seniors to purchase some of these products, and we actively investigate each complaint. In addition to pursuing possible criminal charges, we will refer the lenders, if appropriate, to the HUD-run Mortgagee Review Board for administrative sanctions. And again, we are working with HUD staff and the Senate Committee on Aging to strengthen the rules on the cross selling of products and to increase criminal sanctions for the parties involved. 4. Do you think it would be proper for our industry to develop â&#x20AC;&#x153;suitability standardsâ&#x20AC;? and if so would your unit want to be involved in creating them? We worked closely with HUD in drafting new departmental guidance for the counseling of seniors on reverse mortgages. We would encourage the industry to develop its own ethics and product standards to assist in the education and protection of seniors.

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To this end, the industry needs to develop, administer and enforce ethical standards for the organizations and individuals who market reverse mortgages to such a highly vulnerable population. HUD OIG has proactively spoken to industry groups about the abuses we are finding in this program. We would welcome the opportunity to review and comment on proposed industry standards from our fraud prevention vantage point. 5. What can we expect from the HECM Fraud Unit? Are you here to observe and react? Or be proactive in the development of policies and procedures? Both. HUD-OIG has assigned Assistant Special Agent in Charge Michael H. Stolworthy to the FBI/HUD-OIG National Mortgage Fraud Team. ASAC Stolworthy and a HUD-OIG analyst work closely with agents and analysts from the FBI and FinCEN and other law enforcement partners to identify mortgage fraud schemes and create investigation-targeting packages. We also have agents and auditors working in more than 70 mortgage fraud task forces and working groups throughout the country. As I stated earlier, we have worked proactively with HUD staff and Congress to ensure that proposed regulations, policies and procedures work in the best interest of the reverse mortgage program and to

protect senior participants within the confines of what is the appropriate role of an Office of Inspector General. 6. Does the HECM Fraud Unit have specific goals they are working towards and is there a distinct timeline associated with those points? Our goal, of course, is to reduce the incidence of mortgage fraud involving HECMs and frauds against seniors. We also are working collectively with other national organizations on reducing fraud and on identifying bad players in the mortgage industry. There is no distinct timeline associated with our efforts to combat these frauds. We have committed significant investigative and audit resources to combating these frauds and will continue to do so for the foreseeable future.

Free Counseling from CCCS of Greater Atlanta

7. What percentage of your time is spent focusing on just the Reverse Mortgage industry? The percentage of time varies among our regions and our agents. We have several large-scale investigations throughout the country involving HECM frauds. Agents and auditors working on these investigations spent most of their time working these cases. The National Mortgage Fraud Team agents and analysts currently are spending approximately 25% of their time focusing on issues relating to HECMs. In addition to on-going investigations, we also examine the financial and reporting soundness of the reverse mortgage program through the annual FHA financial statement audit. Our past audits have made several recommendations to the FHA Commissioner to improve FHA reverse mortgage systems that are in the process of development and implementation for FY 2010. “The housing and mortgage crises over the last few years resulted in HUD and its programs being placed front and center in dealing with the complex issues created from this critical economic situation. The HUD OIG’s Office of Investigation has increased the number of open single-family mortgage fraud criminal investigations by 82%. Together with the FBI, we now have more than 1,500 criminal investigations involving mortgage fraud. The HUD OIG is actively investigating HECM fraud cases involving literally dozens of targets, hundreds of loans and some big names in the industry.” I truly feel the Inspector General was being very politically correct in his choice of words and I appreciate it. But the cold hard truth is that the mortgage industry, over the last few years, has created an incredible amount of damage, hurt and pain to itself and the public. Wall Street and Main Street no longer trust the mortgage industry and that mistrust is very well deserved. Now, that being said, I have a real problem with the media blaming the very hard working men and women who make a living originating, processing and closing loans. The blame needs to be aimed at Wall Street and the national players who created the market and sold these absurd programs knowing it would lead to a disastrous end; but that’s an entirely different subject for another time.

