Spotlight: Brian D. Montgomery page
As the final days of the Bush Administration came to a close, we had the privilege of engaging in a candid conversation with Brian D. Montgomery. We spoke about his personal accomplishments, and experiences while in office as well as his advice for the new administration. Read for a glimpse into the personal thoughts of one of the most influential people on FHA and HUD over the last eight years.
THE INDUSTRY STANDARD SINCE 1995
The Industry Standard is not just a slogan. Six of the top 10 reverse mortgage originators use Ibis Software for their websites, retail and wholesale businesses.
Publisher Aman Makkar Editor-in-Chief Erica English Copy Editor Harpreet Makkar
Those lenders are using:
Design & Production Jason Westbrook
Loan origination modules include CRM, Quick Quote, Proposal, Application, Underwriting, Documents, Closing, Pipeline Reports, and Cost Templates. Plus Broker and Correspondent Management. Full state speciﬁc application and closing packages can be stored, printed, and emailed.
Ibis Quick Quote:
Bilingual consumer calculators, already in use at: • www.rmaarp.com • • www.wellsrm.com • and many other websites
Printer The Ovid Bell Press
Rates, specifications, and deadline information available. phone : 858.217.5332 email : firstname.lastname@example.org
Subscriptions and Editorial Content phone : 858.217.5332 email : email@example.com website : www.reversereview.com
Ibis also provides:
11440 West Bernardo Court Suite 220 San Diego, CA 92127
A complete counseling package for HUD-Approved reverse counselors. For more information, visit
Or call (800) 566-5077
© 2008 The Reverse Review, LLC. All rights reserved. The Reverse Review, LLC is a California limited liability company and is the publisher of The Reverse Review magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, The Reverse Review, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 11440 W Bernardo Ct, Ste 220, San Diego, CA 92127
editor’s note Speaking of which, recently I’ve had the pleasure of campaigning new books hitting the circuit, and I’m proud to announce that some of your favorite TRR contributors are releasing new books. The well respected Atare Agbamu shares with us his valuable insight and information for every loan officer in our industry to better service our senior clients in, Think Reverse!. Additionally, Monte Rose shares his training and speaking practices in Go Sell. Go Serve.
hen I think about a New Year, a few words come to mind, Renew, Rebuild and Refresh. They each have different meanings, things we all care about: commitments, success in business, friendships and restoring new successes in a New Year. Rebuilding in this small space is not hard, especially with the new reverse mortgage loan limits being increased to $625,000, opening the door to a whole new income bracket of borrowers. This will undoubtedly have a positive impact in our industry. Lately I’ve been planning for 2009, gathering new editorials, campaign ideas and helping new companies with their campaigns. Additionally, I would like to invite our readers to share questions they may want answered in 2009. Our goal is to be a monthly guide for the conversations taking place within the industry.
It’s going to be a very exciting year and we want you to join us by giving us your feedback on what you want to read each month. Please send your emails to feedback@reversereview. com as we aim to create an interactive publication with our wonderful readers in 2009. Enjoy!
Erica English Editor-in-Chief
12 Got Content?
and the 20 Year Mistake
Atare E. Agbamu, CRMS
16 Creating a World Class Reverse Mortgage Training Program
37 Grandma Ritaâ€™s Heirs
30 What the HECM:
Reverse Mortgages can be Used to Buy a Home
Jacqueline Del Priore
22 Building an Effective
Weiner Brodsky Sidman Kider, PC
Advisor Referral Engine
40 Birth of a New
Industry, Part II Michael Banner
5 Note From the Editor
7 Ask the Underwriter
46 The Last Word : You are Terminated!
10 Industry Snapshot
“Will 2 pounds do it?........ P.S., I just love your Underwriter(s)”
ask the underwriter Ralph Rosynek
Aaaaahhhh, February, for some, the month before spring should arrive, for others Ground Hog’s Day, a Presidential Birthday Holiday month, and for many – the month of love and chocolate! While my wife would prefer I recall the more romantic side of February 14th last year, I must admit a different event of the day ran a very close second. You see, as I opened a large Fedex box delivered to me that day, a rather thin file slid out, and then the package with a note – “Will 2 pounds do it?....P.S., I just love your Underwriter(s)” it proclaimed. As I curiously opened the package, I was presented with a classic symbol of underwriting communication; chocolate, two 1 pound bags of pink M&M’s, one plain, one peanut. We use love in so many ways these days, we love our cars, we love our home, we love our loved ones, and we love our Underwriter(s)! While the chocolate isn’t necessary for us to do our job, (and many of us certainly do not need the calories!), I have often thought of sharing the “love” and the chocolate in reverse to some of the “villagers” whose efforts brought the file before me that I am going to underwrite as I munch my way into sugary bliss. Honestly, that day, I would have “loved” to send a pound to the appraiser who chose to do the appraisal on the manufactured home before the foundation inspection, couldn’t read the tags, and left enough white space in the report to verify the loss of a current copy of the Appendix “D” appraisal protocol. Perhaps the chocolate would have given him/her the required energy to go that extra mile and fill in all of the spaces, make appropriate comments, and incorporate all of the required documentation. Too often we accept reports from our vendors without questioning quality or content. More importantly, we do not set the appropriate expectations for the final work product. Some of the things I would especially “love” to know as I read through an appraisal report are: • • • •
The name of the lender for whom the report was prepared. Property tax amounts and homeowner information The FHA Casefile box was filled in with what number? The comparable photos were clear and correctly matched to the correct properties.
• The Location Map indicators were on the right side of the highway that divided the subdivision. • The functional obsolescence comment of tandem bedrooms was drawn on the sketch without two separate entry doors. • Oil tanks, outbuildings, septic fields, well location, patios, gazebos, and other site improvements were drawn and/or commented on. • Interior photos depicting the hole in the floor behind the toilet, the big grey spot on a wall, the missing tiles in a ceiling, a dangling light bulb, and other notable features of interest were described and a recommended/lack of need for repair action/inspection proposed. • And my remaining economic life is? • And how about that site value? • The pavement that split left to the subject property and right to the next parcel, is it a private road? • That large black line that runs from one pole to another across the back of the home – is it a power line? • That puddle in the corner of the basement – is it sewage, seepage or a surprise? • The report mentions a scenic and picturesque landscape (??), the rear photo was shot from across the creek in the back of the yard to get the gazebo, pool and patio in one frame – the report says flood zone “X”. • The report legal description indicates, “see attached legal description” or “refer to preliminary title report”, yet the pdf of the report has no attachments. • The subject photos remind me of a winter wonderland scene from a postcard. How’s that roof doing under all of that snow? • The unit has space heat. And? • Nice electrical box photo – any idea why one fuse is missing? • The blue tarp on the back of the roof in the photo was for? • Thanks for comp 4,5 and 6 – what are they for? • Is 35 DOM in a stated declining market a typo? • What a novel idea, every subdivision should have an equestrian estate as one of the comps. So, as those bags of pink M&M’s embark upon their Fedex journey to Underwriter(s) around the country (I like the M&M Peanuts!) in the next few weeks, why not start a new tradition and don’t forget your quality appraisers - drop them both a good appraisal checklist and a pound with your note “P.S. I just love your appraisal quality”.
contributors Ralph Rosynek - Ask the Underwriter, page 7 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.
Atare E. Agbamu, CRMS - Grandma Ritaâ€™s Heirs and the 20 Year Mistake, page 37 Atare Agbamu is the author of Think Reverse! (The Mortgage Press, coming this fall) and more than 100 articles on reverse mortgages. A reverse-mortgage specialist in Minnesota and an adviser to institutions across the country, he writes the Forward on Reverse column in The Mortgage Press, since 2002. Atare can be reached by email at firstname.lastname@example.org
Joel Schiffman - What the HECM: Reverse Mortgages Can be Used to Buy a Home, page 30 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 email@example.com or by telephone at 949.798.5570. 8
Jacqueline Del Priore - Creating a World Class Reverse Mortgage Training Program, page 16 Jacqui Del Priore is the Director of MCTI (The Mortgage Career Training Institute), a company which specializes in reverse mortgage sales and product training. As former VP of Training and Development for World Alliance Financial, she has helped hundreds of reverse mortgage loan officers achieve success in our industry. For more information, contact Jacqui at 516-983-9396 or email her at firstname.lastname@example.org.
