The Reverse Review November 2009

November 2009

THE

REVERSE review

Warehouse Lending in the Post-Recession Era George B. Lopez page

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The lifeblood of any healthy industry is the availability of credit. For the mortgage industry, that lifeblood is the availability of warehouse lending. According to some industry experts, warehouse lending has contracted over 90% during the current recession, with the reverse mortgage industry being particularly hard hit. This month, George Lopez sheds some light on how the industry can cope with this sudden loss of liquidity.

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©2009 The First American Corporation  NYSE:FAF

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© 2009 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.

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November 09 TRR

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his month, San Diego, CA will be home to the 2009 NRMLA Annual Meeting & Expo, one of the most anticipated conferences on the Reverse Mortgage calendar. We at The Reverse Review would like to take this opportunity to reflect on the value of these events and acknowledge the personal and business relationships that are established and grown each year, in these educational environments.

A main goal of The Reverse Review Magazine is to act as a connector between

note from the editor professionals within our community in an effort to share knowledge and advice to inspire healthy growth of our industry.

However, due to the simple obstacle of distance, 99% of our interactions occur via phone and email and, therefore, we hope that everyone can see the value in the opportunity to reach out and physically shake the hand of a colleague and friend. Often, that single face-to-face interaction can be the most important piece in the foundation of a great business relationship.

We at TRR hope to see an increase in conference attendance as well as event accessibility in 2010. More importantly, we look forward to a simple handshake and kind words between any Reverse Mortgage professionals we are lucky enough to meet in the future.

Erica English Editor-in-Chief

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CONTENTS

14 Re-making HECM for a New Era: A New View Advisors’ Perspective Atare E. Agbamu

18 The Sky is Not Falling!

Ignore Naysayers and Stay Positive Kenneth J. Klawans

24 FEATURE: Warehouse Lending in the PostRecession Era

34 RESPA and Other Changes That Face Our Industry Thomas Martignoni

George B. Lopez

30 Nine Months that have

38 California Teeters - As

Changed the Course of the Reverse Mortgage Industry Forever?

Legislators Fiddle: California Adopts the Reverse Mortgage Elder Protection Act of 2009

John A. Smaldone

Weiner Brodsky Sidman Kider, PC

22 What’s Not to Like About

42 New Participants Bring

Reverse Mortgages?

Mark Sisco

ESSENTIALS

Promise to the Reverse Mortgage Sector Robert D. Yeary

5 Note From the Editor

8 Ask the Underwriter

12 Industry Stats

44 Ask the Servicer

45 Directory

46 The Last Word

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November 09

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Thanks for giving...

I can’t tell you how many times I have received a follow-up note or message with this very familiar theme, “thanks for giving the borrower the opportunity to remain in their home and be financially independent.”

•

While the role of the Underwriter is a very important component in the successful realization of the Borrower(s) loan request, perhaps it is more appropriate to look back at the cause and effect of how the Borrower(s) request was truly addressed and the fact that more than likely it took a “village” to get the transaction complete as opposed to the efforts of one.

•

As we approach the holiday season, I would like all of you to consider a slightly different focus to your newsletters, mailers, campaigns and messages which are being utilized to provide information to seniors. The gathering of family and friends is your greatest opportunity to effectively communicate your message. Why not empower the villagers by suggesting a “senior assessment” in your marketing strategy as the basis of a village exercise to best assist the senior in being able to remain in their home.

Be careful though, while urging family and friends to consider the following questions and facts with the aid of your ability to bring borrower and loan product together, be mindful of the independence aspect of today’s senior. Without suggesting the right preface, setting and support, opening the senior assessment conversation may prove to be more difficult than expected for those closest to the senior. The senior may consider the intrusion too personal for open discussion. When attempting to convey the details of a senior assessment, your message should include the need for understanding, compassion and good listening skills as a prerequisite, versus numbers, pressure and the latest marketing techniques.

You are available when needed.

The assessment should be a combination of observation, fact and perceived outcomes: Observation: Suggest your villager’s first stop and take a good look before asking questions: •

Consider the senior’s physical person – from a health and appearance perspective: • Are there physical limitations that are present?

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November 09

•

• • • • • •

ask the underwriter Ralph Rosynek Have there been any recent comments as to physical issues beyond the “aches and pains of growing old”?

Has there been a change in mobility, “the ability to go, see and do” in the past few months?

Is there a noticeable increase in lack of attentiveness or prevalent complaint about remembering, forgetting or “misplacing”?

Is there a change in the senior’s passion, pursuit or participation in daily social activities?

Is there a significant change in appearance – hair, clothing, shoes, and personal hygiene?

What about eating and sleeping – any significant changes?

What about increased medications, pharmacy bills, and medical tests/visits?

What about speech, sight, hearing and movement issues?

Consider the senior’s physical environment – safety and soundness is very important: • The presence of deferred maintenance.

• The floor plan, accessibility or property profile will or may present issues.

• The living environment – temperature, light and security.

• Furniture and fixture issues • Age of appliances, furnace, hot water heater • Are there signs of water damage, paint peeling/chipping, cracks, seepage, • Are there odors, fumes, pet damage, infestation?

• Have you noticed “stuff” building up – beyond sentimentality or collectibles • Is there evidence of hoarding?

• Water pressure, flickering lights, noises of any type • Automobile, transportation and mobility issues

Facts: Perhaps the most difficult villager activity in the assessment.

Consider the numbers and paper details as part of the assessment: • Are real estate taxes, special assessments, municipal fees and association dues current?

• What are current mortgages, liens, and property related debts, and are they current?

• Are insurance(s) premiums paid?

• What is the value of the property and remaining equity?

• Are credit cards used and how – who has the cards?

• Are purchases made over the Internet?

• Is there a “nest egg” and how is it managed?

• Are required filings current – tax returns, pension, social security, employment related?

• Where or with whom are important papers kept?

• Is there a current POA for healthcare and financial matters?

• Is there a lawyer, accountant, tax advisor, banker, insurance agent, physician, neighbor, and trusted advisor phone and contact list?

• • • •

Is mail opened and attended to?

Is there an increase in mail, deliveries, and telephone messages from unknown parties?

Life sustaining measures, health care coverages, long-term healthcare coverage.

Existence of a will and burial requests.

Perceived Outcomes: Thought provoking questions, often avoided but necessary to remaining in the home and independence.

•

Consider the following to complete the assessment: • Will the present property support the senior’s desire to remain in the home?

• Is there assistance available to the senior to remain in the home?

• How will increased costs of living, taxes, food, utilities and healthcare be managed?

• Are there reserves for the unexpected?

• Who is the most trusted advisor?

• What is a “rough” plan of action for property issues and maintenance?

• What is a “rough” plan of action for illness, inability to live alone?

• Is there an alternative investment strategy?

• Are the villagers able to commit and support the senior’s future needs?

Other “thankful” items and thoughts: • • •

• • • • • • •

You will be thankful at the 11th hour to have this e-mail address as you do your first GFE….. http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf If you didn’t give thanks this past Sunday for the House and Senate passing an extension of the $625,500 loan limit for reverse mortgages through December 31, 2010, it is not too late.

“Thanks for the Memories” will be the song of choice on December 7, 2009 when thinking about the “FHA Spot Condo” affidavit. HUD announced the implementation of FHA’s new policy guidance for condo project approval and condo unit financing will take effect on this date.

Thank You to NRMLA Staff for planning an excellent conference despite these economic times – the topics and networking will prove invaluable as we head into 2010.

“No thanks” is not an acceptable response to the latest invitation to register with the federal National Loan Officer Registry – a requirement of the SAFE Act, you should immediately work on completing this action.

A very big thanks goes out to the many Loan Originators and Processors who diligently work to provide the senior with their greatest efforts to provide professional service.

A thankful plug to Jerry Mayer at HUD for his FHA updates. "How do I sign up my entire staff for FHA email updates?" You can send in one email address or thousands. Email your list to: jerrold.h.mayer@hud.gov.

I guess thanks are in order to HUD for reducing the appraisal expiration date to 4 months after the 1st of the year.

Many thankful thoughts from Underwriters to HUD for not combining mortgagee letters on Co-Ops, Manufactured Homes and Condo’s at the same time.

And lastly, give thanks that 2009 is almost over!

We’re growing again!

Urban Financial Group, the premier reverse mortgage lender in the Midwest is looking for qualified individuals to fill the following positions:

FHA Direct Endorsement Underwriter Extensive knowledge of FHA guidelines required. We are an aggressive company with a common sense approach and are looking for like minded underwriters to join our team.

Experienced Reverse Mortgage Underwriters don’t pass up the opportunity to join one of the industry leaders in customer service Work from home or in one of our local offices. Excellent Pay and Benefits.

Visit our website at www.reverseit.com If you believe you have what it takes to succeed in a fast pace environment within a rapidly growing company, please fax your resume to:

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November 09 TRR

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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.

Atare E. Agbamu - Re-making HECM for a New Era: A New View Advisors’ Perspective, page 14 Author and columnist, Atare E. Agbamu, is director of reverse mortgages at Minneapolisbased AdvisorNet Mortgage, LLC. A member of BusinessWeek Market Advisory Board, Agbamu is author of Think Reverse and more than 100 articles on reverse mortgages. He can be reached by phone at 612-436-3711 and e-mail at aagbamu@advisornet.comor atare@thinkreverse.com

Kenneth Klawan - The Sky is Not Falling! Ignore Naysayers and Stay Positive, page 18

Kenneth J. Klawans is President of iReverse Home Loans, a Subsidiary of Hopkins Federal Savings Bank. iReverse Home Loans originates reverse mortgages nationwide through a network of highly competent, ethical and honest reverse mortgage professionals.

Program information can be found at www.iReverse.com/Employment. Mr. Klawans may be reached at 800.486.8786 Ext. 701 or e-mail Klawans@iReverse.com.

Mark Sisco - What’s Not to Like About Reverse Mortgages?, page 22 Mark A. Sisco is the RSD with Covenant Mortgage and is the driving force of the retail sales and training group of the Reverse mortgage division. He holds a California Broker’s license and a Florida origination license and is an accomplished speaker with over13 years in the mortgage industry with the last 3 years devoted to the Reverse mortgage industry. Mark can be reached at www.covenantreverse.com or contact him directly at 877.FHA.1800 George Lopez - Warehouse Lending in the Post-Recession Era, page 24 George Lopez is Vice President of James B. Nutter & Company, one of the largest wholesale reverse mortgage lenders in the nation. Now celebrating his 20th year with the firm, George was the only industry representative to testify before the Senate Special Committee on Aging in December 2007.

