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defensive edge

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New rules help the anti-fraud squad A couple of new players have appeared on the regulation side:

HECM at 20: Leaders and Pioneers in the U.S. Reverse Mortgage Industry Series




A Principal Architect of HECM


On Feb. 5, 1988, President Roland mates) credit industry in 20 years. Reagan signed reverse mortgage insur- What attracted you to the design ance legislation, and it became the task project at inception? First, let me say at the outset, that my of the U.S. Department of Housing & Urban Development (HUD) to create a responses to your questions reflect my marketable product out of the law. personal opinions, and I am not in any There were no models. So, HUD put a way speaking for HUD. Secondly, I want to say that HECM is not my “contrapproduct-design team together. Edward J. Szymanoski, an Associate tion.” It was very much a team effort. I Deputy Assistant Secretary for presume you will be speaking with Economic Affairs at HUD’s Office of some of my colleagues involved with Policy Development and Research, was the development of HECM 20 years ago a vital member of that pioneering prod- as well, including Judy May, who very ably led the HUD team. uct-development team. A demonstration proAt HUD, Szymanoski, a gram for home equity Hartford, Conn. native with conversion was authordegrees in applied matheized by the Housing and matics and economics, Community Development manages economic and polAct of 1987 (Public Law icy support for HUD’s pro100-242). This concept grams. Before that, he ran was championed by sevthe annual actuarial review eral very dedicated advoof HUD’s home mortgage cates for older homeowninsurance fund, led modelers who helped get the ing teams assisting HUD’s provision included in the financial and budget reportEdward J. Szymanoski law (for example, Ken ing, and served at Fannie Scholen). The statute limMae and Freddie Mac’s for“HUD’s work in ited the HECM pilot to mer regulator. HECM design 2,500 total mortgages, Szymanoski has authored underscores the fact although that limit was many papers on housing that sometimes soon raised. The first and economic issues in acagovernment can HECM loan was made in demic journals. His 1990 get it right.” October 1989. paper on reverse mortgage Congress, in its wisrisk, “The FHA Home Equity Conversion Mortgage Insurance dom, left it up to HUD to design the Demonstration: A Model to Calculate HECM pilot. The legislation set down Borrower Payments and Insurance Risk,” guidelines for consumer protections and basic program requirements, but is considered the best on the subject. Personally, I have been a beneficiary of HUD took the lead in establishing the Ed’s boundless intellectual generosity over main features of the HECM program. the years. He is one of my teachers on HUD needed to build a simulation reverse mortgages and on Home Equity model for analyzing the actuarial risks Conversion Mortgages (HECM). The following that the FHA [Federal Housing are the reflections of Edward J. Szymanoski, Administration] would be exposed to a principal architect of HECM and a world- under various economic and demographic assumptions involving future class resource on reverse mortgages. house prices, and borrower mortality You are one of HECM’s inventors. and move-out rates. The HECM design team used this Your contraption has spawned a multi-billion-dollar (possibly a multitrillion-dollar by 2030 by some esticontinued on page 12

O The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act licensing of 2008): This act requires mortgage companies to screen loan officers before they handle sensitive customer information. The process involves entering fingerprints, criminal history, background checks, personal history and experience into a Nationwide Mortgage Licensing System and Registry (NMLSR) and makes use of the latest employment screening technology. O The Mortgage Reform and AntiPredatory Lending Act (HR 1728): This piece of legislation protects against fraud and was designed to amend the Truth-inLending Act (TILA) to help stabilize the mortgage market. An amendment to this bill requires mortgage lenders to verify the income history of each home loan applicant by obtaining an IRS tax return transcript from a third-party provider prior to closing a loan. The goal is to verify stated-income through IRS tax transcripts to protect taxpayers, investors and the mortgage market by discouraging fraud, reducing foreclosures and strengthening the market. The bill passed in the House and it’s now in the Senate and expected to be voted on soon. The number of loan originators is becoming as scarce as players without sixfigure salaries, so there is even more reason to be vigilant. Two to three years ago, for example, buyers had a wide choice of where to secure mortgage loans. Today, MARI reports that more than 300 companies that once originated loans have folded their franchises. This has caused some to speculate that fewer loan originations may be leading buyers desperate to purchase homes to commit mortgage fraud.

TRV reports make confidence a snap It’s no wonder, then, that some lenders,

trend spotter

tired of being thrown for financial losses by scammers and fraud artists, are asking that TRV reports be included with loan applications to confirm such things as employment and income. Some companies offering TRVs have seen orders increase six-fold since last year. My firm, Credit Plus Inc., has experienced a whopping 628 percent increase in the use of TRVs over the past year. TRV reports, like a star rookie in training camp, are proving their worth in ensuring that more loans are being approved faster and with greater confidence. David Wind, president of Guaranteed Home Mortgage Company Inc. in White Plains, N.Y., said, “Not only have TRVs enabled us to more fully verify our files, they have assisted us in expediting our underwriting processes as we are ordering them at initial application submission so that they are available for initial underwrite. This has the effect of reducing the need for supplemental verification or consumer explanation stipulations on our commitments.”

Technology makes defense the name of the game Credit information companies are scoring big points with mortgage industry customers through the use of TRV reports and other technology-based systems that help them sideline mortgage fraud by gathering and validating information. Using technology this way levels the playing field for everyone in this new competitive environment, where the stakes keep getting higher all the time. Taking a team approach and putting TRV reports in play is a win-win strategy that will lead to gains by mortgage brokers, lenders, consumers and other players in the fight against fraud. You may not earn a trophy, but you can feel good that you have gone the distance to make a difference in our industry. Steve Grant is president of Credit Plus Inc., a credit information services provider since 1928. He may be reached by phone at (800) 258-3488 or e-mail

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competition, convert and motivate rate shoppers, and skyrocket your referral business. Gibran Nicholas is the founder and chairman of the CMPS Institute, which administers the Certified Mortgage Planning Specialist (CMPS) designation. The CMPS Institute has enrolled more than 5,500 members since its founding in 2005. Gibran is also the chairman of Published Daily, a customizable online magazine, newsletter and marketing service that

helps professionals transform their clients and prospects into a referral-generating sales force. He may be reached at (888) 608-9800, ext. 101 or e-mail Visit author Gibran Nicholas’s blog at where he shares his insights on economics, real estate and financial issues, including the current mortgage and credit crises.