John Lunde - Reverse Market Snapshot, page 10 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.
Michael Banner - The Birth of a New Industry Part II, page 40 President & CEO of LoanWell America Inc., Michael has been in the mortgage industry for 27 years. He is one of few Reverse Mortgage professionals accredited to teach continued education classes for CFP’s, CPA’s, attorneys & insurance agents. A proven senior advocate, he is a member of NRMLA’s State & Local Issues Committee and sits on the Board of Directors for the FPA of Tampa Bay. Michael has been interviewed by the Wall Street Journal, the Tampa Bay Business Journal, Sr. Market Advisor & The Reverse Mortgage Wire as well as numerous other Reverse Mortgage Internet sites. Please visit his website at loanwellrm.com or call 877.700.0555
Sam Collins - You are Terminated!, page 46 Sam Collins is the President of Sam Collins Reverse Marketing, LLC and Founder of REMALO, the Reverse Mortgage Association for Loan Officers. REMALO is a web based National sales, marketing, training, and full service center, created exclusively for Reverse Mortgage Loan Officers, Correspondents, Branch Managers, and key executives, and brokers. www. remalo.org or 877.262.7656
- Building an Effective Advisor Referral Engine, page 22 Valerie Monte Rose has helped hundreds of VanBooven seniors obtain a reverse mortgage - Got Content?, during the past 17 years. He is an page 12 Valerie VanBooven accomplished speaker and widely RN BSN is a Senior quoted industry expert, appearing in financial publications and nationally Service Marketing Expert and the syndicated media. He was head of National Marketing Director for Next Generation Financial Services, national retail sales for Financial Freedom Senior Funding Corporation. a Division of 1st Mariner Bank. Monte is a Certified Senior Advisor She is a professional speaker and and a Certified strengths Coach the author of the books “Aging with Gallup University. For more Answers” (2003) and “The Senior information, call 800.516.0545 or Solution” (2007). She can be email reached at email@example.com. firstname.lastname@example.org. Please visit her website at www. myseniorservice.com
Fed Kamensky - What the HECM: Reverse Mortgages Can be Used to Buy a Home, page 30 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 email@example.com or by telephone at 202.628.2000. February 2009
reverse mortgage industry snapshot Statistics Provided by Reverse Market Insight - December 2008
HECM MIC Endorsement Statistics
As Of December 2008 Top 10 Rankings by Region Rank 1 2 3 4 5 6 7 8 9 10
Chg 1 -1 1 -1 1 -1 -
Region Southeast/Caribbean Pacific/Hawaii Mid-Atlantic Midwest Southwest New York/New Jersey Northwest/Alaska New England Rocky Mountain Great Plains Industry Totals
2008YTD 29,139 21,640 14,087 11,701 10,478 8,342 6,663 6,135 4,130 2,861 115,176
Endorsements YTDChg% 21.34% -15.51% 17.82% 2.34% 29.79% 0.24% 15.08% -11.89% 25.3% 1.2% 6.36%
2007TOT 24,014 25,612 11,956 11,434 8,073 8,322 5,790 6,963 3,296 2,827 108,287
Active Lenders 2008 Chg% 877 92.32% 775 48.47% 420 100.96% 531 60.91% 315 88.62% 320 90.48% 304 87.65% 308 55.56% 199 57.94% 183 79.41% 2,949 76.48%
Region Share 2008YTD Chg% 25.30% 14.08% 18.789% -20.56% 12.231% 10.78% 10.159% -3.79% 9.097% 22.03% 7.243% -5.76% 5.785% 8.19% 5.327% -17.16% 3.586% 17.81% 2.484% -4.85%
10 Regions, ranked by HECM unit volume YTD. Including rank change from prior YTD, as well as growth rates. Also includes active lenders and growth
Lender Distribution by YTD Growth Rate 08
Growth Rate -100% -99% to -1% 0 to 100% 101% to 200% 201% to 300% 301% to 400% over 400% New Lenders
Last YTD 2,341
Lender distribution graph and table, showing number of lenders growing at various growth rates YTD vs. prior YTD, including volume attributable to each group of lenders. Client Notices 1) 2) 3)
Help improve data quality in the Reverse Mortgage industry. If you believe your company’s numbers on this report are inaccurate, please email us (support@ rminsight.net) and we will review your feedback promptly. Please include your name, company and contact information along with a thorough description of the suspected inaccuracy. Thanks! If you received this report as a trial or sample and would like to purchase this report or future reports for your company, please visit: www.rminsight.net/MICreports. php If you’ve been looking for a source for Reverse Mortgage intelligence beyond MIC endorsement numbers, we’ve got just what you need. Find out more at www. rminsight.net/rmarket.php
24 Month Penetration and Unit Volume 12000
1.80% 1.60% 1.40%
0.40% 0.20% 0.00%
2 year trend graph of monthly HECM unit volume and industry penetration against 62+ homeowner households nationally. Appendix 1) All statistics based on retail originations from HUDâ€™s Monthly HECM MIC reports 2) Loans are in unit volume, based on HUD reported mortgage insurance certificate issuance 3) Lenders are aggregated using HUDâ€™s lender identification numbers and unique lender names, along with feedback from reporting lenders HUD Regions and Corresponding States/Territories Region 1 - New England Connecticut Maine Massachusetts New Hampshire Rhode Island Vermont
Region 3 - Mid-Atlantic Delaware District of Columbia Maryland Pennsylvania Virginia West Virginia
Region 5 - Midwest Illinois Indiana Michigan Minnesota Ohio Wisconsin
Region 7 - Great Plains Iowa Kansas Missouri Nebraska
Region 8 - Rocky Mountain Colorado Region 2 - New York/New Jersey Region 4 - Southeast/Caribbean Region 6 - Southwest Montana North Dakota New York Alabama Arkansas Louisiana South Dakota New Jersey Florida New Mexico Utah Georgia Wyoming Oklahoma Kentucky Texas Mississippi North Carolina Puerto Rico South Carolina Tennessee U.S. Virgin Islands February 2009
Region 9 - Pacific/Hawaii Arizona California Federated States of Micronesia Hawaii Nevada Region 10 - Northwest/Alaska Alaska Idaho Oregon Washington
G O T Content?
You don’t need expensive campaigns or custom built websites to reach customers. The secret to content marketing is to put yourself in the customer’s shoes and then look for ways to simplify and improve his or her life. It’s about using the same words in your marketing materials that customers use in their search queries. The more in-tune you are with the customer the easier this process becomes.