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Nine Months that have Changed the Course of the Reverse - John Smaldone Mortgage Industry Forever?, page 30 John is Senior Vice President of AAXA Mortgages’ Reverse Mortgage Division. With 40 years experience in the mortgage industry, his roles have ranged from reverse mortgage loan officer to national executive and entrepreneur. John has extensive knowledge of conventional FHA, VA and commercial lending, and is an expert in the fast growing Reverse Mortgage sector.

RESPA and Other Changes that Face Our Industry, , page 34 - Thomas Martignoni Thomas Martignoni is the CEO and co-founder of ReverseVision, a technology company with the exclusive focus on reverse mortgages. ReverseVision’s origination platform is used by leading wholesalers and brokers as a cross-enterprise collaboration tool. Over 6000 users in 600 companies rely on ReverseVision.

California Teeters - As Legislators Fiddle: California Adopts the - Joel Schiffman Reverse Mortgage Elder Protection Act of 2009, page 38 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.

California Teeters - As Legislators Fiddle: California Adopts the - Fed Kamensky Reverse Mortgage Elder Protection Act of 2009, page 38 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.

New Participants Bring Promise to the Reverse Mortgage Sector, page 42 - Robert Yeary Bob Yeary is Chairman and Chief Executive Officer of Reverse Mortgage Solutions, Inc. (RMS), Spring, Texas, the fourth largest servicer of reverse mortgages in the country, which provides private label sub-servicing as well as a state-of-the-art reverse mortgage loan origination system. He can be reached via email at: byeary@rmsnav.com and by phone at: 281.404.7818.

Ask the Servicer, page 44 - 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 46 - Tony Garcia Tony Garcia, President & CEO of LibertyStreet Financial Group, Carlsbad, California. Tony and his family have been originating reverse mortgages since 1996 and incorporated LibertyStreet in 2003. The company has done over 5,000 reverse mortgages in several states. Tony serves on the Board of the National Reverse Mortgage Lenders Association (NRMLA). Tony can be reached at TGarcia@LibertyStreetFG.com or by telephone at 760.476.3111.

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November 09

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FHA’s HECM is an accidental reverse-mortgage industry monopoly with some festering structural problems. Some analysts believe its payouts are too generous, therefore, increasing its crossover risk.

Others say its high upfront costs are driving consumers away and limiting its market-penetration potential.

The recent ten-percent principal-limit cut confirms the rich payout argument, but it is uncertain whether it will be enough to check crossover risk. Anyone who has spent time in the HECM origination trenches knows high closing costs turn-off many senior consumers and their advisors. While many industry professionals agree on the problems, few have thought them through, and even fewer have offered plausible solutions such as the HECM II proposals advanced by the principals at New View Advisors.

Reverse-mortgage securitization pioneers, Joseph J. “Joe” Kelly and Michael McCully, co-founders of New View Advisors, a Wall Street boutique specializing in reverse mortgages, advocated reducing HECM’s loan-to-value ratios (LTV) and believe closing costs are still too high.

A Wharton MBA and frequent industry speaker, Joe Kelly was the deal manager and chief designer of the 1999 pioneering securitization and four subsequent jumbo reverse mortgage securitizations through 2006 during a 14-years career at Lehman Brothers. In 2007, his deal was nominated for the Total Securitization’s North American RMBS Deal of the Year for 2006.

A mergers and acquisitions specialist, Mike McCully was the relationship manager for Financial Freedom at Lehman Brothers

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November 09

Joe Kelly, Mike McCully, and I caught up recently to discuss their radical ideas for re-making HECM reverse mortgages for the twenty-first century.

It appears FHA took your prescription with its FY2010 ten percent cut to HECM’s principal limit. Is the cut sufficient to minimize FHA’s crossover risk? What are the near-term and long-term implications of this cut for HECM? Kelly and McCully: The ten percent cut will substantially reduce FHA’s crossover risk. In the near term it will mean less loan volume, but if it spurs the industry into more thoughtful changes and new product development, it could be very beneficial to the industry. Politically, it enhances the long-term viability of the program by eliminating the need for subsidies and the accompanying political risk.

HECM is the foundation of the reverse mortgage industry in the U.S., but it has some serious issues. What are these challenges and their implications for the industry’s growth?

Kelly and McCully: After building our cash flow model using empirical data regarding mortality, mobility, interest rate, foreclosure costs, home price and other assumptions, our analysis showed that the HECM lent too much money. Unfortunately, the industry got accustomed to this generous Loan-to-Value (“LTV”) curve and is now having trouble adjusting to lower lending amounts. Secondly, the HECM’s upfront fees are extremely high, limiting broad acceptance of the program. Until a thoughtful, updated HECM is introduced, growth in the industry will be limited.

How should these problems be addressed?

We offer: l

between 1999 and 2004, where he deployed his considerable portfolio-company management skills to make Financial Freedom the nation’s largest originator and servicer of reverse mortgages until recently. A Cornell University economics graduate, McCully led teams of investment bankers to buy, sell, and operate portfolio companies during 20 years at Lehman Brothers.

Kelly and McCully: For now Congress and the FHA have addressed the HECM LTV Curve. It was unfortunate the industry did not initiate changes that were more thoughtful. For nearly 10 years we have been advocating the importance of removing upfront costs in this program. If the FHA can introduce a product such as the HECM II we’ve structured, we believe this will more than offset the borrowers that no longer qualify due to the LTV reductions. One possible outcome would be for Fannie Mae to securitize its $50 billion portfolio, while simultaneously disclosing the historical data from their years of HECM investment. Investors would feel much more comfortable making investment decisions with that data.

What are some of the “more thoughtful” changes the industry could have initiated before this forced ten percent principal-limit cut?

Kelly and McCully: We mean a product like the HECM II, a Standard HECM with a different MIP structure, eliminating the servicing fee set-aside, and adding a tax and insurance set-aside. Instead, the industry looks like a team that ran out the clock when it was behind, or called for time when it had no timeouts left.

You have proposed a HECM II as a complimentary offering. What are the elements of your HECM II proposal? And how do we know it will work?

Kelly and McCully: The HECM II we propose has the following elements: a. Zero initial MIP; b. Three-quarter percent ongoing annual MIP; c. Lower Principal Limits, about 8-10% below the now standard HECM; d. A tax and insurance set-aside in lieu of a servicing fee set-aside.

The RESPA Challenge

With the twin problems of high costs for consumers and high crossover risk for FHA, why do you want FHA to retain the existing product?

Kelly and McCully: We think it’s an elegant way to introduce a new product, without going cold turkey on the new standard HECM. The Standard HECM should be available for extenuating circumstances.

Compared to a HECM II, a standard HECM costs the borrower up to about $20 in upfront MIP for every $100 in incremental Principal Limit. Even taking the lower (0.50%) ongoing MIP into account, it’s a very expensive proposition for the homeowner, but it has its place as a needs-based product.

You have proposed resetting the investor put at 88 percent of maximum claim amount instead of the current 98 percent. How did you come by 88 percent?

Kelly and McCully: HECM loans investors assigned to FHA have a higher probability of experiencing crossover loss. The severity of the loss is a lot closer to 12% than 2%. As the party bearing the risk, FHA should take control of the loan (and the servicing) as soon as the loan enters this crossover-loss danger zone.

How could raising eligibility from age 62 to 65 mitigate FHA’s crossover risk?

A reverse mortgage to a 62 year old is an awfully long duration loan.

Increasing the minimum age to 65 would result in fewer HECMs overall, but from a credit perspective; a reverse mortgage loan made to a 62 year old is not necessarily more risky if the LTV is sufficiently lower.

Case-Shiller’s recently introduced MacroShares are housing derivatives with the potential to temper crossover risk for government as well as conventional reverse mortgages, how should they be integrated into future reverse mortgage product design?

Kelly and McCully: That remains to be seen. Derivatives have a proper place in managing risk, but should be used with caution.

How will the HECM principal-limit cut affect the development of new private-label reverse mortgage products?

Even with the cut, HECM LTVs are still quite a bit higher than we generally saw with private reverse mortgages. Secondly, lenders would need a revival of the secondary market for non-agency mortgages before they can start originating private reverse mortgages again. That probably can’t happen until we see a sustained recovery in home prices.

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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urrently in the reverse mortgage industry, negativity is rampant. The news is typically piled with negative report after negative report. Consumer Reports say our industry is the next “financial fiasco”. The National Consumer Law Center calls reverse mortgages, “Subprime Revisited”. It appears we have all had huge targets painted on our backs.

However, misery loves company and many traditionally talented reverse mortgage specialists are using the current environment to find like-minded pessimists. While it’s not wise to ignore market conditions, it’s even worse to let negativity control your activity. Temper negativity with realistic evaluation and maintain a mindset of goal-orientated activity.

Too much negativity has a way of bringing on a defeatist mentality. Unfortunately, as arrows keep flying and the threat of more restrictive legislation is discussed, some folks have succumbed to hopelessness. This was recently demonstrated to me through a conversation I had with a former reverse mortgage specialist. He told me that the market seemed to be decimating and he was actively looking to leave the industry.

He explained that he simply couldn’t fight for business anymore and wanted something “guaranteed”.

He admitted that few of the naysayers had an educated argument; they were just repeating news reports, vague market data and what “might be coming”. Unfortunately, all the negativity overcame him. He did leave the reverse mortgage

industry and took a position in an industry I feel he is poorly suited for and will likely net even less income than when he was while originating reverse mortgages. So were things so dire?

It’s true his commissions were down from a lower sales volume but only by 10 percent. I’m confident that a talented reverse mortgage specialist like this man could have overcome the slower start in 2009 and at least matched last year’s numbers. Instead, he bailed out.

The RESPA Opportunity

This is an unfortunate case of too much compiled negativity leading to desperate decisions. Rather than evaluate and recommit to his production, he fell victim to an assault of negativity from the press, co-workers, friends and family. The lack of production was blamed on the market rather than identifying potential modifications he could make to his business model.