Another Benefit for Your Customers In today’s economy, seniors are facing unprecedented financial challenges. That’s why Consumer Credit Counseling Service of Greater Atlanta now offers reverse mortgage counseling at no charge. CCCS is the trusted name for comprehensive, unbiased housing counseling. As a HUD-certified national intermediary, we work hard to ensure that seniors across the United States have easy access to the counseling and support they need to make informed decisions. It’s proof that expert advice doesn’t have to come at a high price. Free consumer information about reverse mortgages is available at www.cccsinc.org/reverse. To schedule a counseling session in English or Spanish, 24/7, call 866.616.3716 or visit us online.

Right now the Reverse Mortgage industry stands at a crossroads. Decreasing of the principal loan limit, increasing MIP premiums and continued decreasing property values all make it harder and harder to make a living. I stand by the claim that we are the noblest part of the mortgage industry and I know all of you reading this agree. We will continue to help the seniors of this nation. So, to all of the great people in the reverse mortgage industry let’s keep fighting the good fight. And to anyone thinking of entering this great industry remember, HUD OIG is watching you along with every one of us! Let’s get out there and help as many seniors as we can.

www.cccsinc.org | www.cccsenespanol.org CCCS reserves the right to rescind or modify this offer at any time without notice.

March 2010 TRR

Consumer Credit Counseling Service ad publication: REVERSE REVIEW

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Since the days of the Republic of Texas, the Texas Constitution prohibited the forced sale of homesteads except for nonpayment of the mortgage, property taxes, home improvement loans or for property settlements in certain divorce and probate proceedings. After 154 years, the voters of Texas finally approved reverse mortgage lending in 1999. Since then, over 32,000 senior homeowners have obtained a reverse mortgage. After ten short years, Texas now ranks third in the United States in total reverse mortgages originated. According to the Texas Department of Savings and Mortgage Lending, in the last 12 months, the Commissioner has not issued any disciplinary action based on complaints against a reverse mortgage broker or banker. Today, the reverse mortgage industry is looking to amend the Texas Constitution to allow senior homeowners the ability to purchase a home with a reverse mortgage. Texas, already the home to the most consumerfriendly reverse mortgage in the country, is also the only state in the nation that does not authorize such a financial transaction, which is known as a Home Equity Conversion Mortgage (or HECM) for Purchase. The HECM for Purchase is an FHA-insured loan that will allow many of the states senior homeowners the ability to maintain and enhance the quality of their lives with a new home purchase. If authorized by the Texas Legislature and voters, senior homeowners, age 62 or older, will be able to use a HECM for Purchase to downsize their existing home, use the equity to make a cash down payment on a smaller residence, and then allow the “HECM for Purchase” to finance their new mortgage. Like a traditional reverse mortgage, there are no credit or income requirements and participants never make another mortgage payment as long as they continue to live in the home. Note: Of the 5.46 million owner occupied homes in Texas, 1.38 million are owned by Texans age 62 and over. Simply looking at the state’s aging demographics shows that we must act now to help provide liquidity and safety to the burgeoning senior housing market. Already the second most populous state in the country

with a current population of 24.8 million, the state projects that Texas’ population by 2030 will add between nine million and eighteen million people, expanding to a total population between 32 million and 41 million. When averaging those numbers, you see a projected population of 36.4 million people, an increase of 59%. That is the equivalent population of another Dallas, Fort Worth, Houston, San Antonio, and Corpus Christi combined! But Texas’ overall population, like the nation’s, is growing older. This aging is a result of the maturing of the Baby Boomer generation, which makes up the largest segment of our population. Baby boomers are ballooning the size of the senior demographic and will continue to do so until 2020 when there will be over 3.5 million seniors in our state. As they retire, the Baby Boomers will put large demand on government programs for the state. In addition, the Boomers will drive housing demand toward moveup or second homes, as well as houses more popular with older adults or combined families. What does the future hold for the housing industry as Texas’ population changes over the next quarter century? One thing is certain; the ability to purchase appropriate senior housing with a reverse mortgage will be a boost to the real estate industry and to the senior homeowners who may be purchasing a new wave of senior-friendly homes. Residential real estate firms and homebuilders, for the foreseeable future, will undoubtedly be working with an increasingly more mature population. The aging of the overall population will certainly impact the housing industry in Texas and significantly increase the demand for senior housing. Now, with a new Legislative session almost upon us, Texas, once again, has the opportunity to champion the cause of protecting senior homeowners. The prospects are positive and the options are real. When the time comes, I urge all Texans to vote for HECM for Purchase. Perhaps soon, Texas seniors will have the same financial options as the rest of the country.