Get Content. Get Customers. By Joe Pulizzi and Newt Barrett
Two of the most fascinating and important books I’ve read this year (and last year) are: “Get Content, Get Customers.” by Joe Pulizzi and Newt Barrett, and “The New Rules of Marketing and PR” by David Meerman Scott. Both books will give you a much more in-depth discussion on the shift that has taken place in marketing products and services in a VERY short period of time. It is more important than ever that you begin to understand how the internet is impacting your business, and will continue to have a much bigger effect on your bottom line this year and in years to come. Your prospects and adult children of aging parents aren’t looking in the local maniacal, over-advertised, over-priced version of “The Senior Times” for a reverse mortgage, an adult day care, or home care needs, or assisted living, or elder law attorneys, or medical equipment. They are looking online. They are searching for you. Make sure they can find you in every possible way. Leave no stone unturned, and you will see a very large increase in your business. The beauty of this strategy is that you can do it all on your own time, and it’s all free. That’s right– if you can take the time, you can change your business direction in 48 hours with a weekend’s worth of work and some weekly maintenance. The more CONTENT you have to offer (beyond the usual boring brochure-on-the-web stuff), the more trusted you will become as a “thought leader” in your local area, and perceived as an expert in your business. After all, who do I trust to write a reverse mortgage for my mother when I live a thousand miles away? The guy who has the weekly blog content and really seems to not
only care about seniors, but also understands the longdistance “caregiving” situation? OR the guy who has a pretty corporate website, that says nothing different from a gazillion other websites that I have visited today!? I trust the thought leader. I trust content. I trust personalized content. I trust that if I find educational videos, a blog, and host of other links pointing to this business owner’s site, they must be extremely involved and committed to what they do. On the internet, perception is reality. Have you taken a really hard look at how you are perceived? Let’s shift gears a moment a look at 5 Emerging Trends in 2009. Even though you probably sell SERVICES and products, this information is relevant to you too! According to eMarketer reports, this year, online sales in the US alone will jump from $136.8 BILLION to $142.4 BILLION (that’s an INCREASE of nearly $6 BILLION in online spending). Or how about this statistic: Nielsen Consumer Insight reports that in 2009, consumers will spend 17% MORE time on eCommerce websites every DAY! Emerging Trend #1: Consumers Are Increasingly Turning To The Internet As A Way To Save Money You know all those people I just told you about who are coming online to shop? Well, according to this survey, 80% of them say they’re now shopping online to save money. And further, 95% of these people report that they’re motivated to buy by offers of free shipping, and 83% are motivated to buy by special prices.
Clearly, 2009 will be the year of the deal!
less what you’re offering them, then all your email efforts will be wasted.
So if you currently offer special discounts on your site, get them up front and center, so your visitors can find them instantly. Do NOT wait for them to dig around your site and possibly stumble across them. BUT...
It’s far better to have a smaller list of highly qualified subscribers. The other thing to pay attention to as you focus on your email efforts in 2009 is the kinds of emails you’re sending out.
Before you put all of your eggs in the “special deal” basket, there’s one other related trend you should know about...This same survey reports that 88% of people are shopping online in order to save time, and 83% say that they do it because it’s less hassle.
I’m finding that shorter, more concise promotional messages are far more effective than long, drawn-out emails that bombard the reader with information. Finally, the savvy email marketer will spend a lot of time TESTING in 2009.
So not only are your visitors coming to your site trying to save money, they’re also looking for ease and convenience. So make sure you’re giving it to them, by offering the best customer shopping experience possible.
So make sure you test different kinds of offers, different subject lines, different times of day and week for mailing, etc., to make sure you’re really capitalizing on your email.
As we’ll all soon discover, it’s the websites that offer a combination of pricing and IMPECCABLE customer service that will continue to thrive this year.
Emerging Trend #3: Shoppers Are Making More Purchases Based on Recommendations Received Through Social Media Sites
Emerging Trend #2: Consumers Are Making More And More REPEAT Purchases Based On Automated Recommendations
This recent 2008 Razorfish Consumer Experience report shows that a whopping 65% of online buyers made additional purchases from a website based on automated recommendations the site gave them. That’s 6 out of 10 of your customers buying MORE, based purely on your suggestions for other products they might like.
Sounds like the perfect job for email marketing, right?! I strongly believe the people who thrive in 2009 will be those who spend a LOT of time using email marketing to nurture the relationships they have with their customers and subscribers. To be really effective in building these relationships -- and in recommending the products people will be MOST interested in -- you’re going to need to be smart about your list. Gone are the days when having a BIG list was your main goal! It’s time to think “quality” rather than “quantity.” If you build a huge list filled with people who couldn’t care
Currently only about 40% of marketers do any testing at all, which is practically criminal, because those who do test are twice as likely to get email marketing conversion rates of 3% or MORE!
Here’s a surprising statistic: 49% of Web users now make a purchase based on a recommendation they received through a social media site (like Facebook, MySpace, and so on). Okay, maybe that’s not so surprising, but you know what is? Apparently only 25% of online business owners created a Facebook page this year! Despite its clear success rate, marketers have generally been slow to make the leap to social networking. So if you haven’t tested the social media waters, NOW is the time to get started! Social networking is the perfect way to develop your online presence, and continue to cultivate lasting relationships with your potential customers. Before you run off and start building your social networking profiles and pages, you should know that other forms of social media sites will also be crucial tools for your business in 2009. Take the social bookmarking sites, for instance (like Digg, Delicious, and StumbleUpon). Currently, 52% of people are using these sites as they search for information online, and a full 81% of users read the links marked as “most popular” or “most emailed.”
So what does this mean for you? Another key strategy for you in 2009 will be to create lots of content, and get it to appear on these sites. You’re going to want to write articles that are relevant and useful... and that your readers will want to pass along to their friends, family, and colleagues, and recommend on the social bookmarking sites. In doing so, you’ll continue to raise your online profile, establish yourself as an expert in your field, and build those all-important relationships with your potential customers. Emerging Trend #4: A Typical Internet User Is Spending 20% MORE Time Each Day Reading Blogs Nielsen Consumer Insight reported in December that people are now spending 20% more time EACH DAY reading blogs. Do YOU have a blog yet? Do you add new posts to it on a regular basis? If you haven’t started a blog yet -- or if you haven’t been giving yours the attention that it deserves -- TODAY is the day you should start! As with social media, blogging is GREAT for establishing your reputation online, for building relationships with your market, for creating new content for your site, and can even help you get a TOP ranking in the search engines (which in turn can generate up to 7 TIMES more sales). You don’t need to be a “natural-born writer” to create your own blog, nor do you need to be a technical wizard! There are plenty of places where you can even get FREE blogs to get yourself started..... and as for the actual writing, a blog is all about showing YOUR personality, and sharing your opinions and ideas. So don’t sweat it if you’re not a word nerd. Just write from the heart, and your readers will love it!
You can use video in your salescopy in order to more effectively sell your product or service... you can use it for SEO purposes and traffic generation (Google LOVES video!)... to create informative or educational videos for your niche... and to spread the word about your business. (Hint Hint) You don’t need to have a lot of complicated equipment or technical expertise to produce your own quality videos. There’s no denying that 2009 is going to present some challenges for ALL of us, but you don’t have to hide your head in the sand and wait for the recession to blow over! If all of this seems overwhelming, confusing, and downright impossible given the 500 hats you wear each day as a business owner, I would recommend either: 1. Learning more about how to do all of this stuff and becoming a serious student. 2. Or, hire someone to do it for you at a reasonable price. Watch the free video that tells you everything you need to know at www.LTCSocialMark.com.