Keep a level of objectivity about negativity. If possible, surround yourself with people who can give a straight answer, not a dramatic one. Mindset is a big part of performance and keeping yourself motivated through uncertain times largely depends on not falling prey to negativity and desperation.

If all else fails, repeat the following sentences out loud: 1. I’m a talented, competent, honest, and ethical reverse mortgage professional.

2. A reverse mortgage is a beneficial financial product for the right borrower.

3. There are currently 8,000 people in the United States turning 62 every day.

4. There were approximately 115,000 HECM’s endorsed by HUD so far this year.

5. All I need to close is (fill in your number) loans each month to earn a good living.

6. I’m going to set specific goals and objectives to achieve my target of closing (fill in your number) loans each month next year.

7. Everything’s going to be ok.

ReverseVision's international team of software engineers, attorneys and mortgage specialists turn these challenges into opportunities.

They build the tools that give their customers a competitive advantage.

This is why over 6000 reverse mortgage specialists in over 600 companies rely on ReverseVision every day.

So all you have to do is read the sentences above, click your heals and you will be closing tons of deals? Well not exactly.

While it is important to filter out the negativity, it’s just as important to keep a level of objectivity and surround yourself with those who will give you a straight answer. Although I may not know you personally, let me touch on each of the seven items above in an attempt to provide realistic straight answers.

1. I’m a talented, competent, honest, and ethical reverse mortgage professional.

Think about your answers to the following questions. There are no right or wrong answers. Listen to your insides because how you feel inside may be different from the sales pitch you give your clients.

Can you afford not to use ReverseVision?

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November 09 TRR

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• Why am I in this industry?

• Is doing the right thing for my client really more important than getting paid on the deal?

• Am I more committed to strengthening my sales skills than increasing my technical knowledge of the product?

• How long do I foresee myself staying in this industry?

Voice of reason: The reverse mortgage sector is not the “get rich quick” answer for “forward” dropouts. In order to succeed today, you not only need to sell your qualities, you need to be these qualities. Being a good salesperson will only take you so far. Those of us who will succeed have a deeper understanding of our clients and the products we offer as well as an unyielding sense of ethics.

2. A reverse mortgage is a beneficial financial product for the right borrower.

Suitability. (noun). 1. The quality of having the properties that are right for a specific purpose.

My first memory of the recent wave of bad press was hearing about an 80-year old lady who took out a reverse mortgage and was then sold a 30-year annuity with huge withdraw fees. It was obvious that nobody should have sold a 30-year annuity to an 80-year old individual, however, was it wrong for her to take out the reverse mortgage? I don’t know…maybe or maybe not. It very well may have been the right decision to take out a reverse mortgage based on her individual circumstances…however, the reverse mortgage became guilty by association with the annuity.

Voice of reason: If you’re interested in selling anyone and everyone a reverse mortgage, you won’t last long in this industry. Looking at your prospects’ individual scenarios.

Identifying and reviewing their available options are critical in determining whether or not a reverse mortgage is a suitable product for your client. Are you able to strike the ethical balance between suitability and sales?

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3. There are currently 8,000 people in the United States turning 62 every day.

4. There were approximately 115,000 HECM’s endorsed by HUD so far this year.

Voice of reason: Both of these statistics demonstrate the future and potential growth of our industry. If you’re only in this business for today, these figures really don’t matter. However, those who want to cultivate their business over time, waves of prospects are coming. If you don’t see the opportunity, you may need to seek medical assistance.

5. All I need to close is (fill in your number) loans each month to earn a good living.

I believe it was June of this year; I overheard some negative people complaining that endorsed HECMs fell from 11,660 in April to 8,396 in May. Someone else was talking about leaving the industry because, “…Wells and the other big banks are taking all the volume.”

Voice of reason: How many loans do you need to close each month to earn a good living? So what if there were only 8,396 HECMs endorsed in May? Unless you’re living like a king… homes, yachts, jets, etc., you don’t need to close hundreds of loans each month. What’s your number, 3,.. 4.. 8 each month? In our business, you’re an excellent producer if you’re individually closing 8 loans every month. Think about it…that’s 8 loans out of 8,396 total. Even if Wells and the other big banks take over the world, there will always be plenty of “scraps” left over for you to close 8 loans every month.

6. I’m going to set specific goals and objectives to achieve my target of closing (fill in your number) loans each month next year.

Matching your talents with a company that values you could be just a click away

As sales professionals looks for ways to maintain or grow business in a struggling market, I’m always shocked to see a fundamental building block for success missing properly setting goals.

In a difficult industry environment, goals are critical- not only to clearly understand what we, as reverse mortgage specialists, want to achieve, but also so we understand how to get there.

Precision goal setting is formulating goals, which leads to a clear plan for success.

Voice of reason: Salespeople are typically big offenders of believing they have set goals when in reality they have not. Do you have goals? Are they written down? Have you shared your goals with anyone who will hold you accountable?

7. Everything’s going to be ok.

We all have pressures. Some pressures are stronger then others…and everyone handles pressure differently. On a broader level, we constantly hear about the state of the economy, the wars, disease and the price of food and housing. On a more tangible level, we have bills to pay, family needs to meet, etc.

Are you in panic mode?

Voice of reason: Discovering what’s really important in life is not easy, but well worth the effort in terms of fulfillment and satisfaction. There’s no right or wrong or good or bad answer to what is important to each of us. These are our values. What creates stress and/or panic is when you are not in sync with your values.

Whether you’re at the beginning of your career or looking to make your next move, you want to work for a company that values your individual talents, skills and experience. Wells Fargo was named Among the World’s 25 Most Respected Companies by Barron’s magazine in 2009. Learn about the many exciting career paths and opportunities we offer.

Reverse Mortgage Consultant In this role, you will be expected to develop your local market by creating awareness and demand for reverse mortgages with Wells Fargo customers, prospects, and internal and external referral sources.

These sources include realtors, builders, financial professionals, attorneys, and other professionals serving the needs of the senior community. Reverse Mortgage Consultants work directly with borrowers to ensure they obtain the mortgage loan product that best meets their needs while producing high-quality loans that meet strict Wells Fargo Home Mortgage guidelines. Compensation is received through a draw and commission on funded loans.

Wells Fargo Home Mortgage is the Nation’s leading retail reverse mortgage lender with a strong nationwide network of over 6,000 Banking Stores and more than 2,000 Mortgage locations. The senior segment is experiencing exponential growth which provides Reverse Mortgage Consultants a great deal of opportunity to create awareness around these unique solutions for seniors. This role demands an understanding around the needs of senior homeowners and a passion to help them achieve their financial goals.

Join our team. Visit our career site at wellsfargo.com/careers and search keyword “Reverse Mortgage”.

Wells Fargo is an Affirmative Action and Equal Opportunity Employer M/F/D/V. © 2009 Wells Fargo Bank, N.A. All rights reserved.

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not

What’s to Like About Reverse Mortgages?

Fees are a large part of the reverse mortgage process and one of the biggest concerns for a senior. If not done properly, you will lose your client every time. Education is a key and if you can’t explain the financial side of things, you might want to get out of the reverse mortgage arena.

If you truly have a passion for reverse mortgages and what it is you are creating for the senior community, then you should embrace the fee equation as a benefit. After all, you are in many instances a life changer for those seniors. I can’t begin to tell you how many seniors I have talked with who mentioned they were working with another loan officer who explained the benefits and informed the client that the costs are much like a traditional refinance forward mortgage. The loan officer went through all these steps only to fail to inform the client about the UFMIP. After the client received the paperwork, they lost absolute trust in the loan officer and the reverse mortgage program all together. For those of us who are trying to overcome the myths of a reverse mortgage, it takes knowledge and experience to face these issues that come up periodically that slander the reverse mortgage program. So being able to navigate through these fees and terms is paramount to whether you will actually close the loan or in the case above, alienate the client and hamper the reverse program even further.

Seniors get it, they’ve been around the block quite a few times and they understand the benefits of a reverse mortgage from the previous conversation with you when you were explaining the reverse mortgage program. In fact, the senior already knows what they plan to do with the money. Seniors always want to get to the bottom line: “What’s This Going to Cost Me?” So

Mark Sisco

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selling the fees and educating the senior on the VALUE of these fees is what I like best. It’s the “nuts and bolts” that structure the complete understanding of a reverse mortgage and, if done right, all of the seniors’ concerns will be met. Reverse mortgages are not something you sell to a senior; rather they are a program about which you educate the client. Honestly, “What’s not to like about Reverse Mortgages?”

It is true to some degree that the cost of title, escrow and origination follow suit to a traditional mortgage but the UFMIP is 2% of the Maximum Claim Amount (MCA). Let’s break down the UFMIP. The first part reads Up Front Mortgage Insurance Premium the HECM customer pays FHA for insuring that the cash advances will continue if the lender defaults; there in its own words “If the Lender Defaults” interesting do you see where I’m going with this? Remember to break down every aspect for the client and explain it thoroughly. The second half of the UFMIP is that it protects the lender against home price decline at maturity. It’s 2% of the lending limit or maximum claim amount (MCA). UFMIP is also the biggest fee -- which brings me back to making sure you do your due diligence in educating the client.

One way to offset the fees associated with a reverse mortgage is to paint a picture on the amount of interest they are currently paying on their existing mortgage month after month and

year after year. Use the client’s current situation. An example on a $300,000 loan amount at 5.25% equates to a monthly interest payment of $1,312.50 and an annual interest payment of $15,750. Granted that the reverse mortgage is a negative amortization loan and yes you are financing the closing costs, but the trade off is that a reverse mortgage allows you to enjoy these proceeds now and the estate will pay for them in the end.

So the second part of the UFMIP is to protect the lender against home price decline at maturity but I like what it accomplishes for the borrower now and its heirs later when they sell the estate.

Remember the potential client is in need now and that is just one of the benefits of the reverse mortgage. Interest is just that, “Interest”, and it is the money spent to borrow against their current home that they will never recover. Don’t Apologize, Empathize it’s a little known fact that reverse mortgages are expensive loans upfront. Newspaper articles mention it, potential borrowers are aware of it, and as loan officers, you have to know how to sell these costs. Instead of apologizing for all the fees, empathize with your client. Most likely, when you are sensitive and understand your client’s feelings, they will be more accepting to the cost of their investment. Your clients will then be reassured and confident that their decision for a reverse mortgage is right for them. I say live for today and help the senior to see the real VALUE in the fees associated with the Reverse mortgage.

