JANUARY 2010 O
HAWAII MORTGAGE PROFESSIONAL MAGAZINE
O www.NationalMortgageProfessional.com
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agreed to study three NRMLA issues at that time: Single national HECM loan limit, a reduction in mortgage insurance premiums for seniors who purchase LTC (this is a taboo subject today), and evaluation of cooperatives for inclusion in the HECM program. Much of the improvement in the HECM product and in the industry since 1997 can be traced to NRMLA-led initiatives. In short, NRMLA put reverse mortgages on the map in America. After founding NRMLA and serving as its chairman for two terms (he’s still on the board as founding chairman), the leader retired. Unknown to him, a second chapter of his work in reverse mortgages was about to begin. In November of 1998, Wells Fargo Home Mortgage hired him as a consultant. And on Jan. 1, 2000, Wells Fargo lured him out of retirement to lead its senior products group. Jeffrey S. Taylor, CMB is that leader. His innovation in sub-servicing HECMs and leadership in creating NRMLA were crucial additions to the industry’s architecture. Although he was a pioneer in wholesale and correspondent reverse mortgage lending at Wendover Funding, during his decade-long tenure at Wells Fargo, Taylor focused on a retail origination strategy and made Wells Fargo into the nation’s largest retail reverse mortgage lender, a ranking Wells Fargo continues to maintain. Following his August 2009 retirement from Wells Fargo, a third chapter of Jeff Taylor’s reverse-mortgage life began as chairman of Reverse Mortgage Insight, a California-based advisory and data provider. The following is Jeff Taylor’s reflection on the first 20 years of the industry he helped to build. What attracted you to reverse mortgages, and why did you commit to the business? Back in 1989, I read of a pilot program by HUD that was going to provide home equity loans to seniors without requiring monthly payments, letting them use a portion of the equity in their house. At that time, only 50 lenders were being selected in a lottery administered by HUD. The 50 lenders could make only 50 loans, a total of 2,500 loans. Being in the loan-servicing business, I knew it was going to be difficult for only 50 lenders to design and build a servicing system to actually build this product. Secondly, I felt that this could be a new frontier in mortgage lending because in the past the regular mortgage business that I had been in for the previous 20 years was doing well, and the new market that everyone was focusing on was the first-time homebuyers and new immigrants moving into the United States. But the demographics for seniors both then and today would suggest that this is a new frontier that needs to be
served. We needed to understand the product. At that time, I was the president and chief executive officer of Wendover Funding, which was a large servicing organization, and we designed a servicing system and offered to sub-service those loans for those original pilot lenders which, essentially, got us into the business. And why did you commit to the business? I could see that there were adult children like myself who are always looking for options for mom and dad or grandparents. And the whole idea was that without a reverse mortgage option, many adult children were using their own money, their after-tax dollars to help support them. As always happened in the past, they then waited for the property to be sold to be paid back. In my own case, my mother got a reverse mortgage. It allowed her to continue her independence and her financial dignity, and it just changed her life. When I saw that I felt that this business had a future. And 20 years after, do you still feel that way? Oh yes, I do. It’s been stated that we’ve had more growth in the last four years than we had in the previous 16, and we are yet to reach more than two percent of eligible homeowners in the demographics of 65-plus. So, I think that over the past 20 years, the first 16 years were education. The next four were fueled by falling portfolio values, the financial crisis and a number of other things. Another thing that helped was changing the lending limits, which, not much over a year ago, 80 percent of the counties in the United States had a maximum lending limit of $209,160. The problem was that if a senior had a $300,000 home value, and they were in the lower lending limit, they only could get the amount available based on their age and a maximum value of $209,160. Today, we have $625,500 as the ceiling which has resulted in many more seniors taking advantage of the HECM program because of their ability to get more access to their equity. Moving into next fiscal year, it could be extended. So, we have been able to help a broad range of senior households based on different home values. How has the industry changed since you came in? First and foremost, within the last couple of years, we’ve been in the spotlight, in other words, many are taking notice of the program, lenders advocacy groups and federal and state regulators. I remember attending several continued on page 15