serves up sales productivity at the kitchen table
Emerging Trend #5: Web Surfers Are Spending 46% MORE Time Watching Online Videos
Order your copy now at www.monterose.com
Finally, a trend that will continue to have a HUGE impact on Internet marketers everywhere -- and really change the way we sell online -- is the growing popularity of online video. Check this out: 94% of Internet users now watch online video with some level of frequency, and people now spend a whopping 46% MORE time each DAY watching videos, compared to last year! So if you haven’t dipped your toe into the online video world, you’d better get cracking! Video, like blogging, has multiple benefits for your business:
Creating a World Class Reverse Mortgage Training Program Jacqueline Del Priore
In this three part series for The Reverse Review we will explore the components of a comprehensive Reverse Mortgage Training Program and strategies for effective implementation. A well-developed training program is the cornerstone of any world-class organization. It is the foundation for growth and sustenance. It is the vehicle to work as a team, have everyone on the same page and brand effectively as a company. As Vice President of Training and Development for World Alliance Financial; I was tasked with establishing a training department as part of their plan for strategic growth. I spent two years working hand in hand with the best loan officers, crafting our necessary tools and developing best practices. During my tenure at World Alliance Financial, I created and implemented the reverse mortgage curriculum. Later, when we rolled out our wholesale division, I had the privilege of speaking firsthand to hundreds of mortgage brokers who specialized in marketing reverse products nationwide. Through this, I gained the benefits of their insights and experiences. I also worked closely with customer service, providing me invaluable knowledge of the true customer experience, from a closed loan and a failed-to-close loan perspective. This enabled me to create the tools needed to properly and proficiently serve our customer base. 16
Working for a well-developed corporation, the basics were already in place. There was a clear-cut path to transition loan officers smoothly to the sales floor. The human resources department held first day training for all employees to explain our mission statement, our sales model, their job description and our organizational chart. As a result, the sales agent knew very clearly why he or she was there and what the company was all about. They understood how they would be evaluated, when, and by whom. Having a clearly defined job description and expectation served to make a more effective sales agent. If not handled initially by a conscious and responsible human resource department, these important points will need to obviously be covered in training. In defining the culture of your organization, your mission statement will be the mantra of your company. Highly effective activity begins with the end goal in mind. If you don’t already have a mission statement, write one now. It should serve as the very first page of your training manual and be visible at all times both in your training and sales areas. It supports one of the most basic tenets of success: Begin with the end goal in mind. Your actions at work should consistently support this mission statement at all times. With this in place, you can more closely assure that your team will all be on the same page. Always set the right tone for training. Let there be a positive expectancy for training amongst your crew and do not fail to live up to that expectation. Too many loan officers view training as drudgery and a waste of otherwise productive time. If training is fruitful and fun, your loan officers will love to come to training. They will bring their best selves to the table. For newly hired loan officers, training will be the gateway between orientation and actually taking their place on the sales floor. Don’t put anyone in training you don’t believe is capable of doing a good job. Camaraderie starts here. It’s also an exercise in team building. Those same persons will go on to support each other and challenge each other in their daily activities. Bonding begins with striving to master the material and help each other through the course work. This is where leadership skills will potentially be revealed. Your team leaders are often identified in training. Everyone should be able and will be called upon to do a good job. The reward will be the earned privilege of walking on the sales floor. I’ve been blessed to work in some of the most state of the art, amazing training environments. I’ve also been crammed into a room like a bunch of sardines and I will tell you that the single most important aspect of any actual training time is that it be solely dedicated, uninterrupted time. No phones ringing, no interruptions and no excuses. On the first day of training, the rules should be outlined clearly. The most important rule will revolve around the respect that this carved out time will
command. The attitude of senior management should support this as well. The respect for training will serve to shape a culture of success within our organization. Going forward, we will be exploring the framework of what comprehensive initial reverse mortgage training should include. To begin with, you will want your training to contain a good strong introduction. This is the time to get excited! Why? Before you, is the task of speaking about one of the most amazing growth segments of the mortgage industry. This is your chance to introduce a new, rewarding and lucrative career to your audience! You are in a great space. You need to share this with your people. You need to let them taste the opportunity that exists. It is absolutely true that we could build a business that will be fruitful for the rest of our working careers with the demographic we serve! What other business can make the same claim? You will know you have set the stage properly when your people start showing up early for training. You want them to experience what success in the reverse space can feel like and to understand that through mastery of the material, success can and will be realized. I like to give an historical perspective of the reverse mortgage. This helps loan officers understand some of the misconceptions surrounding the product. History can set expectations correctly on what can at times be frustrating about our somewhat new and evolving industry. Included in this history should be the creation of HUD and an explanation of its mission to help Americans achieve and maintain home ownership. We can speak about how the FHA operates with HUD and insures our reverse mortgage program allowing significant benefits to borrowers and lenders alike. This is a good time to introduce the aspect of mortgage insurance and its function in assisting lenders and borrowers to achieve these goals. While the HECM often seems “too good to be true” with many favorable aspects, the borrower funds his ability to have such a mortgage with the initial mortgage insurance and continues to do so with the addition of the monthly mortgage insurance premiums throughout the life of the loan. Mortgage 101 is essential. An important point to make here is to carefully segment training to be most effective. You must address the sales trainee with no previous mortgage experience. These persons could be lost if not brought up to speed with basic terminology such as what is a mortgage/note. Who is the mortgagor and who is the mortgagee? What is a deed, refinance and purchase money mortgage? Remember, we are in the mortgage business. A glossary of key mortgage terms will be helpful. As for former forward mortgage loan officers, I’ve actually asked them to take two steps back and reverse! The same skills don’t necessarily apply and can’t
ensure success. So, advise them to check their egos at the door and listen up. Some seasoned loan officers will need to join new trainees in a quick study of the adjustable rate mortgage. Most important here is the terminology of margin, index and cap. The proof that one is ready to move on is when they can simply explain how an adjustable rate mortgage works. Much to the horror of my students, I am a huge proponent of getting students up in front of the class. I put the dry erase marker in their hand, and while I sit in their seat, I ask that they teach me along with the rest of the class. I found this a powerful tool to have everyone pay careful attention! I might employ a technique like this to be sure everyone could explain an adjustable rate mortgage and contrast it to a fixed rate mortgage. I’d ask the types of questions they might expect from a client to make sure their answers illustrated they really understood. Understanding the senior demographic is very important. One of the first things I did as part of my induction into the world of reverse mortgages was to watch almost 20 hours of focus group tapes. In these tapes, seniors who were solicited for a reverse mortgage but decided not to take it, spoke about what their perception of the product was, what they still were unclear about and what would have made their experience a better one. This was invaluable. I never forgot this and made it part of the training. I thought it was great for the loan officers to hear in their own words what the seniors wanted and needed from them. We made a popcorn party of it with discussion afterwards. Testimonials can be a powerful part of training. In the age of digital cameras, I would say, whenever a client is willing to speak on camera or be recorded, do so for training purposes. It’s refreshing to bring in a loan officer who received a nice thank you card and have him speak briefly about how he handled the challenge at hand and what he felt he did correctly. Complaint letters and negative press can serve as a valuable lesson as well. Encourage everyone to speak about his or her impression of what went wrong and how it might have been prevented. It’s good to make the point that things can and do go wrong and sometimes are perceived badly. It’s how we choose to handle these situations that will matter in the end. What are the rules and expectations for a reverse mortgage loan officer working within your organization? We work in a carefully regulated industry and for good reason! Let’s spell this out from the beginning. How does one lawfully operate? Something as simple as the fact that we work for one broker or banker at a time should be a point of discussion. Many persons coming from other industries may be unaware of this. What would be considered misconduct? Always begin with a discussion of ethics. There is no doubt that this discussion will continue to thread throughout the training.