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T

he lifeblood of any healthy industry is the availability of credit. In the mortgage industry, that lifeblood is the availability of warehouse lending—short-term funding that enables mortgage bankers and mortgage brokers to sell their loans into the secondary market and thus compete with depository institutions many times their size.

Unfortunately, in the wake of the credit crisis and the ensuing recession, the warehouse lending market has virtually collapsed, contracting over 90% according to some industry experts. The reverse mortgage industry has been hit especially hard as a number of retail and wholesale lenders have experienced funding curtailments or ceased doing business altogether.

Thankfully, the warehouse lending environment is beginning to show signs of improvement. However, the reverse mortgage industry faces a new challenge in the post-credit crunch era—the inability of many warehouse lenders to fund reverse mortgages. Despite clear evidence that the reverse mortgage industry is in far better shape than the forward mortgage industry, some warehouse lenders are struggling to accept this reality and their refusal threatens to stunt the future growth of the industry.

and 55% of all FHA originations. More importantly, warehouse lending helped spur healthy competition and ensure that a few large lenders didn’t dominate the mortgage lending industry.

All of that changed in August of 2007 as the credit crisis spread through the economy like a plague, ravaging the balance sheets of corporate America; Wall Street investment banks that had invested aggressively in the U.S. real estate market were decimated and the resulting pullback drained liquidity for scores of mortgage products in just a matter of weeks. One by one, lenders and Wall Street firms who had engaged heavily in subprime or Alt-A lending fell victim to the onslaught.

As a result, many large and regional banks exited the warehouse lending space entirely. By January 2009, with interest rates at unprecedented low levels, the precious few warehouse lenders who remained were forced to handle an enormous volume of refinances, further straining their reserves. At the same time, hundreds of new warehouse line applicants were clamoring for new financing. Needless to say, when warehouse lenders inevitably exhausted their cash reserves, an already overloaded system officially achieved gridlock.

Background For almost two decades, from 1989-2007, the reverse mortgage industry led a relatively sheltered existence.

Lenders who specialized in reverse mortgages toiled in near anonymity, impervious to the ebb and flow of interest rates and turmoil in the forward mortgage market.

Capital was relatively cheap and plentiful as Wall Street investors and foreign investors gradually joined Fannie Mae in the reverse mortgage arena. The resulting burst of competition generated record profits for the industry, and the sky, it seemed, was the limit.

Not surprisingly, during that same period, warehouse lending was also quite accessible, enabling mortgage firms of all sizes to gain entry into the reverse mortgage market and grow as much as their profits dictated.

At one time, according to the Warehouse Lending Project, mortgage firms that relied on warehouse lending were responsible for 41% of all loan originations in the country,

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Meanwhile, many institutions that had received a transfusion of emergency TARP funds opted not to rush back into warehouse lending.

Instead, the crisis gave pause for many of these lenders to reevaluate their entire lending strategies, with mostly inconsistent results.

Some institutions prohibited the funding of thirdparty originations altogether, while some

prohibited the funding of proprietary loan products. Some lenders merely trimmed the size of their warehouse lines or tightened the qualifying requirements for new applicants. Still others increased their transaction fees as well as their haircuts. Many warehouse lenders were forced to increase their margins as the LIBOR index continued to drop.

However, along the way, something more disturbing and insidious occurred. Somewhere in the midst of this mess, the FHA HECM reverse mortgage product was unfairly branded as a risky, unsafe loan product in a way that no other federally insured loan program has been before. It is this negative stereotype that the reverse mortgage industry must overcome in order for the industry to grow.

The Knowledge Gap Most warehouse lending divisions are staffed with experienced professionals who possess a great depth of knowledge about the forward mortgage world. On the subject of reverse mortgages, however, there can be wide disparities in their working knowledge. A number of common misperceptions abound: First, there is a widespread perception that Fannie Mae is the only investor that purchases HECMs. Few warehouse lenders are aware that there is a vibrant and rapidly growing market for GNMA HMBS securities. Even fewer lenders are aware that investment banks and private equity firms are in the process of reentering the HECM market to buy whole loans. What makes this misperception especially frustrating is that in the forward mortgage world there are many

mortgage products that are purchased by just one investor. Yet, by comparison, the FHA HECM product is somehow seen as “unsafe” despite 20 years of consistently reliable performance.

Second, reverse mortgages are perceived as a growing liability on a warehouse line. Specifically, the negative amortization feature of a reverse mortgage means that any unfunded reverse mortgages on a warehouse line will burn through the available credit at an accelerated pace. On its face, this argument makes some sense but it’s still a rubber chicken. FHA HECM reverse mortgages are much easier to insure than forward mortgages and therefore, are much easier to fund. There’s virtually no credit, income or employment underwriting required.

If a reverse mortgage lender produces a marketable, insurable FHA HECM, Fannie Mae will purchase that loan as part of a small commitment, or on a flow basis, with very few exceptions.

Third, some warehouse lenders are worried about the “headline risk” associated with reverse mortgages.

Whether it’s the high fees, the litigation involving deferred annuities or just the bad press coming from Washington, some warehouse lenders are unnerved by the barrage of bad publicity surrounding reverse mortgages.

Fourth, some banking professionals who are considering warehouse lending feel that the relatively low interest rates of reverse mortgages could skew their cost of funds. In other words, in the world of short-term lending, there really isn’t much profit to be made on a loan that yields such a low rate of interest. However, many times these lenders don’t realize that the margins on reverse mortgages have increased substantially and that transaction fees in the warehouse lending market have increased as well.

Fifth, and perhaps most widespread, is the lack of knowledge about reverse mortgages in general. The complaints of “we just don’t know enough about the product” or “that’s not a core product for us” or “we’ve never funded those before” are commonplace.

In today’s environment, it’s incredibly difficult to persuade an institution to fund reverse mortgages or any other new loan program when there is such a palpable fear of the unknown.

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The Industry Response Beginning in 2009, the mortgage banking industry actively tried to bring the warehouse lending issue to the forefront of the public’s attention. As liquidity in the warehouse lending sector rapidly evaporated, major trade publications and trade organizations promptly sounded the warning bells to Congress and the media. MBA President John Courson frequently commented on the dearth of warehouse lending in his appearances on Capitol Hill, as did other industry leaders.

Mortgage trade publications, especially the National Mortgage News, regularly featured articles on the warehouse lending crisis. The Warehouse Lending Project, a coalition of mortgage lenders dedicated to providing expert commentary and statistical data on the issue, worked to engage policymakers and industry experts on all levels and continues to do so.

The intense lobbying effort has generated some interesting policy ideas, including a proposal to have Ginnie Mae provide short-term guarantees for loans that are packaged into Ginnie Mae securities. In a more recent development, policymakers are debating whether to have Fannie Mae and Freddie Mac provide similar short-term guarantees, or participations, directly linked to warehouse lenders funding GSE-backed loans. Unfortunately, no major policy initiatives have yet been implemented. More importantly, while the recent lobbying effort has certainly helped raise awareness about warehouse lending in the forward mortgage world, virtually none of the lobbying has addressed the lack of liquidity in the reverse mortgage sector.

Next Steps At some point, the U.S. economy will rebound and many of the problems in the credit markets will heal themselves.

However, unlike any recession since 1973-1975, the recession of 2008-2009 has brought about major structural changes to our economy, especially in the area of residential real estate lending. It’s a brave new world and the warehouse lending environment is but a microcosm of our new reality.

Without adequate warehouse capital to fund reverse mortgages, new lenders will find it much more difficult to enter the market. Existing reverse mortgage lenders who are not depository institutions or not well-capitalized will have difficulty sustaining real growth. The worst-case scenario is that the industry collapses down to a small group of lenders, sapping itself of political and financial strength and dramatically reducing competition in the marketplace.

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Ensuring a healthy future for our product requires that our industry adopt a new paradigm, one in which comparisons to the forward mortgage world are made at every step, such as:

regulated and safe, and they contain a number of innovative, borrower-friendly features that are unique to the mortgage world. Congress has added its endorsement, significantly expanding the HECM program by enacting a higher national loan limit and adding the HECM for Purchase feature.

First, the banking industry must be made to understand that reverse mortgages are much safer than forward mortgages. For starters, reverse mortgages have a much lower foreclosure rate than forward mortgages. Reverse mortgages also require borrower counseling, and thus have much lower suitability and steering risks. Owing to the additional credit, employment and income requirements, forward mortgages have a much higher incidence of fraud. In the area of proprietary lending, most reverse products have closely mimicked the sound lending principles of the FHA HECM, whereas scores of flawed proprietary products in the forward mortgage world were responsible for the collapse of the mortgage industry. Finally, forward mortgages have a far less regulated fee regime—junk fees and mark-ups are practically routine. That reverse mortgages are much safer than forward mortgages should be plainly self-evident.

Second, we must reach out to the banking community in general, and the warehouse lending sector specifically, and engage them about the realities of today’s reverse mortgage market. After all, the FHA HECM program is a 20-year old, federally insured program. It’s anchored by a government sponsored enterprise and supported by a number of investment banking and private equity firms, as well as a rapidly growing GNMA market. HECMs are heavily

Third, the “headline risk problem” facing our industry must be addressed. Here again, from a pure social justice perspective, a reverse mortgage is far more compelling than a forward mortgage. The FHA HECM Reverse Mortgage Program has significantly enhanced the retirement security of thousands of senior citizens, many of whom would otherwise have been forced out of their homes. That critical message cannot be drowned out by media coverage of isolated incidents that occur on the fringes of our industry.

Forward mortgages may allow families to purchase their first home or refinance to a lower rate, but reverse mortgages allow our seniors to remain independent and keep their homes. We owe them this program.

Final Thoughts Even the most cynical observer would agree that healthy competition is a prerequisite for good business. The reverse mortgage industry is certainly no exception to this rule.

However, healthy competition can only exist when small to medium-sized companies with strong balance sheets are able to compete alongside much larger institutions.

The accessibility to warehouse lending continues to be a major challenge for our industry. To maintain and expand warehouse credit facilities in the post-recession era is going to require a concerted effort. The rewards for this effort are right in front of us--in the final analysis, seniors are better served by a vibrant and robust reverse mortgage industry.