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The lawsuit alleges that the rating agencies made spectacularly misleading evaluations of the MBS due in part to the lucrative fees they received from the same issuers they were supposed to be objectively evaluating. Public statements and testimony indicate that rating agency executives and analysts knew their ratings of the MBS were wrong. Indeed, one rating agency analyst admitted that the market for MBS was “little more than a house of cards” with a much higher risk of devaluation than indicated by the purported investment-grade “AAA” rating. Another rating agency analyst said that “we rate every deal. It could be structured by cows and we would rate it.” Raymond McDaniel, CEO and Chairman of Moody’s, described the ratings frenzy: “What happened in ’04 and ’05 … is that our competition, Fitch and S&P, went nuts. Everything was investment-grade. It really didn’t matter. No one cared because the machine just kept going.” McDaniel added that Moody’s also “[drank] the Kool-Aid.” Cordray said, “Our lawsuit against these rating agencies is another step toward holding Wall Street accountable for its wrongs.” AG Cordray’s fight to hold Wall Street accountable now includes eight major lawsuits, which have recovered more than $2 billion to date. Recent settlements include $284.5 million with secondary defendants in a case involving AIG; $400 million with Marsh & McLennan; $475 million with Merrill Lynch; and the cancelling of $922 million in improperly granted stock options to corporate executives at UnitedHealth. AG Cordray continues to represent the Ohio Funds in several major securities cases, including class action securities lawsuits against AIG, Bank of America, Fannie Mae and Freddie Mac. For more information, visit www.ohioattorneygeneral.gov.
FHA proposes new rules to strengthen risk management The Federal Housing Administration (FHA) has proposed new regulations to further reduce risks to its single-family insurance fund as it continues to play a critical role in the U.S. housing market. FHA has proposed to increase the net worth requirements of FHA-approved lenders, strengthen lender approval criteria, and make lenders liable for the practices of their correspondent mortgage brokers. The proposed rule will permit FHA to more effectively focus its resources on lenders that pose the greatest potential threat to its insurance funds and to ensure that lenders possess the resources appropriate for the financial
services they deliver. FHA is soliciting comments on its proposals and the comments received will be considered in the development of a final rule. “With FHA’s crucial role in today’s housing market, it is critically important that we are able to manage risk and to ensure that our reserves are adequate to cover future losses,” said FHA Commissioner David Stevens. “We are taking a number of aggressive steps to ensure that we are able to continue to support the housing market in the short-term and provide access to home ownership to the underserved in the long term, while minimizing the risk to the American taxpayer.” On Sept. 18, 2009, Stevens announced a set of credit policy changes that will enhance FHA’s risk management function, including the hiring of a chief risk officer for the first time in the agency’s 75-year history. In addition, Stevens announced his intent to propose new regulations to further strengthen FHA’s risk management. Since 1993, FHA has required approved mortgagees have a net worth of at least $250,000. To strengthen the financial capacity of FHA counterparties to ensure they can meet their obligations, the proposed rule would require mortgagees maintain a minimum of $1 million in net worth within the first year and at least $2.5 million of net worth within three years of the effective date of the rule. These changes are consistent with industry standards and will ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting FHA to mitigate losses and decrease risks to its insurance fund. Lenders seeking approval to originate underwrite or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. FHA-approved mortgagees must assume liability for all the loans they originate and/or underwrite. While loan correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees, they will no longer receive independent approval for origination eligibility. This will require the FHA-approved mortgagee to assume responsibility and liability for the FHAinsured loan underwritten and closed by the approved mortgagee. These changes align FHA with Fannie Mae and Freddie Mac and will potentially increase the number of loan correspondents (mortgage brokers) who are eligible to participate in the origination of FHA-insured loans while providing for more effective oversight of loan correspondents through the FHA approved mortgagees. For more information, visit www.hud.gov. continued on page 14