At this point, it would be good to introduce the NRMLA Code of Ethics and Professional Responsibility. The purpose for the introduction here is this: NRMLA Members will be held responsible for the actions of their employees. Let it be known that there will be an expectation of honor and integrity in the dealings they have with their senior clientele and a real vigilance within the organization regarding this. Later, the Code of Conduct can be examined and examples introduced to illustrate points. An acceptance of this code in writing should be required as part of the transition to the sales floor. It is important to remember that we speak to the Senior Community. We serve a very special and protected class. This is not to be taken lightly. Before we get to the basics of product training, it’s often helpful to run through the mechanics of how the application actually becomes a loan. Let’s get an overview of the origination steps and where it goes from there. A flow chart is most useful. Who is in charge of these important process steps? Invite your openers, processors and underwriters in to speak briefly about what they do. Outline the procedure for communication with these persons. Will it be via email or within a certain timeframe? It’s good to have this in writing for future reference. One can never underestimate the power of clear communication and direction. This is a good time to instill respect for your operations staff and may set the tone for future friendly discourse. Product 101 Now let’s get down to the fundamentals of the product. Our product is a reverse mortgage, which allows seniors to tap the equity in their home without having to make a monthly mortgage payment. I like to begin by contrasting this to a forward mortgage. I like to discuss the reasons why seniors might be in the market for mortgage money and how our product could meet their needs versus a forward mortgage product. This is effective simply because clients often need to understand clearly why taking a HECM is better than going down to their neighborhood bank and taking a home equity loan or a personal loan. During this part, I often like to isolate and discuss the benefits of our product as they are revealed throughout the training. I write them on big “Post-Its” and put them around the training room on the walls so they are always in plain view. As the loan officers uncover and identify new benefits, they are able to paste their own “Post-It” on the wall for the benefit of the class. One of the most important benefits to be understood is the non-recourse benefit. It is what has always separated the
HECM from other reverse mortgages and it is the reason for the rather hefty mortgage insurance premium. The nonrecourse feature as it pertains to the borrower guarantees that the borrower will never owe more than the value of the home at the time of repayment. It also guarantees that the promises of the loan will be insured should the lender default. The fact that the federal government makes this guarantee holds quite a bit of weight and is a very important benefit for seniors. Have the students practice articulating this benefit. I frequently question students as if I am a borrower. I ask them; “Why am I paying that mortgage insurance premium again?” A great student will be able to blurt back as if speaking to the client; “It provides one of your most important assurances; the federal government guarantee of your benefits throughout the life of the loan and the insurance that neither you, nor your heirs will ever pay more than the value of your home at the time of repayment. It gives you peace of mind!” In the product training, role-playing is an effective training mechanism. Remember if your loan officers answer the questions quickly and confidently in training, they will handle questions and objections just as proficiently with your clients. The purpose of the training is to not only impart knowledge but also instill confidence in the product and the loan officer’s ability to handle customers.
A glossary of special reverse mortgage terms should be provided. Make sure the definitions match those in the training. Be sure to compliment when correct verbiage is used. A more effective sales force will speak consistently with the same vocabulary. Later, when we are working with proprietary products, it will be useful to speak the same language when interpreting guidelines or using a product matrix. Product training should include such key terms and concepts as the expected and initial interest rate, maximum claim amount and principal loan limit. After explaining these key terms and their functions, it’s very helpful to show where they are disclosed and discussed in the initial application process. I often include an examination of the respective disclosure forms in the training. HECM Training must answer the question; “How is my principal loan limit determined?” Borrowers will initially want to know if they are qualified and for how much. They inevitably will ask how in the world we came up with the figure! While we will need to teach that the principal loan limit is determined by the age of the youngest borrower, the expected interest rate and the maximum claim amount, we will also need to practice how that can simply be conveyed to our
clients. It will be helpful to practice this in role-play. Caution your loan officers against getting too technical. Create a simple exercise to be sure the loan officers understand that the maximum claim amount is always the lesser of HUD’s lending limit or the appraised value. In training, it is the phrase we hear most commonly confused. Later, we can introduce its importance in the calculation for many things. I believe it is helpful to teach the expected interest rate alone in the beginning as HUD’s risk management determinant in the principal loan calculation. In this way, loan officers can conceptualize this component as separate and apart from the initial interest rate. Introduce the Principal Limit Lock Disclosure as part of this lesson. This disclosure serves to define and explain the expected interest rate and its part in the calculation of the principal loan limit. State that the PLL Disclosure creates a sense of urgency for the borrower to sign today. This is important for sales! You will want to communicate that while the borrower may enjoy a larger loan limit due to a decreased expected rate at closing, all things being equal, they will never be afforded less than they are signing for today and can proceed with a sense of certainty. Role-play speaking with the borrower about the benefit of applying today and help loan officers state their case simply without being too technical. Another aspect of the PLL Disclosure that should be clear is when it actually goes into effect. The expected rate the day the borrower signs the 1009 stays in effect for 120 days beyond the date the lender orders the FHA case number. While the nuances of this need to be discussed in training, you should also discuss how much of this type of information needs to be conveyed to the borrower and if so, how it may be done plainly. I’ve found that while the circumstances of the lock are a bit complex to understand, the review of this document serves to clarify them well and is extremely helpful. Product training should serve to thoroughly address all frequently asked questions. Other important aspects to address in product training would be property acceptability, occupancy issues, HECM counseling and maturity events. I find that there is often an abundance of questions attributed to counseling, especially from forward mortgage loan officers.
Counseling seems to be that extra dreaded foreign aspect of this procedure! Don’t be too bogged down in initial product training with counseling questions. Later you will need to introduce HECM Counseling protocol and go through the AARP Guide to Homemade Money. You will need to decide when and how you will set the expectations for counseling as part of your sales process. At this time, there are a few important points to make that can be facilitated with the help of a blank counseling certificate. The loan officers need to know that HECM Counseling is mandatory, the certificate is good for 180 days and the loan can’t proceed until the borrower has delivered to you a counseling certificate signed by both the counselor and the borrower. Be sure that your training states in writing that no services can be ordered prior to having the fully executed certificate in hand. Also, be explicit about who needs to be counseled, how they may access counselors and the cost. As with any mortgage product, the interest rate will be a concern for borrowers. While the HECM has enjoyed a relatively attractive interest rate of late, the majority of HECMs are monthly adjustable rate loans and this does prompt many consumer queries. An understanding of the index is crucial. Since a picture is worth 1,000 words, arm each loan officer with a good historical graph of the performance of the index. Later, in training, we can identify the history of the index as detailed in the HECM Important Terms (TIL) Disclosure. An important point to train about the initial rate is when it adjusts. It is also very key to have the borrower understand the initial rate is a prevailing rate and will float until closing. After the first adjustment, the HECM monthly adjustable will change monthly inhibited only by the lifetime cap which will be established at closing. The initial rate and lifetime cap as listed on the Comparison Form and other application disclosures are an estimate of what would be if the borrower were closing the day the disclosures were prepared. In my experience, it’s best not to introduce the relationship between the initial interest rate and principal loan limit growth until after the structure loan has been discussed. In the next issue, we will continue discussion of other important components of product training such as principal limit distribution and the structure and function of the loan. We will also discuss the servicing fee and set aside, repair set asides and other special situations that are unique to the origination of the HECM. Part Two will begin an in-depth look at the sales process and the job aids that help achieve maximum productivity.
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Building an effective advisor referral engine
Wouldn’t your job be easier if someone “warmed up” your audience, like Ed McMahon did with Johnny Carson? Wouldn’t it be easier to have a conversation with a prospect if you were introduced by someone they knew and respected?
Developing a staple of referring advisors is the most cost effective means of ensuring sales success. Most top producers I know are proficient in advisor outreach. It’s all about relationships, follow-through, expertise, and fit. Understanding the advisor’s needs is paramount.
I divide advisors into four categories: Professional Advisor, Business Partner, Community Services, and Friends/Family.
The primary distinguishing characteristic present in this segment is high-level professional designations or specialties. For example, CPA’s, CFP’s, Registered Investment Advisors, and Elder Law attorneys would fall into the “professional advisor” category.
There are four prerequisites to building an effective advisor referral practice. First, you must build a relationship. This is something that requires time, attention, and some emotional investment. You must be likeable and knowledgeable. Second, you must be a contributor. Know how your program synchronizes with their business. What can you offer that will strengthen their relationship with their client? Help them use your technical expertise in their market. Third, you must affirm the advisor’s reputation. Minimize the noise. Go to them first when there’s a problem and make sure they know you’re handling the problem. Fourth, be dependable. Own the transaction. Do what you say when you say it. Make credibility, reliability, impeccable follow-up, and expertise the foundations of your personal brand.