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NINE MONTHS

THAT HAVE CHANGED THE COURSE OF THE REVERSE MORTGAGE INDUSTRY

FOREVER? JOHN A. SMALDONE

After 40 years observing the mortgage banking industry, 8 of which have been spent in the reverse channel, it is clear that in the past 9 months we have seen one of the best loan programs for a senior citizens erode into a nightmare for so many seniors and all those that originate the product.

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To understand how the industry has evolved into its current state, I want to retrace the paths that lead us here. By dissecting this timeline it becomes apparent that there have been three key periods that explain why we have come close in destroying one of the major hopes for our senior citizen homeowners.

The first time period I will take you back to is about two and a half years ago, to the beginning of the worst housing crash and financial breakdown of our economy I have seen in my life time. Home values plummeted and still are in most parts of the country. Loan amounts on homes in many areas of the country have exceeded the value of a home by fairly high percentages. We have never seen the amount of foreclosures throughout the country that we have experienced. The foreclosure era has not come to an end by any means. We will experience another wave that will hit hard.

The financial crisis in this country is out of control, can we pull out of it, the answer is yes. Will we pull out of it, only a very few know the answer to that one.

We now go back in time again; this is when the floodgates on credit standards and lending were opened wide. I first saw what was happening and what was going to some day happen in our country about 14 years ago. This is when the credit standards and underwriting guidelines were relaxed as the floodgates were opened for just about anyone to borrow money. People were borrowing money on homes, credit cards, automobiles etc.. All this borrowing with very little credit qualifications required.

FNMA with their “Negotiated deals desk” started negotiating with various lenders, negotiating commitments for their so-called ALT-A rated products. Many of these loans had hardly any qualification requirements to them. Loan programs that were option ARMs, 100% loans to people that could never qualify for them in the first place and many other sub standard loans. FNMA would issue these commitments, most of which were created and presented to FNMA by lenders. FNMA would put pools of loans together in a security, and then sell them in the secondary markets.

Many of these pools consisted of mixed products. As an example, a pool of $25 million may have 60% A-rated loans in it but the other 40% could have the other type loans mentioned previously. These pools or security issues were not that good as a stand-alone security. However, FNMA went to AIG to obtain pool insurance, AIG would insure them if the securities could get a triple (A) rating from a Standard & Poor’s, Moody or one of the major rating agencies. FNMA would go to these rating agencies and get the pool rated triple (A), contingent on the pool being insured, AIG would then insure the security.

These securities were being sold everywhere, China, Japan and many other countries including the USA. Wall Street got heavily involved with these securities and created their own. What got started was the beginning of the end that we see today, D-Day! During this period the Reverse Mortgage was growing slowly and virtually a risk free product, unknown to most.

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I started to write letters when I saw what was happening. I wrote letters to Congressmen, Senators and various organizations because I knew it would only be a matter of time before we were to face a major crisis in the housing and financial markets and we did. No one listened; I was ignored along with many others who saw the same thing I did. The economy started growing at a brisk pace.

The problem was the economy grew through the largest accumulation of debt in the hands of the American people I have ever seen, along with the increasing of our national debt. When the Bubble broke, it broke with the wrath of God behind it!

While the economy was in the tank and foreclosures were occurring on the average of one an hour, the Reverse Mortgage started gaining more popularity. However, the steep decline in housing values was taking its toll on the Reverse Mortgage as well.

The saving grace was that interest rates on the Reverse Mortgages were low and margins were low.

Our industry was relatively simple. A reverse mortgage was highly regulated by HUD and rates were controlled by it as well. Generally speaking Each lender had the same rates and fees, but what set one lender apart from another was their service and the product knowledge of their loan originators. Senior’s were protected as well as they could be with the controls in place.

We had very little predatory lending going on because it was difficult to almost impossible to manipulate rates or fees for a predatory gain.

About nine months ago things started to change. This is now our third time period to cover, the past nine months in the Reverse Mortgage industry.

FNMA and Freddie Mac were bailed out and taken over by the Government. This shocked many in the mortgage banking industry.

What this meant to Reverse Mortgages was the start of the erosion of the product we all once new.

FNMA made a monumental move on our industry, they raised margins and introduced live pricing to the lenders servicing and buying Reverse Mortgages from the retail and wholesale sectors of the market. This move was done overnight, with out warning to our industry. This was like a bomb being dropped on our industry and to add insult to injury we were not given a lot of time to adjust and work out our pipelines.

Many seniors were affected adversely by the move; seniors were going into foreclosure all over the country. Originators and their companies were doing everything they were capable of doing but seniors were still losing their homes.

I am not saying FNMA did not have to change the margin and do something in order to sell the paper in the secondary market.

However, they could have given the market place and our seniors in process proper time to clear the pipeline and adjust. The seniors had the right to close the transaction they entered into under the lock provision and margins they thought they were going to get.

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It took everyone a lot of time to recover from what FNMA did to the reverse mortgage industry. Other methods could have been taken by FNMA to handle the situation but that is another story for another time.

However, after the disruption of many lives of our seniors it was one thing after another. States got involved in changing their laws on the books governing reverse mortgages, FNMA, FHA/HUD has been coming out with new underwriting guidelines to the industry like bullets out of a gun.

The principle limit rate lock loan disclosure became a worthless piece of paper that seniors were depending on. So many found out to late that there were loopholes in the disclosure that did not protect them. Many found themselves with large shortages and not enough funds to save their homes. We do not hear about all the seniors around the country losing their homes in the news media, do we?

To add more insult to injury we found ourselves facing a wave of negative publicity in the news media. Unfortunately, the negativity is still with us today and most of the adverse publicity has been from those who have little to no knowledge about the reverse mortgage product, which gives the industry a bad name.

Many legislators and the media alike are tagging us as the next sub prime industry. In response to this I asked one legislator a question; would FHA have insured a sub –prime loan? I never did get an answer!

Over the past couple of years we have started seeing a different element coming into the reverse mortgage world, those who specialized in Sub-Prime loans, people from other sales fields, many were and are the fast pace city slickers.

More predatory lending has occurred in the last nine months than I have seen in this industry in the eight years I have been in it. I can understand the concern of the agencies and states to do something. I say, ENFORCE the laws they have on the books now, new laws, new restraints and controls like those that are being implemented and proposed are not needed. The states, the agencies our entities set up to protect the public did not do a very good job with the sub-prime and alternative unorthodox loan mess that plagued this country for quite a few years.

The latest round we have all had was the reduction in the principle limit. The mortgagee letter came out on September 23rd, the industry had to adjust, clean its pipeline up and save as many seniors as they could in seven days. This was criminal in nature.

Companies, originators, processors, closing departments, title companies, counseling agencies and our seniors were in a panic state to get HUD certificates signed and dated along with FHA case numbers that had to be pulled before October 1, 2009. On October 1, 2009 many seniors found themselves facing their worst fears, foreclosure. The principle limit affected the people in a reduction of at least 10% of the value of their home.

To sum it up we have to look over what has taken place over the past 15 years. We have had the worst fleecing of the American people through the erosion of the economy and the housing

market I have ever seen. All this brought on by our government, due to falsely growing our economy through enormous debt in the hands of the American people.

When the crash hit, everything came out as far as what our government had done. Everyone blamed everyone else or everything possible except where the real blame belonged.

The subprime industry was on the lips of most American people.

The Reverse Mortgage was starting to suffer a bit because of dropping home values. Foreclosures were occurring so fast the country and the lending industry could not keep up with them.

Seniors were losing fortunes in their 401-Ks, the stock market and their overall investments for retirement. Their home became a haven for them; a reverse mortgage was the salvation to many people around the country until the bail out of FNMA by the Government.

Our industry is being attached unjustifiable, our seniors our being treated wrong. We are being used as a scapegoat for the mistakes made by our government. They are trying to change a great program around to become the type of programs that put us in this mess in the first place.

With that said, we need to roll the reverse mortgage industry back in time, put the controls back in the program, and have HUD/FHA regulate the rates like they did. The agencies can work with the market place to price the product with the controls and stability

we once had. We used to be proud to say” Reverse Mortgages are regulated by HUD for your protection”. We were proud to say, “The rate we offer will be the same any where you go”. Our industry had less predatory lending going on, more knowledgeable people working with our seniors and the service to the senior was better.

We know that rates and margins have to be marketable so everything can’t remain the same. Today’s reaction to the declining markets by lowering the principle limits are giving varied signs. Is HUD/FHA concerned that housing prices will not come back? They can’t do anything about the exposure they have out there now because of the plummeting values that our government created.

Tell me, what was the real purpose of lowering the principle limit factor tables? Lowering them at a time when the economic conditions of our country are critically affecting our seniors and the industry from an adverse financial position. My opinion is our government has a deep uncertainty and concern on what is going to happen to the economic future of our great nation.

The Reverse Mortgage industry will survive, even though it has gone through many battles. Those that survive will be among the elite that will serve our seniors professionally and represent our industry with dignity.

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The new RESPA rules are likely to come. Though the MBA and other similar organizations have requested a delay in the introduction of the rules, so far all such requests have been rejected.

We should assume that next year we will operate under the new regulations.

While everyone still struggles to understand the new RESPA rules, system developers have already been working for months to adapt their systems to the new RESPA rules.

HUD addresses uncertainties by updating RESPA’s FAQs on a regular basis; it gives clarifications, but the constant changes also make RESPA a moving target. So far, HUD has been careful in addressing reverse mortgages in RESPA’s FAQs. Since reverse mortgages are not addressed in the final rules of RESPA, there is no legal basis to address some reverse-mortgage-specific issues. The first set of answers to reverse mortgage specific questions showed some good understanding by the RESPA team; however, there were some clear mistakes such as confusing set-asides with escrows.

The new rules are complicated and there is some ambiguity. This article reflects my current understanding of the new RESPA rules.

Purpose of RESPA The Real Estate Settlement Procedures Act (RESPA) is a “Rule To Simplify and Improve the Process of Obtaining Mortgages

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and Reduce Consumer Settlement Cost”. The purpose of this article is not to address the question of whether RESPA will achieve these objectives or not. Instead, this article focuses on highlighting some aspects of the new rules and analyzes how the new RESPA rules and other regulations, still in the pipeline, will change the industry.