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Almost as a byproduct of the states’ implementation of the Safe and Fair Enforcement for Mortgage Licensing Act of 2008 (the S.A.F.E Act or S.A.F.E), the era of modernization and greater uniformity of the regulatory examination process is now upon us. Although the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AAMR) launched its initiative to revolutionize the examination process more than a year prior to passage of the S.A.F.E. Act, many of S.A.F.E’s objectives align squarely with the goals of AAMR and CSBS and, as a result, has led to greater cooperation between state regulatory agencies. All of the foregoing is likely to change the landscape of mortgage supervision by supercharging the number of states that adopt uniform examination guidelines and implement multi-state examinations. Less you be caught flat-footed, reverse mortgage originators and lenders, particularly those with multi-state platforms, best become familiar with the reverse mortgage examination guidelines (RMEGs) published jointly by AAMR and CSBS. In our continuing efforts to keep you on your toes, take a few stretches, and then allow us to coach you through a “spin” through the RMEGs and why they should be part of any good compliance fitness program. Although originally published in late 2008 by CSBS and AAMR, , the two national organizations that support state banking and mortgage lending regulators, the RMEGs were amended and republished in 2009. The RMEGs establish a comprehensive set of examination guidelines covering all aspects of reverse mortgage origination and servicing activities. The RMEGs generally apply to state-chartered banks and state-licensed mortgage lenders and mortgage brokers, although, as will be noted below, the Federal regulatory agencies are working with CSBS to develop a similar protocol. According to Chuck Cross, CSBS Vice President for Mortgage Regulatory Policy, there are three main objectives of the RMEG initiative. First, the RMEGs provide a set of standardized guidelines to assist state banking and mortgage lending regulators in evaluating and examining business practices and operations of institutions that originate, fund and service reverse mortgage loans. Second, the RMEGs create uniform standards that can be applied in “multistate” examination and enforcement actions. For instance, if it is impractical for one state’s regulator to conduct its own examination, the agency could use and apply another state regulator’s findings made in an examination report based upon uniform examination criteria found in the RMEGs. Third, and perhaps most importantly, participants in the reverse mortgage industry, such as state banks and mortgage lenders or brokers, can implement the RMEGs as internal policies and procedures and utilize the RMEGs as part of in-house compliance reviews to prepare for audits and examinations by state regulators. The instructions to the RMEGs indicate that state regulators may use all or portions of the RMEGs, depending on the size and complexity of the institution examined and the available resources of the agency. According to CSBS and AARMR, the RMEGs began to actually be used by some state mortgage regulators in early 2009. According to Chuck Cross, not all states that elect to rely on the RMEGs may formally adopt them, rather, states may simply elect to follow the RMEGs as part of their examination process. The RMEGs are styled as a worksheet that allows the examiner to take notes using either a hard copy or a computer file that can be downloaded from CSBS’ web site. The RMEGs are generally divided into nine major modules. State examiners and other RMEG users can