These professionals take their fiduciary responsibility seriously. They are highly analytical gatekeepers: the “numbers” must make sense, and the solution you recommend must fit. Often, their greatest concern is negative amortization and, secondly, adjustable rate mortgages with a 10% lifetime interest rate cap over the start rate. Therefore, developing a “preferred provider” relationship with a professional advisor is likely to require much explanation and significant time to prove your trustworthiness. The clientele of this advisor segment give great credence to the advisor’s recommendation. A referral from a professional advisor is one of the strongest referrals a salesperson can receive. Each professional advisor segment is its own community, with its own code of ethics, professional organizations, certifying bodies, publications,
and watering holes. Since it is difficult to gain expertise in all of them, it’s far better to specialize in the niches where you have the easiest access and the best fit. Business Partners Business partners provide a product or service to your eligible prospects. They can be very pragmatic and focused on the sale. You provide the liquidity tool that enables their customer to buy. Be cautious, but not offended, when they press you for a “split.” Most will understand your explanation regarding your inability to “split” revenue with them. From those who do not, run.
equipment retailers, and so forth. The consumer segment’s life stage needs will alert you to what products and services are of interest and, thus, what providers might become referral sources for you. For example, some seniors require medical attention or assistance. They also use medical products that assist their mobility (e.g., motorized wheelchairs, walking aids). Medical equipment providers are a potential referral partner. Meet with the owner or manager and offer them a brochure and display device for their display area. Reverse mortgage brochures or booklets are appropriate for a variety of waiting rooms (dentist, therapist, pharmacy). Community Services
Make sure you employ sufficient firewalls to insure their client is served well. The primary strategy you will employ for the benefit of their client is full disclosure. Make certain that the whole story is always told and all the options at their disposal are reviewed. Business partners run the gamut. If they offer senior products or services, they can be a potential referral source. Agencies that specialize in long term care insurance, boat brokers, real estate offices, remodeling contractors, home security devices and equipment, safety and medical
The community services segment is comprised of an assortment of senior advocacy organizations and service providers such as: LivHome, Area Agency on Aging, county conservatorship offices, and non-profit organizations. They encompass ethnic, faith-based, neighborhood, cultural, cause or interest-based, topical, tribal, political, as well as inter/intra/multi-generational groups. The community segments are driven by heart. Their interest is serving and protecting a vulnerable constituency or protected class of persons, seniors. They can be sales-averse. If you’re a hardcharging salesperson, your dialect and tone may aggravate the community organization or senior advocate. Community services as a referring segment is a large and complex lode of potential business. It is one of the most overlooked areas of business development. Salespersons with a “high mission” drive and a gentle authentic persona do well with this audience. Becoming a recognizable “insider” is a key to successful penetration. Salespersons who use communities as a starting point for their business are typically “locals” who already have internal access owing to their own affiliations or memberships, whether formal or otherwise. It’s the “un-sales” referring network. Friends/Family Seniors often look to friends or family to “shop” on their behalf. Or they may direct the senior’s attention to information worthy of investigating more closely. I have a client who was referred to me by a trusted neighbor. The neighbor was aware of the declining health and financial challenges of the senior, and alerted the senior to investigate reverse mortgages. This “lead”, the neighbor, responded to an inexpensive advertisement in a local senior publication.
One of the advantages of having an internet presence is that relatives can “shop” from afar on behalf of their loved ones. Your website provides them easy access to information, and you become “known”. Your photo, your brand persona, the “virtual you” is on display. The motivational spectrum ranges from greed to compassion. On the one hand, they may want to access their inheritance in advance. Or they may be worn out, need relief from care giving and the reverse mortgage is the financing mechanism. It may be a matter of distance, and they can’t care for their loved one because they are too far away. This is the most difficult niche to cultivate because of its “moving target” nature. However, know that your local visibility efforts will bring you some “friends and family” referrals over the long haul.
If you don’t understand them when they speak and they don’t listen to you when you speak, that’s a pretty good indication that you’re not a fit. To become a preferred provider you must add value to their practice or business. What can you do to improve their dexterity and facility with the financial tools that may not be in their primary area of expertise? Help them understand the senior mind more completely, and therefore, “raise their game” by adjusting their “bedside” manner or communication delivery to improve their effectiveness. Answer this question, “How can I help them cement the relationship with their clients, enhance their reputation, and attract new clients?” Remember, you want to tell your story to as many advisors as possible. You are prospecting. You are not selling. In this stage of the game, you are creating connections and a constituency for your professional brand. Your goal is to become their preferred reverse mortgage provider.
Locate your Advisor “true north” Two key questions will help you determine your advisor niche fit. 1. Whom do you understand when they speak? 2. Who listens to you when you speak?
“Atare Agbamu is one of only a handful of people in the reverse mortgage arena who possesses a commanding understanding of the reverse mortgage industry. As an originator, he has hands-on experience educating seniors and their advisors. As author of the “Forward on Reverse” column in The Mortgage Press since 2002, Atare Agbamu communicates nationally with the housing finance community, bringing the unique insights and experience of an ardent reverse mortgage expert into a wider business context. “This book combines Atare’s keen insights and know-how with extensive research to create a first of its kind resource for the reverse mortgage industry. It offers a comprehensive overview of the industry plus detailed information on marketing and originating reverse mortgages. “Present and future reverse mortgage professionals and senior advisors will profit from decades of experience skillfully woven into this book. If you plan to succeed in this industry, this book is the place to start.” —Sarah F. Hulbert, President, Senior Financial Corporation and former four-term Co-Chair of NRMLA’s Board of Directors
Plus Postage & Handling
Think Reverse! Table of Contents Part I: The new pillar of retirement security
Part II: Marketing reverse mortgages: It’s all about education
Part III: Originating reverse mortgages
Part IV: Enhancing freedom: The essence of reverse mortgages
Part V: A new frontier in mortgage lending
Brian D. Montgomery 26
required all lenders to s the final days of the Bush Administration came to a submit a rather thick close, The Reverse Review had the privilege of engaging case binder really set us apart from the rest in a candid conversation with Brian D. Montgomery, the of the industry. So, (former) Assistant Secretary for Housing-Federal Housing we worked hard to Commissioner. As we spoke with Mr. Montgomery he shared better align FHA with the rest of the industry. with us his plans for Inauguration day, which he did not We didn’t want to cut attend, but he was one of a select few long-time Bush staffers who had corners, but at the the honor of accompanying former President Bush one last time on Air same time we thought we could at least bring Force One as he returned to Texas. FHA into the late 90’s, so A
In his former position, Mr. Montgomery was responsible for overseeing So, early in ’06, we went the $400 billion Federal Housing Administration (FHA) insurance to the Hill and sat down with members from both portfolio. In addition, he oversaw HUD’s regulatory responsibilities in sides, Republicans and the areas of the Real Estate Settlement Procedures Act (RESPA), the Democrats, and showed housing mission of Government Sponsored Enterprises (GSEs) Fannie them the volume in their states, in particular Mae and Freddie Mac, and the manufactured housing industry. On FHA Reform: We wanted to start with one of your main initiatives, FHA Reform. Give us a sense of the history, what has transpired over the years, where it stands today, and where it should be? Additionally, where you would like to see it in the future? Certainly after I got here in June of ’05, it became quickly apparent to us that FHA’s market share had declined significantly, and we saw it when we “peeled back the onion”. Our traditional borrower, lower income borrower, first-time borrower, minority home borrower, you name it, had gone toward the sub-prime route. This concerned us for reasons that we all since have learned and we realized we needed to reform FHA, not just legislatively, but also administratively. The administrative side was lower hanging fruit. Our appraisal protocols were unique. The fact that we didn’t use technology for the case binders and still
California. We met with Maxine Waters and the volume had almost vanished in her district. She worked, as other Democrats and Republicans, for us to get FHA passed in the House. Unfortunately, it died in the Senate but at least we started sounding the alarm that something was amiss. For political reasons I think it took way too long to get FHA Reform and what we eventually got was not really what we originally set out. Nonetheless, there were some big victories and there are certainly the loan limits. As to the future, a major concern for both forward and reverse, would be FHA becoming too large a share of the
market. I don’t know if that is healthy for the private sector in the totality of the mortgage market. That’s part of what played into our decision on the loan limits for HECMs. We didn’t want to crowd out jumbo lenders in the reverse phase, in the reverse portion. Right
now, the FHA insured part is such a large majority of reverse mortgages. We knew that if we had a jumbo product, we would probably crowd out the entire non-insured private market from that space. Now I think FHA is well positioned with our volume growing so much with some of the reforms that we’ve done, as well as the business processing for engineering and laying the groundwork for some systems upgrades. I feel very favorably that FHA is up to the task and will continue to be so. On the new Administration: What do you want to see happen in the coming years in the new administration? Well, I certainly think they need to go back and look at the pricing structure. We had a short-lived move toward risk-based pricing, which only made immense sense to us, especially in our space, where FHA borrowers with the highest FICO scores were our lowest income borrowers. So, we wanted to be able to give those borrowers, the lower income borrowers that had the higher FICO scores, a little better price on the premiums. We now have three pricing buckets, but to protect the long-term solidarity of FHA, I think, having risk-based pricing would do that. I think they need to go back and make sure some of the seller funded
down payments don’t come back. I know some members of Congress are trying to introduce legislation to bring them back, but we recently announced the 2nd biggest re-estimate to the FHA Insurance Fund. While it is partly due to declining home prices, it had more to do with the seller-funded down payment assistance, which almost drove us to the brink of insolvency, but Congress finally acted and the prohibition on that began in October of ’08.