The final RESPA rule and the 571 pages long “Regulatory Impact Analysis” as published by HUD can be found here at http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm.

Neither of these documents mentions reverse mortgages even once. However, by not explicitly excluding reverse mortgages, reverse mortgages are subject to RESPA - which do not fit reverse mortgages very well.

The new GFE (Good Faith Estimate) is at the core of RESPA. The changes in the GFE go beyond cosmetic modifications to the layout of the document; its objective is to strengthen the prospective borrower’s position:

“The final RESPA rule includes a new, simplified Good Faith Estimate (GFE) that includes tolerances on final settlement costs and a new method for reporting wholesale lender payments in broker transactions...The new GFE will produce substantial shopping and price-reduction benefits for both origination and third-party settlement services.”

The New GFE - Now 3 Pages The GFE has been “simplified” from 1 to 3 pages. Additionally, RESPA expressly prohibits making changes to the GFE. Due to these restrictions, the new GFE cannot be adapted to reverse mortgages.

Page 1 of the GFE gives a general overview of the loan terms.

NRMLA and HUD are currently trying to figure out how some of the forward-specific fields should be adapted to the reverse mortgage.

Page 2 is the closest to the “old and familiar GFE”. The main difference is rather than listing the fees line by line they are now grouped together. Most significantly, the “origination fee” will no longer be disclosed on the GFE, but will be combined with other fees into the “origination charge”.

RESPA has learned something from the reverse mortgage industry and added a page 3: What our industry has offered its customers

for years - a comparison document - will now be integrated in a simplified form into the new GFE - modified to fit the forward world. $8,350,000,000 in savings - 167,000 in lost jobs. $8.35 billion or $668 per loan: this is the amount that HUD estimates borrowers will save thanks to the new RESPA rules . In other words, this is how much less HUD estimates the mortgage industry will earn in revenues. Assuming an average annual income of $50,000 per employee in the mortgage industry, this will result in a job cut of 167,000 jobs from the industry (including related services). Assuming that reverse mortgages make about 1% of the industry’s total, RESPA may take away about 1,670 reverse mortgage jobs. RESPA’s objective is not the creation or preservation of jobs. RESPA is not here to benefit the mortgage industry nor the US economy as a whole. RESPA’s intention is to cut costs to the borrower, which cuts jobs in the mortgage industry.

How does RESPA try to accomplish this?

While RESPA does not go into any specifics, RESPA’s aims are the following: 1. Bait and Switch Imagine buying a car, agreeing on the price, and when you sign

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the final contract you find out that the price is actually a few thousand dollars higher than originally agreed upon.

Bait and switch is misleading, immoral, legally questionable and plainly wrong. It harms borrowers as well as honest loan originators. As discussed below, RESPA addresses bait and switch by holding originators accountable for their offer.

2. Direct Charges The final invoice for the car bought in the example above is composed of a long list of charges like the base price of the car, special features, destination charge, taxes, etc. RESPA’s new guidelines mandate how to disclose charges. The objective is to make it easier to compare different offers.

3. Indirect Charges The friendly car salesman convinced you that a sun roof will give you a better tan, that leather seats will last longer, and an extended guarantee will make you sleep better. For these options the salesman gets commission from the manufacturer.

Such commissions are common practice in any trade. In the end it is the customer who pays for them, either by direct charges or consequential ones as discussed below. There are indirect remunerations in the mortgage industry, one being the Yield Spread Premium (YSP). RESPA does not expressly prohibit the YSP, but it aims to, “improve disclosure of yield spread premiums (YSPs) to help borrowers understand how YSPs can affect borrowers’ settlement charges...” In other words, the YSP to brokers gets under pressure. RESPA puts the pressure on the YSP by requiring a new way of disclosing it. It is fair to assume that the balance between brokers and lenders will swing towards lenders.

4. Consequential Charges The purchase price for a car is just the beginning. The real cost begins once you start driving the vehicle: Interest, insurance, gasoline, tires, etc. Page 1 of the new GFE attempts to reveal the real cost of a mortgage; unfortunately, it is not a good fit for the reverse mortgage.

Accountability As indicated above, one of the biggest achievements of RESPA is that it addresses the unfair practice of charging higher fees at closing than originally disclosed. RESPA sets very strict guidelines on how much fees are allowed to increase.

RESPA creates three categories for charges: 1. Charges that cannot increase The origination charge is in this category.

2. Charges that cannot increase by more than 10% in their aggregate amount Most of the charges (appraisal, MIP, title insurance...) fall into this category.

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3. Charges that can change Charges for services where the borrower selects the service provider such as homeowner’s insurance may (but will not always) fall in this category.

Lenders and brokers will be required to provide highly accurate forecasts of the fees charged to the borrower at closing. Any mistake when providing the initial disclosures may be costly to the originator.

Application RESPA also defines when a GFE has to be issued. The new guidelines state that it is no later than 3 business days after an application. To avoid any misunderstandings, RESPA also provides a new definition of an application.

The originator has received an application if the customer provides: • name • monthly income • SSN • property address • estimate of the property’s value • the mortgage loan amount sought • and possibly additional information required by the originator Changed Circumstances Every new regulation needs to have enough ambiguity to create new business opportunities for lawyers. “Changed circumstances” is the term that accomplishes this for RESPA. Assume the prospective borrower told the loan officer that he owns a property fee simple, free and clear. However, the property is actually a leasehold, there is a spouse on the title, and the property needs significant repairs. When learning of changed circumstances, the lender may re-issue a new GFE that takes account of the changed circumstances. While there is some guidance on what constitutes a changed circumstance, there is a lot of uncertainty - particularly when it comes to reverse mortgages. Without changed circumstances a lender cannot issue a new GFE. HUD 1 The HUD 1 remains the document that describes the final financial transaction. Like the GFE, the HUD 1 now has 3 pages. The changes from the current HUD 1 are: In Column - Out of Column Regulators were in a dilemma that could best be shown in the following example: • In the new GFE the MERS registration fee became part of the Origination Charge (not separately shown).

• However it is paid to a third party and must be disclosed as such in the HUD 1.

• RESPA also wants to make it easy to compare the HUD 1 to the GFE.

This is accomplished by showing charges outside of the column the same way POC charges are shown.

Compare Table to the GFE The third page of the HUD 1 will compare the final HUD 1 to the GFE that was originally disclosed, allowing the change of costs to be validated.

Responsibility The lender will be responsible for loans. If a broker originates a loan with an inaccurate GFE, the lender will assume responsibility as soon as the lender accepts the GFE. As lenders assume more responsibilities from brokers we can expect that they will also exercise more control, and possibly they may also want to keep more of the revenues.

Licensing Lenders will not only assume the responsibility for the loans originated by brokers, but also for the brokers themselves.

The FHA will no longer license brokers and will shift the responsibility to the lender. Lenders are currently establishing guidelines and requirements for licensing brokers.

While this opens the path for new brokers not approved by FHA to enter the space, it also increases the risk for the lender. Presently, it is difficult to say whether lenders will bring on more brokers or if

they will shift their focus on working with fewer brokers.

Conclusion for the Reverse Rortgage It is difficult to estimate how the new RESPA rules will affect the reverse mortgage industry.

There are concerns that the new RESPA rules might not bring much benefit to the reverse mortgage borrower but hurt the industry. Bait and switch has never been a serious problem in reverse mortgages and costs are well regulated. Tracking fees and re-disclosures will probably not bring much benefit to the borrowers, but will increase the cost of operation and delay the closing of loans.

The YSP does not pose any cost to the borrower as long as it does not increase the rate. In a reverse mortgage, a higher interest rate provides less money to the borrower (at current interest rates), making the offer less attractive.

RESPA will increase the cost of originating reverse mortgages by adding operational overhead. The new GFE may confuse borrowers rather than enlightening them because it just doesn’t fit a reverse mortgage.

It would be ironic if all that RESPA achieved for the reverse mortgage industry was to push reverse mortgage originators out of their jobs and decrease competition.

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877.882.4368 ext. 866 November 09 TRR

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California Teeters

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Weiner Brodsky Sidman Kider, PC

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As Legislators Fiddle:

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With the California Legislature and Governor Schwarzenegger dawdling over the worst budget crisis in California history, one wonders how these esteemed and wizened officials could possibly find the time to devote to new legislation further regulating the offering of reverse mortgages in the nation’s most populous state. Of course, and not with standing that the State’s budgetary woes are far from over, they did. On October 11, 2009, Governor Schwarzenegger signed AB 329 into law, otherwise known as the Reverse Mortgage Elder Protection Act of 2009. The title of the legislation (suggesting that reverse mortgages are something elders need to be protected from) seems illustrative of a nationwide summer of discontent swirling over reverse mortgages. This malaise manifested itself in media reports and statements from regulators and watchdog groups

n o i t ec

concerning the inappropriate marketing of reverse mortgages and hyperbolic warnings about the sub primelike risks they pose. Predictably, and without much focus on accurately assessing the true scope of perceived abuses, state legislatures, are now rushing in - with all of the haste of the proverbial fool, where angels fear to tread. In this regard, California is not unique, during the past year it appears that 17 other states have entertained legislative proposals to regulate reverse mortgages. As a bellwether, California, and its legislation, is often reflective of emerging nationwide trends and, for this reason, we believe it may be illuminating to share with you the state of reverse mortgage law in the Golden State. So grab your earthquake readiness kit (and prepare to dodge pesky elected officials seeking your loose change), as we explore the latest and greatest from Sacramento.

Pre-Existing California Law The Reverse Mortgage Elder Protection Act of 2009 (AB 329) revises and supplements existing California law embodied in California Civil Code Sections 1923-1923.10. Pre-existing law defines a reverse mortgage (in an unremarkable manner), and, among other things (i) prohibits an originator/lender from referring a borrower to anyone for the purchase of an annuity, (ii) requires that an applicant be provided with a specific disclosure warning that a reverse mortgage is a complex financial transaction and recommending the applicant seek financial counseling, and (iii) mandates that an originator/ lender refer a prospective borrower to a housing counseling agency prior to accepting a final and complete application for a reverse mortgage or charging any fees. Each of these consumer protections were noteworthy at the time they were enacted and have since been emulated in other jurisdictions. With the enactment of AB 329, which becomes effective on January 1, 2010, California has upped the ante, promulgating additional consumer safeguards that could in turn influence legislation in other jurisdictions.