utilize the various modules, as applicable, depending on the purpose of the examination (such as, for instance, as part of an audit or exam by a state regulator or during an in-house quality control review), the type of the entity examined (mortgage lender or broker), the type of activity performed (origination, servicing) and the type of the lending program (FHA-insured HECMs, proprietary reverse mortgages). Several sections of the RMEGs contemplate that state regulators will supplement statespecific questions in the areas governed by state laws, including state specific counseling and disclosure requirements. Module 1 of the RMEGs provides general instructions to the examiner regarding the scope of the review. A full scope examination under the RMEGs would typically consist of an offsite preparation and review stage, followed by an on-site examination. The examiner may also elect to complete a limited scope examination conducted entirely offsite, through questionnaire responses. Although such limited review would depend upon the veracity of the institution’s responses, the RMEGs indicate that it nevertheless can be a valuable tool for monitoring an institution or in situations where the volume of reverse mortgage activity of the institution does not merit a full examination of the institution. Modules 2 and 3 of the RMEGs include specific questions to be reviewed by the examiner. Module 2 applies to all reverse mortgage participants, regardless of the type of the reverse mortgage program originated or funded, while Module 3 applies to entities that participate in FHA-

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insured HECM loans. Because almost all reverse mortgages originated today are FHA-insured HECMs, it appears state banking and mortgage lending regulators, as well as reverse mortgage industry participates who utilize the RMEGs, would typically utilize Module 2 in conjunction with Module 3. Most of the questions in Module 2 apply to all reverse mortgage programs, with certain questions specifically targeting proprietary reverse mortgages. In this regard, the RMEGs contemplate that, in the future, proprietary reverse mortgages will regain a larger share of reverse mortgage originations. In the meantime, an answer of “N/A” is acceptable whenever a question does not apply, such as if the entity presently does not originate proprietary reverse mortgages. Modules 2 and 3 of the RMEGs are generally divided into several categories of questions corresponding to the loan production process, including (i) Pre-Examination, (ii) Consumer Contact/Origination, (iii) Underwriting, (iv) Operational Management, (v) Servicing, (vi) Secondary Market, and (vii) Other Issues and Concerns. For instance, under the Pre-Examination category, the examiner must obtain and thoroughly review all policies and procedures related to reverse mortgages originated or serviced by the entity undergoing the examination. Among other things, the examiner must determine whether policies and procedures have been implemented to assure the institution is able to continue funding loan commitments. Given the difficulties some lenders currently experience in securing and maintaining warehouse lines of credit, this particular requirement in the RMEGs could be significant. In addition, the RMEGs prompt the examiner to determine whether the institution has a disproportionate number of loans originated as an exception to existing policies and procedures. Entities participating in FHA-insured HECM loans must also provide evidence of their FHA-approved status. According to the RMEGs, most of the items in Modules 2 and 3 can be completed by the examiner during the offsite portion of the

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review, based upon the responses to other RMEG sections. Such other RMEGs sections include questionnaires and worksheets, and include the Information and Data Request (Module 5), the Institution and Management Questionnaire (Module 6), the Reverse Mortgage Activity Summary (Module 7), the Reverse Mortgage Product Worksheet (Module 8) and the Reverse Mortgage Servicing Worksheet (Module 9). The RMEGs also contemplate that some questions will require file level review and possible interviews of the institution’s personnel, borrowers and third party service providers, such as appraisers and counselors. The HECM specific questions in Module 3 of the RMEGs are based, in many instances, on guidance in the HUD HECM Handbook 4235.1 REV-1 and various HUD HECM Mortgagee Letters. Acknowledging the evolving nature of HUD’s guidance in the area of FHA-insured HECM lending, the RMEGs instruct examiners routinely to review HUD’s web site for updates to Mortgagee Letters and other HUD HECM requirements. Indeed, HUD has issued a record number of Mortgagee Letters last year, in large measure to implement changes to the HECM program resulting from the amendments enacted as part of the Housing and Economic Recovery Act of 2008 (HERA) and the American Recovery and Reinvestment Act of 2009 (ARRA). In this regard, some of the more recent updates to the HECM program, such as the recently authorized HECM for Home Purchase program, are not covered by the RMEGs. Given the frequency of updates in Mortgagee Letters and other HUD guidance concerning the HECM program, it would appear incumbent upon state examiners and other users of the RMEGs to utilize HUD’s most recent guidance. The RMEGs state that they are not a required standard for reverse mortgage originators. However, reverse mortgage originators and other participants in the reverse mortgage” industry should note that a state regulator’s review conducted pursuant to the RMEGs could reveal a violation of a particular state’s law or rule applicable to the institution.