A major concern for reverse, would be FHA a share of t
On the HECM Product: The HECM Market, naturally, is a much smaller market than all the products that exist as a part of FHA. What are your thoughts about the future of the HECM market and the reverse mortgage industry; its success and its growth, granted that it’s grown very slow in 2008? Talk to us about how you see it growing in 2009 and 2010.
As you know, we’ve been enjoying almost exponential growth, starting at the turn of the century, we insured about 6,600 FHA HECMs and by the year 2007 it had grown to about 107,000. Yes, you’re right, in ’08, we had an increase, but a slight one. If memory serves me correct, we went from 107,000 to 112.000, but growth, nonetheless. It just shows you that FHA and reverse mortgages are not immune to declining house prices. Certainly, a lot of seniors want to get more bang for their buck, and I know from what we’re hearing and seeing, some of them are sitting on the
r both forward and A becoming too large the market.
sidelines, waiting for prices to go back up. Even looking at the demographics, as we all know, one of the last numbers I saw is by the year 2020, 30 percent of all Americans will be age 65 and older. That is a staggering number. With such a small market penetration now with reverse mortgages, I think you’ll only continue to see those numbers go up. I’m very optimistic on the future of the reverse mortgage product, in particular the HECM.
On Personal Accomplishment: What is your greatest accomplishment while serving at HUD? Do you feel you were able to accomplish all your initiatives while in office? Well, there was a lot of stuff we did here that never made the press, but in the aggregate, we think what was important was what we have been talking on: administrative reforms, doing the business process reengineering, and the lien, using the Toyota lean model for our homeownership centers, so we can more efficiently and quickly process the case binders. We were the first ones with a platform and we were letting the world know, in particular Congress, something was wrong with the mortgage market. I’m pointing back to the middle of ’05, when you saw our volume drop perceptibly low, and the near expediential growth of the subprime, that we were mainly concerned when we looked at minorities, African-Americans and Latinos in particular, paying significantly higher for a loan than non-minorities. It took a little longer on the Senate side, but the good news is that we started early, and we stayed at it and we got the bill through. I would also say FHA Secure is another one. I think 499,594 people have refinanced with FHA since we launched that about 15 months ago. Those were all subprime borrowers who knew they were facing a reset or had just reset, and many of them with very high interest rates. They were able
to refinance into a safe and secure FHA loan. So, we are proud of that number, as well. On Experiences: What was your most rewarding experience during your years of service? As you know, I go to a fair amount of conferences, not that I enjoy travel like I did maybe 20 years ago, but getting out and meeting people who work in the industry; being able to hear firsthand what lenders through realtors thought was good and bad about the FHA product was great. I think by everybody working together irrespective of partisan politics, we were able to do a lot for people. There were a lot of people, by the way, that didn’t want us to succeed. Their initials both begin with an “F.” Fannie and Freddie. They were doing what they could behind the scenes to, quite frankly, drive us out of business. I didn’t think that was healthy for lower-income, first-time homebuyers. I feel good about some of the other things that we articulated before to you. I also think in showing the country that it’s important to have the FHA around in good times and in bad times. This is the first time you’ve seen the nationwide downturn and prices like this. We can look back at regional economic problems in the 80’s, and the manufacturing states, not just in the 80’s, but also now. And who’s still there? Private mortgage insurers are gone and others, but FHA is here. We’re here and open for business. We’re proud about that fact, as well. On Hurricane Katrina: Please share with us some of your work with the victims of Hurricane Katrina. Well, you remember I came over here from the White House and the office I ran at the White House was called Cabinet Affairs. One of the things that we did was that we helped coordinate the post hurricane relief effort, and I’m backing up a little before that. If you remember in ’04, we had four hurricanes move through the Gulf region literally in a matter of three months. Was it Jean, Ivan? Anyway, it’s amazing how you forget them. I’m going back to the middle of ’04. This is pre-Hurricane Katrina, nonetheless, I helped coordinate that effort at the White House, working among agencies like FEMA and others, the Dept. of Education, HUD, and the Dept. of Labor. There’s a whole host of issues that pop up following a disaster. Things of that nature that most people don’t even know about. So, when I got over here to HUD and I had only been on the job a month and one-half,
when Hurricane Katrina happened, the Secretary put me in charge of the more immediate need of having FHA out there looking to expand our role. FEMA traditionally does the short-term shelter and even the short-term housing, although, now this has been shifted to HUD. FHA had not been a disaster entity. Quite frankly, HUD really had not been either. We put ourselves into that business in a big way, coming up with the Katrina Housing Voucher Program, which became the Disaster Housing Program that we used in subsequent disasters. Getting out there, we sent teams of employees to Louisiana and Mississippi to help scout for manufactured home sites and a few of those went in. We went down there to man the disaster recovery centers, work with lenders on foreclosure moratoriums and there’s a lot that goes in, especially of the magnitude of Katrina, which most of the public doesn’t even know about. We had just started our FHA REFORM effort, which we had to almost put on hold for about three months while we dealt with the immediate after effects of Hurricane Katrina. So it was a demanding time back then, and quite frankly, still is. On the Future: What are your plans for the future, and do you plan to remain involved in the work you have been doing? Are you going to take any time off? With a newborn, it is tough to take time off. The Secretary nominee, Shaun Donovan, asked me to stay here for a few weeks. So, I’m going to do that. I will also be acting as Secretary, I’ve been told, until he gets formerly voted in. So, to answer your question, I will be here (Washington, DC) for a few weeks, and then we’ll start packing up to move down to Texas. Yes, I think I will stay in this field, and I’ve talked to some companies and I’m close to a decision on that front. I also want to do some consulting work, not just in housing, but some other areas and get involved with some nonprofits. The Reverse Review would like to thank Mr. Montgomery for taking the time to share with us his invaluable experiences and thoughts regarding FHA and HUD. We know each and every one of our readers will find the information contained above to be of great value.
Weiner Brodsky Sidman Kider, PC One of the more exciting developments for the reverse mortgage industry stemming from the Housing and Economic Recovery Act of 2008 was its authorization of the Federal Housing Administration (“FHA”) to insure Home Equity Conversion Mortgages (or HECMs) for the purchase of homes (HECM for Purchase). HECM for Purchase has been a long sought initiative of the National Reverse Mortgage Lenders Association (NRMLA) working collaboratively with FHA, for the principal reason that it facilitates the ability of seniors to downsize into homes that better suit their needs or to move from their existing residence to another geographical region to be close to family or others who can better provide the care and fellowship they desire. Although the road to HECM for Purchaser as been a long and not altogether easy one, in many ways, and as discussed in this article, the hard part may have just begun. Implementing HECM for Purchase raises a number of issues not previously dealt with by reverse mortgage lenders and originators requiring new documents, policies, procedures and processes. Although this may not be “entertaining” reading for the squeamish (after all, this article is written by lawyers), the goal of the HECM for Purchase program is a noble one, and the industry’s efforts will greatly benefit not only the seniors we serve, but also their loved ones. So, come along with us as we explore the guidance that has been provided by FHA as well as some of the problems and pitfalls on the road to implementing HECM for Purchase. What is a HECM for Purchase? The new HECM for Purchase program allows senior borrowers 62 years of age or older to purchase a home using the proceeds from an FHA-insured HECM reverse mortgage.