Cross-Sell Prohibition With language eerily similar to the Home Equity Conversion Mortgage (HECM) cross-sell ban found in the Housing and Economic Recovery Act of 2008 (HERA), AB 329 prohibits a lender, or any other person who participates in the origination of a reverse mortgage, from participating in, being associated with, or employing any party that participates in or is associated with any other financial or insurance activity unless the lender maintains procedural safeguards designed to ensure that individuals participating in the origination of the reverse mortgage have no involvement with, or incentive to provide the prospective borrower with any other financial or insurance product. Given the similarity in language with HERA, it is not surprising to find that the new California law incorporates a safe harbor for parties who comply with HERA’s HECM cross-sell provisions (paragraph (1) of the subsection (n), and with subsection (o) of Section 1715z-20 of Title 12 of the United States Code) and any regulations and guidance promulgated by HUD under that section. Of course, the HECM cross-sell provisions apply exclusively to HECM loans. At its essence, California’s cross-sell prohibition essentially extends the HECM cross-sell rule to all reverse mortgages originated in California. In addition to this “safe harbor,” the AB 329 helpfully clarifies that the cross-sell prohibition does not prevent a lender from offering or referring borrowers for title insurance, hazard, flood or other peril insurance, or other similar products that are customary and normal under a reverse mortgage loan.

Counseling In enacting the new law, California legislators were clearly concerned with the independence and integrity of the counseling process, mirroring some of the same concerns federal legislators expressed and incorporated into HERA. Notably, a counseling agency may not receive any compensation, directly or indirectly, from a lender or any other person or entity involved in originating or servicing a reverse mortgage, the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product.

However, AB 329 does not prohibit financial assistance to a nonprofit counseling agency unrelated to the offering or selling of

The Ultimate Resource for Reverse Mortgage Originators

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reverse mortgages which is provided by the lender/originator as part of its charitable or philanthropic giving program.

In addition to the ban on lender compensation for counselors, AB 329 requires lenders to provide applicants two different lists. The first is a list of no fewer than ten (10) HUD-approved nonprofit counseling agencies in California approved by HUD to engage in reverse mortgage counseling. This list of counselors must be provided to the applicant prior to accepting the final and complete loan application.

The second list, which may be the most significant new development heralded by AB 329, requires lenders/originators to provide the applicant with a checklist specifying material issues the borrower should be discussing with a reverse mortgage counselor.

The items listed in the written checklist must be in 12-point or larger type, and are stated verbatim from the legislation below: (A) How unexpected medical or other events that cause the prospective borrower to move out of the home, either permanently or for more than one year, earlier than anticipated will impact the total annual loan cost of the mortgage.

(B) The extent to which the prospective borrower’s financial needs would be better met by options other than a reverse mortgage, including, but not limited to, less costly home equity lines of credit, property tax deferral programs, or governmental aid programs.

(C) Whether the prospective borrower intends to use the proceeds of the reverse mortgage to purchase an annuity or other insurance products and the consequences of doing so.

(D) The effect of repayment of the loan on non-borrowing residents of the home after all borrowers have died or permanently left the home.

(E) The prospective borrower’s ability to finance routine or catastrophic home repairs, especially if maintenance is a factor that may determine when the mortgage becomes payable.

(F) The impact that the reverse mortgage may have on the prospective borrower’s tax obligations, eligibility for government assistance programs, and the effect that losing equity in the home will have on the borrower’s estate and heirs.

(G) The ability of the borrower to finance alternative living accommodations, such as assisted living or long-term care nursing home registry, after the borrower’s equity is depleted.

In cases where the prospective borrower seeks counseling prior to requesting a reverse mortgage loan application, AB 329 requires that the housing agency counselor provide the prospective borrower with the checklist. The checklist must be signed by the agency counselor, if the counseling is done in person, and by the prospective borrower, and returned to the lender along with the counseling certificate.

The loan application cannot be approved until the signed checklist is provided to the lender. A copy of the checklist (assumedly, the executed copy) must be provided to the borrower.

In reviewing these topics, it is frankly hard to find fault with any of them. They are clearly among the major issues reverse mortgage

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borrowers should be considering before they determine that a reverse mortgage is suitable for their circumstances. However, what may be more interesting about the checklist is the California legislature’s choice, in its infinite wisdom, to direct efforts toward educating seniors on what counseling should cover, rather than mandating that counselors themselves cover such issues. This approach may reflect two concerns. Firstly, a lack of confidence in the quality and integrity of the counseling process (hence the need to educate consumers about what should be covered and reminding their counselors to do so), and secondly, a reluctance to get into the business of directly regulating HUD-approved counselors, perhaps underlining the unfunded nature of its mandate to use the federal network for non-FHA and non-VA loans. In any event, and even though the avalanche of documents already required to originate reverse mortgages is overly burdensome on seniors, the addition of this checklist seems to be an exercise of some restraint by the California legislature.

Plain Language Notice AB 329 also amended the wording of the plain statement notice required under pre-existing law and additionally precludes a reverse mortgage application from being taken by a lender/originator unless the loan applicant has received the plain language statement, prior to receiving counseling. Unfortunately, it appears the California legislature has delved a little too far into the weeds on this one.

The problem, of course, is the statutory requirement that the plain language notice be given by the lender/originator prior to counseling.

In the case of seniors who provide a preliminary application to a lender/originator before receiving counseling, which is the more typical occurrence, there is no problem. The lender/originator can provide the plain statement notice upon first contact with the prospective applicant. However, what happens if the prospective applicant receives counseling before visiting an originator/lender?

Unlike the checklist of counseling topics, there is no provision under the new California law which requires counselors to provide the plain language statement directly to the senior.

Finally, if you felt the prior plain language notice sounded ominous, you may want to shield your eyes from the wording of the new notice, provided below: IMPORTANT NOTICE TO REVERSE MORTGAGE APPLICANT A REVERSE MORTGAGE IS A COMPLEX FINANCIAL TRANSACTION. IF YOU DECIDE TO OBTAIN A REVERSE MORTGAGE LOAN, YOU WILL SIGN BINDING LEGAL DOCUMENTS THAT WILL HAVE IMPORTANT LEGAL AND FINANCIAL IMPLICATIONS FOR YOU AND YOUR ESTATE. IT IS THEREFORE IMPORTANT TO UNDERSTAND THE TERMS OF THE REVERSE MORTGAGE AND ITS EFFECT. BEFORE ENTERING INTO THIS TRANSACTION, YOU ARE REQUIRED TO CONSULT WITH AN INDEPENDENT LOAN COUNSELOR. A LIST OF APPROVED COUNSELORS WILL BE PROVIDED TO YOU BY THE LENDER. SENIOR CITIZEN ADVOCACY GROUPS ADVISE AGAINST USING THE PROCEEDS OF A REVERSE MORTGAGE TO PRUCHASE AN ANNUITY OR RELATED FINANCIAL PRODUCTS. IF YOU ARE CONSIDERING USING YOUR PROCEEDS FOR THIS PURPOSE, YOU SHOULD DISCUSS THE FINANCIAL IMPLICATIONS OF DOING SO WITH YOUR COUNSELOR AND FAMILY MEMBERS.

While the legislature’s intentions are undoubtedly noble, we modestly suggest that this type of alarmist notice may do more harm than good. To the extent it undeservedly scares away far more seniors who would clearly benefit from a reverse mortgage than it deservedly scares away from transactions that are clearly exploitive, the welfare of seniors, as a whole, are diminished. This is particularly true within the context of the reverse mortgage industry, as exemplified by the far-sighted vision of the National Reverse Mortgage Lenders Association, which has always embraced and promoted independent counseling for seniors.

Conclusion: We started this article with our marvel at the incredible agility of the California Legislature in further regulating reverse mortgages while teetering on the brink of bankruptcy. The allusion to Nero fiddling as Rome burns may be exaggerated, but California’s recent legislative session can’t be the first time leaders have embraced the self-righteousness of a good distraction. Notwithstanding that so much legislative skill might have been better directed toward far bigger issues, with the discipline to address them more thoroughly, we accept the legislature’s preamble that, “in enacting the Reverse Mortgage Elder Protection Act of 2009, it is not the intent of the Legislature to discourage the use of reverse mortgages, which often provide substantial benefits to senior citizens.” In particular, we believe the new counseling checklist emphasizes the right issues in the right way - by educating and informing seniors through independent counseling. Efforts that

promote the independence and integrity of the counseling process can’t be anything but a positive development for seniors and the industry. When all is said and done, and with the few reservations noted above, we have come to praise Caesar (and the California legislature), not to bury him.

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.

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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New Participants Bring Promise

to the Reverse Mortgage Sector

By adding seasoned individuals with insights from past professional experiences, originators and servicers not only grow their companies, but also enhance their ability to serve their clients.

By Robert D. Yeary Education, facts and keeping a watchful eye for any suspicious activity become the vital tools in the reputation management game.

In today’s challenging environment, reverse mortgage professionals must educate would-be borrowers about legitimate benefits and fraudulent threats. Ironically, downsizing in the forward mortgage business has flooded the reverse sector with experienced, knowledgeable professionals excited to get on board as the recovery begins. That’s a good news/bad news story.

There have been isolated instances of dishonest individuals advising seniors to direct reverse mortgage profits into annuities, or desperate family members and caregivers making unauthorized use of funds after a transaction has closed. There was even one reported scheme involving seniors facing foreclosure who were fraudulently led to believe they were applying for a reverse mortgage. After applications were conveniently rejected, as a last resort these folks transferred the title of their properties to “investors,” which ultimately resulted in the loss of their homes.

Unfortunately, these are the stories that have received the most media attention. Indeed, the stigma that was associated with subprime lending is now being unfairly attached to reverse mortgages, owing perhaps to the slim fact that vulnerable citizens are often interested in both products.

The reality is that last year, HUD reported only two cases of fraud related to reverse mortgages; and, ironically majority of those reported thus far this year have been perpetrated by family members or financial advisers and caretakers, not mortgage personnel. HUD’s decision to mandate a separation (“firewall”) between the loan originator and purveyors of other financial products such as annuities appears to be working well.