“

State banks and mortgage lenders or brokers, can implement the RMEGs as internal policies and procedures and utilize the RMEGs as part of in-house compliance reviews to prepare for audits and examinations by state regulators.

Such violation, of course, could lead to administrative action by the regulator. In addition, if the RMEGs are more formally adopted by the state regulator, a violation of the RMEGs could possibly amount to a prohibited act under such state’s mortgage licensing and regulatory scheme. The failure of the originator to address and correct the findings made during an examination conducted with the use of the RMEGs could, in and of itself, amount to a violation of state licensing laws, and may be deemed an improper practice under state unfair and deceptive practices acts. In this regard, reverse mortgage originators and other participants should consider closely reviewing the latest version of the RMEGs, available on CSBS’ web site.

better coordinated, more risk-based and less intrusive. And, the key to success in this new era is pretty much the same as the old era, namely, being prepared.

In addition to the release of the RMEGs, the CSBS is working jointly with the Federal Financial Institutions Examination Council (or FFIEC), a federal interagency organization that supports federal banking regulators, to develop a similar set of industry guidance for reverse mortgage originators that are federally chartered institutions. The federal banking agency’s reverse mortgage guidelines are expected to be similar to the RMEGs and will apply to financial institutions subject to the examination by the federal regulating agencies, including the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS).

This article provides only an overview of some of the federal and state laws and regulations that may affect reverse mortgage lending, marketing and finance matters. Although the practice of Weiner Brodsky Sidman Kider P.C. is national in scope, attorneys within our firm do not actively practice law in all jurisdictions, and these materials are not intended to and do not provide legal advice. Because of the generality of this article, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

The era of greater coordination between regulatory agencies and uniformity in supervision is clearly upon us, and the implementation of the RMEGs is just one aspect of this trend. While the compliance bar is being raised, the implications for mortgage originators and lenders are not all bad. Supervision among different regulatory agencies will be

On that note, can you imagine how blessed we would have felt during our long-gone academic years to actually have all the specific test questions in advance? We might even have thought of this advantage as a form of “cheating.” Well, the RMEGs provide precisely that type of advantage. And for that reason, any good compliance doctor would prescribe RMEGs as an important element that should be incorporated into your compliance and internal audit regiments.

By Joel Schiffman and Fed Kamensky, of the law firm of Weiner Brodsky Sidman Kider, P.C. The law firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. The firm has offices in Washington, D.C., Newport Beach and Dallas. Additional information can be found at www.wbsk.com or by telephone at 202.628.2000. Messrs. Schiffman and Kamensky can be reached at schiffman@wbsk.com and kamensky@wbsk.com.

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Examining your own reverse mortgage marketing techniques and follow-up strategies is a constant and ongoing challenge. Here are 6 foolproof secrets to improving your origination efforts, enabling you to become the master of originations and growing your reverse mortgage business. Secret #1: The Real Definition of “Successful Marketing” “The Right Message…to the Right Market…at the Right Time!” Most miss at least one of the latter in their marketing efforts. Many spend a lot on their own image rather than concentrating on direct response. It’s important to test your offers. Create several marketing offers using direct mail, phone, email, post cards, and seminars. Following up on your leads must be persistent and resilient for you to earn the trust of senior prospects. We know the market areas we want are senior homeowners, but in today’s market you must go a step further and break it down even further. Knowing the right time is a challenge in our business, but patient persistence combined with follow up will make you the winner. Secret #2: “Cherry Picking” and the three types of Reverse leads. Every time you do any Reverse Mortgage lead marketing, the senior leads you get can be broken down and divided into three categories: 1. 2. 3.

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Leads that are ready NOW (I call them Hot leads) we all want the cherry deals. Give me those cherry picked leads all day and I’ll show you how good I can really be! Leads that are not ready NOW, but will be ready soon (Warm –these leads are critical to your Success). Leads that may never be ready (Cold or bad leads that lead nowhere).

Secret #3: Timing is everything! The difference between lettuce and garbage is timing. You must be ready to do a reverse mortgage for your senior client when they are ready…NOT when you are! Timing can work for you, not against you, if you use consistent and regular follow-up methods with your senior client. The problem is most of us give up to soon. The cost of generating prospects no longer allows you this luxury. If you give up too soon, guess who is going to take your business?

Secret #4: Transform from Hunting To Harvesting. The conversion process when working with a senior client can be long and tedious. When you are in the hunting process you are often dialing for dollars, you become just another salesman. When you turn to Harvesting, you can close the lead gap and see your profits and originations increase, by becoming a friend and consultant. Harvesting is your goal in fool proofing your efforts. You must be determined to reap the harvest by investing both your time and money in following up on each and every prospect, until they say no or they can no longer be contacted.

Secret #5: You must have a living, breathing, senior client database. Your willingness to compile and manage your past, current, and future group of senior clients, will most likely determine your success or failure. It does not take long for your senior clients to forget about you if you lose contact with them. In some cases I’ve seen it take 90 days for a client to forget you, but I think the senior market numbers are probably at least half of that number. Your senior client database is worth more than stock, worth more than real estate or intellectual property; they are your key to current and future profits.

Secret #6: Education, Repetition, and Variety. A handful of random telephone calls will not produce the big numbers for you to succeed and increase originations. You must commit to use a multi tiered approach: 1. Education. Your touch points and follow-ups must educate your seniors by providing them valuable information. 2. Repetition. It is a proven fact we must hear the same thing over and over again before it sinks in. This is even more important in senior marketing. Don’t be afraid to contact your senior prospects often. Most love to hear from you. You want to become the welcome guest and forge a relationship. Make a friend. The more friends we make, the more chances we have of success! 3. Variety. Utilize a variety of communication methods, such as letters, direct mail, phone, email, greeting cards. When you contact your senior prospect with multiple approaches, your process becomes more and more powerful. You can no longer use a single tiered approach. Today it takes all you have to hang in there and be successful. There you have it, the six foolproof secrets to improve your originations. The reality is simple, these methods have been around for years, yet very few follow these principles consistently or none follow them at all. If you read this far, you are no doubt ahead of the pack. Take the time to tear out these pages and post them where you will see them daily. Give yourself a challenge to work through each of these methods. If you put these six methods into actions, you will be amazed at the improvements in your business! I speak with loan officers daily and hear the pain being endured. The many changes in our business can drive even the best of us to doubt where to go next. Please don’t allow yourself to go there, when there is room for survival and growth. Remember, you are not in the reverse mortgage business; you are in the marketing business. Those who out market their competitors using logical and ethical methodologies will survive and strive. Good Luck!

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www.reversesystems.com March 2010 TRR

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Does a servicer ever foreclose on a reverse mortgage? If so, what happens to the property after the foreclosure is complete?