For reverse mortgage participants, education, facts and keeping a watchful eye for any suspicious activity become the vital tools in the reputation management game.

The ability not only to reach out and educate prospective borrowers about how reverse mortgages can help, but address the 800-pound gorilla in the room (a.k.a. false information), can give seniors the confidence they need to fully consider a reverse mortgage.

This is where former forward mortgage professionals can provide a real boost to our sector because many of these men and women uniquely understand the mistakes of the past and how to avoid those errors and make the right moves going forward. An unprecedented pool of talented and experienced financial services professionals are available for companies that want to build for success in the reverse mortgage market.

Enhanced ability to serve clients By adding seasoned individuals with insights from past professional experiences, originators and servicers not only grow their companies, but at the same time enhance their ability to serve their clients. This newly invigorated team can offer unique professional capabilities perfectly tailored for the education and counsel of the seniors who are potential candidates for reverse mortgages.

These seniors can now enjoy the opportunity to be fully educated by loan officers on the positives and the negatives of reverse mortgages, in general and specifically as it may relate to them. This allows the senior to focus on finding the best solution for them, rather than wading through confusing paperwork alone, as they have done in the past. If they reach the decision to move forward with the reverse mortgage, then they can begin the independent counseling required prior to the mortgage offer with a much clearer understanding of the entire process.

The ability to offer this level of personal attention during the entire process including application documentation and required disclosures (which can number 150 pages of material not counting any marketing materials which they are receiving in the mail) cannot be overstated. This adds to the overall confidence in their decision to take a reverse mortgage.

The next step will be regaining the confidence of Wall Street.

After watching home prices fall for the past couple of years, investors backed away from the reverse (and forward) mortgage market. Now with bated breath the reverse mortgage market is awaiting their return.

Slowly their attendance at industry conferences is increasing and active dialogue about private securities is beginning. Once Wall Street is reengaged and interest in the securitization market returns, more investor liquidity will become available for reverse mortgages of all sizes.

There are also indications of optimism in the secondary market, evident in the activity between private firms and originators. On the government side, investors are showing strong interest in Ginnie Mae’s HECM Mortgage-backed Swndary prices for the product to new highs and as Fannie continues to push products toward Ginnie Mae and private players, banks are getting in on the action as well. However, this time progress will be slow and deliberate.

As the mortgage market and the economy overall continue to evolve, the opportunities and challenges are great. Through a renewed commitment to processes with an emphasis on education and confidence, trust will be gained and a strengthened reverse mortgage market can emerge.

REVERSE

REFLECTING on

reverse review.com

ask the servicer

By Ryan LaRose

Can a reverse mortgage borrower make a partial prepayment on their loan, and if so, how does that affect their loan?

One of the most important benefits that reverse mortgage borrowers receive at closing is the freedom of no longer having to make required monthly mortgage payments to their lender. It is this feature of the reverse mortgage product that makes it so unique - and as such - so difficult for those outside of our industry to comprehend and understand! The reverse mortgage product acknowledges and rewards long-term borrower responsibility and for the many who have obtained a reverse mortgage, it may well be the difference between financial autonomy and disaster.

While regular payments are not required on a reverse mortgage, the program does allow borrowers to make voluntary partial prepayments at any time during the life of the loan.

There are no restrictions on prepayments based on the interest rate index (CMT vs. LIBOR), interest rate type (adjustable rate vs. fixed rate) or credit feature (open end vs. closed end).

When a borrower submits a partial prepayment to their servicer, what they will see on their monthly statement is fairly basic. For example, if a borrower with a line of credit as part of their payment plan sends in a $1,000 prepayment, they will see their loan balance decrease by $1,000 and their available line of credit increase by $1,000. If the loan is not closed-ended, then the borrower can redraw that $1,000 at any time over the life of the loan.

There are two important exceptions: 1. If the loan is closed-ended, funds submitted for prepayment cannot be re-borrowed at any point during the life of the loan; the revolving credit feature does not apply.

2. If the borrower has a term or tenure payment plan (with no line of credit), the borrower would need to complete a payment plan change in order to obtain access to any prepaid funds. The payment plan change calculations would then use the total funds available, including those prepaid funds, to determine the new amount available to the borrower – either in the form of a line of credit or as a different monthly payment amount.

Let’s now review the complex part of the prepayment equation.

The borrower with a Line of Credit will see a very simple decrease of loan balance and increase of available funds when prepayment is made. However, behind the scenes, the

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prepayment is applied to the outstanding loan balance in the following specific order, as dictated by the loan Note: • First, to accrued mortgage insurance premiums; • Second, to accrued monthly servicing fees; • Third, to accrued interest; • Last, to the remaining principal balance.

While this detailed application of funds will not be directly visible to the borrower, it does have some tax-related implications for them when prepayments are made.

It’s important to note that 1098 statements are typically generated when a reverse mortgage loan is paid in full.

Mortgage interest statements (Form 1098) are generated and mailed to borrowers in January of each year. These statements break down the amount of mortgage insurance premiums and interest actually paid by the borrower during the prior calendar year and can be used for income tax filing purposes.

When borrowers make partial prepayments on their loan – and actually pay down accrued mortgage insurance premiums and interest – they will also receive a 1098 statement.

On one important and final note, varying models used by lawmakers estimate that the current poverty rate of the senior population ranges anywhere from 10-15%. The financial lifeline that a reverse mortgage provides to people in these most dire of circumstances is significant and profound. Media outlets latch on to outdated or perceived “flaws” of the HECM program – completely ignoring the positive personal and social impact the reverse mortgage industry has had on our senior population.

As a servicer of reverse mortgages, we regularly receive comments from borrowers such as “Thank you…I don’t know what I would have done without this reverse mortgage”. It is in those moments that we experience the tangible feelings of the great goodwill that our industry and product generate each and every day.

I look forward to receiving any questions you may have regarding servicing at: ryan@celink.com. Please remember: there is no such thing as a stupid question. No doubt, the question you ask will have been in the minds of other readers as well. If you wish to remain anonymous for my response, just let me know.

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FINANCIAL SERVICES, LLC

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SUBSIDIARY OF WILMINGTON SAVINGS FUND SOCIETY, FSB

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James B Nutter and Company 800.798.3946 jbnutter.com

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www.libertystreetfg.com Phone: 800-656-4045

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Tradition Title www.traditionta.com 631.328.4410

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First American Title InsuranceCompany TRUSTED Reverse Transactions 800.546.4667 www.trtreverse.com

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November 09 TRR

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the last word The WOW Week That Was! Tony Garcia On September 23, the MORTGAGEE LETTER 2009-34 hit like a California Quake. Lasting less then a minute to read and the damage was real.

“This Mortgagee Letter announces a new set of principal limit factors (PLFs) for the Federal Housing Administration (FHA) HECM program, to assist with the viability of the program. The new principal limit factor must be used for all HECMs for which the FHA case number is assigned on or after October 1, 2009.”

Translated, “Gentlemen start your engines, you’ve got one week to get a borrower a case number.”

Simply stated, the new set of Principal Limit Factors means 10% less money to the borrower. More simply stated, a borrower age 70 with a $600,000 home would receive $40,000 less money.

Yes, that’s correct Mrs. Walker $40,000 less money to you if we can’t get you counseled, take your application and get a case number assigned to you by October 1. Yes I know, that’s equivalent to more then you paid for your first home and 3 years worth of Social Security checks and yes, you could buy a new Buick with that much money (If you don’t just love the color, you can return the car in 60 days or less).

It was exciting on that Wednesday morning of September 23rd.

We rallied the troops for a quick briefing. People were walking and talking fast. The message was loud and clear, you can’t get a case number without a Counseling Certificate and there’s going to be an overload on the counselors. People were dialing like crazy trying to get the message out to all those “fence sitters” that hadn’t made up their minds yet. For you newbie’s that are just getting into the business, NEVER EVER PUSH A SENIOR BORROWER INTO MAKING A QUICK DECISION… except when there’s more then $40,000 at stake.

You say you are available on Thursday, well I have a 10am and a 2pm, great, see you at 6pm. WOW, I haven’t done 3 applications in the same day in years!

Some borrowers also got caught up in the urgency and value of the moment. “My neighbor Maude needs to know about this, would you mind telling her about it?” A referral too! Then the impossible happened, while this was all going on, Snoopy calls and increases the YSP “because we love you.” Someone better pinch me.

“To assist with the viability of the program” started in the House as an appropriations bill for $798 million and ended in no change in

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the Principal Limit. The Senate version came in with a $288 million appropriation and a 5% reduction in the Principal Limit. By the time we got to the 3rd week of September, the consensus was for no appropriations and an across the board 10% reduction in the Principal Limit effective October 1st 2009.

When the week was over, we as an industry racked up an electrifying 10,000 plus HECM case numbers. We did a total of 19,055 HECM case numbers in September according to John Lunde, President of Reverse Mortgage Insight, Inc. We basically did a month’s worth of volume in one week. What is amazing is everything worked! I’m proud of our counselors for working until 9pm every night. I’m proud of our industry with everyone helping each other to get the job done. The ability to get a case number performed flawlessly.

Total FHA case numbers issued exceeded 60,000 in the month of September. When viewed on an annual basis, September 2009 for HECMs will need an asterisk beside it for explanation.

Now that the frenzy is over, I feel sorry for those borrowers who missed the cut off and will not be able to pay their existing loans off or the people planning on doing a “for purchase” and not being able to because of the 10% reduction. Hopefully, home prices will begin to rise again sometime next year and we will be able to help these people out in the near future.

The reality to us brokers has also set in. This means fewer loans to be made in the near future with less borrowers being able to qualify in an already very crowded field of participating brokers.

There are over a thousand of us trying to make a living with a single product. With home values down and now being able to lend less money, we are missing over 40% of business to borrowers who want to do a reverse mortgage but now don’t qualify.

As the jobs picture starts to improve next year and home prices start to level off, I am hoping the private sector will be bringing other products back into the market. The jumbo reverse mortgage market has been a void for some time and needs to be filled as well as other products helping the emerging baby boomer market.

So, we’ve been through a rough patch of business this past year.

The good news is there appears to be a light at end of the tunnel and as the ever optimist, things are looking up!

Have a great Conference!

November 09 TRR

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