ask the servicer

By Ryan LaRose The quick answer to the first question is “Yes, from time-to-time a servicer must initiate foreclosure proceedings on a reverse mortgage.” Quite often people express surprise when they learn that foreclosure is, in fact, another responsibility of a reverse mortgage servicer. News of the escalating number of home foreclosures occurring throughout the country continues to pervade media outlet headlines. It is shocking to read that according to RealtyTrac, 2,824,674 properties in the United States were in some stage of foreclosure during 2009. This figure represents a 21% increase from 2008 – and a staggering 120% increase from 2007. In previous ‘Ask the Servicer’ columns, I’ve written about various “maturity events” that may occur with a reverse mortgage. Primary among those events are the death of the last surviving borrower or the permanent vacancy of the property as the borrower’s principal residence. In both of these situations the servicer will attempt to work with the heirs and assist them in satisfying the outstanding balance due on the mortgage. If the servicer is receiving regular communication and cooperation from the heirs, and documentation from them to support their efforts to pay off the loan, then the servicer can obtain time extensions from HUD. These extensions can provide them up to a oneyear extension from the date of death or the date the loan was approved to be called Due and Payable for non-occupancy by HUD. When all time extensions granted by HUD have expired, or the estate is uncooperative or unwilling to make an effort to satisfy the loan balance, then the servicer is required to initiate foreclosure action. The reverse mortgage foreclosure process follows a similar path to that of forward mortgage foreclosures. There are required notices, timelines and actions, and they vary from state-to-state. For example, in the State of Michigan, it may take 60-75 days from the time the borrower’s file is referred to the attorney for the property to go to foreclosure sale. In sharp contrast, in the State of New York, depending on the complexity of the estate and number of heirs, a foreclosure may take anywhere from 12-24 months to complete. At present time, court systems in Florida, New York, and California are simply overwhelmed by the tremendous volume of foreclosure activity and this can result in uncontrollable delays for the servicer. To complicate what is already an overwhelmed system, many state governments have recently passed legislation that has an impact on the foreclosure process. The particular challenge created by this legislation is that these new laws are often written and tailored strictly for the forward mortgage foreclosure process. They do not consider the unique characteristics of the HECM program. As such, attorneys must work closely with the courts to determine if the legislation applies in the case of a reverse mortgage foreclosure. What happens to the property after foreclosure is complete? It is a common misperception that HECM loans are treated the same way as “forward” HUD loans. When foreclosure is completed on a “forward” HUD

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loan, the property is conveyed to HUD. In contrast, once the foreclosure is completed on a HECM loan, title to the property is transferred to the investor – which could be Fannie Mae, the GNMA HMBS issuer, etc. Once title transfers (often times referred to as a Real Estate Owned, or REO), it is the responsibility of that investor to dispose of the property in a timely manner. This may not be as simple as it first appears. HUD has very specific guidelines that the investor and/or servicer must follow. HUD guidelines control the marketing process during the first six months after the investor receives marketable title to the REO property. A HUD appraisal at the beginning of the six-month marketing period sets the minimum sales price for the home. Any additional repairs or preservation work must be approved in writing by HUD and the property must be maintained during that time. If the investor is fortunate enough to sell an REO property within the sixmonth marketing period, then a sales-based claim can be filed with HUD to recover the shortfall between the sales price of the property and the outstanding loan balance. If the property is not able to sell during the six-month marketing period, a second HUD appraisal is obtained. An appraisal-based claim can then be filed with HUD, whereby the investor can recover the difference between the second appraised value and the outstanding loan balance at that time. In this scenario, the investor is left holding a property that they must still sell – and an outstanding loan balance equal to the appraised value of the property. Once the six-month period has expired, the HUD guidelines, including the minimum sales price restrictions, are no longer applicable. The investor now has the freedom to sell the property for whatever price they wish. Any shortfall between the final sales price and the outstanding loan balance is considered a loss to the investor and cannot be recouped through the filing of an additional HUD claim. Foreclosures are a difficult but necessary measure to protect an investor’s interest in a property. However, servicing professionals do not forget that foreclosure and eviction from one’s home can be one of the most difficult and traumatic events in a person’s life. Servicers - both forward and reverse - face the difficult challenge of counterbalancing compliance with strict investor or insurer guidelines with the compassion and sensitivity required when dealing with this difficult situation. I look forward to receiving any questions you may have regarding servicing at: ryan@celink.com. There is no such thing as a stupid question. The question you ask may be in the minds of other readers as well.

everse

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www.mortgagebankers.org/ rml09.htm 800.793.6222, ext 3