On October 20, 2008, the FHA issued Mortgagee Letter 2008-33 (ML 08-33) implementing amendments enacted by the Housing and Economic Recovery Act of 2008. As is the case with many mortgagee letters outlining new HECM program terms, ML 08-33 raised almost as many questions as it answered. The result is that FHA has further clarified ML 08-33 in its Frequently Asked Questions publication on its website (HECM for Purchase FAQ) and, as of the date this article was submitted for publication, HUD had informally indicated its intention to further clarify the program by issuing a new HECM for home purchase mortgagee letter in the near future. ML 08-33 defines a “HECM for Purchase” as a real estate purchase where title to the property is transferred to the HECM borrower, which the borrower will occupy as a principal residence, and, at the time of closing, the HECM first and second liens will be the only liens against the property. The HECM for Purchase FAQ further clarifies that the HECM for Purchase program eliminates the need for a second closing, allowing the senior borrower to purchase a new principal residence and obtain a reverse mortgage as part of a single transaction. The new HECM for Purchase program became available for loans with FHA case numbers assigned on or after January 1, 2009. Prior to January 1, 2009, FHA-approved mortgagees were allowed to take an application for a HECM for Purchase, however, they were not permitted to process or perform services that would result in a charge to a prospective borrower. HUD permitted lenders to lock-in the expected average mortgage interest rate for HECM for Purchase applications taken prior to January 1, 2009. However, HUD indicated in the HECM for Purchase FAQ that the maximum permitted interest rate lock period of 120 days begins to run
on the day the FHA case number is assigned to the loan, i.e., on or after January 1, 2009. Similar to traditional HECM refinance transactions, in HECM for Purchase transactions, lenders must calculate the maximum claim amount and the principal limit in accordance with HECM regulations. Eligible Property Types Eligible property types for the new HECM for Purchase program include existing one-to-four unit properties where construction has been completed, the property has been approved for occupancy (a final Certificate of Occupancy, or its equivalent, has been issued), and the property is occupied by the borrower(s) as a principal residence. Any construction loan financing for the property must be satisfied, the HECM liens must be in a first and second lien position, and no other liens against the property must exist at closing. Certain types of properties are ineligible for FHA insurance under the HECM for Purchase program, including, among others: (i) cooperative units; (ii) newly constructed residences where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority; (iii) existing manufactured homes built before June 15, 1976; and (iv) existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g., data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide. Further, lenders and originators are not permitted to take an application on a property that is under construction and not habitable. HUD made clear in its HECM for Purchase FAQ that lenders and originators may only take an application once the Certificate of Occupancy or its equivalent has been issued. This limitation promises to create headaches for senior purchasers and sellers on new construction by eliminating the ability of the purchaser to provide preliminary loan qualification to the seller and necessarily delaying closing for several weeks (to accommodate the processing and closing of the HECM for Purchase transaction) following the completion of construction. Title Requirements HECM for Purchase can be used to satisfy outstanding payment obligations associated with a land contract, contract for deed or other similar installment purchasing arrangements. However, lenders and originators need to
ensure that the property which is the subject of the land contract will (A) be used as collateral for the HECM loan, and (B) will meet FHA’s title requirements (see discussion immediately below). ML 08-33 noted that FHA’s title requirements, as provided in section 255(b)(4) of the National Housing Act and implemented in the HECM regulations at 24 C.F.R. § 206.45, provide, in part, that a HECM must be on real estate held (i) in fee simple, or (ii) on a leasehold under a lease for not less than 99 years which is renewable, or (iii) under a lease having a remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest borrower. Notably, ML 08-33, on its face, does not appear to include a life estate as a permitted property interest. ML 08-33 makes no reference to HUD’s previous regulatory guidance authorizing traditional HECM refinance transactions secured by an interest in the property that is a life estate (provided all remaindermen subject their interests to the lien of the HECM mortgage or deed of trust). Accordingly, without further clarification from HUD, it is an open question whether a HECM for Purchase transaction, where the senior holds title as a life estate, is insurable by FHA. Monetary Investment Requirement Senior borrowers must make a down payment sufficient to satisfy the difference between the HECM principal limit and the sales price for the purchased property, plus any HECM loan related fees that are not financed or otherwise offset by other allowable FHA funding sources. As is the case with traditional HECM refinance transactions, seniors may continue to finance closing costs, or elect to pay them out of pocket. The required monetary investment must come from an allowable funding source. Seniors will either need to use cash on hand or cash from the sale of other assets for this down payment. For example, a withdrawal from the senior borrower’s savings or retirement account would be an acceptable funding source. ML 08-33 further explained that seniors applying for a HECM for Purchase loan may not obtain a bridge loan (or so called “gap financing”) or employ other interim financing techniques to meet the down payment requirements and/or pay for closing costs in connection with HECM for Purchase transactions. This restriction includes subordinate liens, personal loans, secured or non-secured loans from other assets (i.e., car, home equity line of credit, or investment property or second home), cash withdrawals from credit cards, seller financing and any other lending commitments that cannot be satisfied at closing.
HUD expressly noted in its HECM for Purchase FAQ that seniors may not apply credit card cash advances towards the required monetary investment or closing costs. Doing so would be in violation of FHA’s requirement that all outstanding obligations connected to the HECM transaction (whether for home purchase or refinance) be satisfied prior to or on the date of closing. In addition, importantly, HUD indicated that gifts are not allowed as an acceptable source of funding. HUD explained that prospective borrowers may only use their own money or money obtained from the sale of their own assets. FHA also prohibits the use of loan discount points, interest rate buy downs, closing cost assistance, builder incentives, gifts or personal property given by the seller or any other party. Seller concessions and seller financing are not permitted. Lenders and originators are required to verify the source of all funds prior to closing. Senior borrower’s savings and checking accounts may be verified through a verification of deposit, along with the most recent bank statement. Lenders must pay attention to large increases in accounts and recently opened accounts, and must obtain credible explanation of the source of those funds. Such documentation must be provided in the FHA case binder. HUD’s cautionary note in ML 08-33 warns that the failure to provide the necessary documentation may result in a notice of rejection and/or delay of endorsement. HECM for Purchase Loan Documents ML 08-33 and HUD’s HECM for Purchase FAQ do not provide detailed guidance concerning the loan documents that lenders should use with the HECM for Purchase program. However, and generally, we note that HUD instructs lenders that originate HECM loans to utilize the model HECM loan documents published in the Appendices to the HUD HECM Handbook 4235.1 REV-1. HUD originally developed the model HECM loan documents for use with traditional HECM refinance transactions. HUD has not updated the model HECM documents and, in particular, they do not reflect applicable and changing state law requirements. Accordingly, lenders should carefully review and appropriately revise their current HECM refinance documents prior to using them in HECM for Purchase transactions. For instance, the HECM for Purchase loan documents should reflect that seniors must occupy the property within 60 days from the date of closing. In addition, HECM for Purchase loan documents must comply with any statespecific requirements for purchase-money transactions.
Some states’ laws impose requirements for purchase-money mortgage transactions, including special legends or language for purchase-money security instruments. In this area, lenders may wish to consult with their counsel to ensure the loan documents comply with applicable state laws, particularly with regard to state law lien issues. Note, also, that some states have specific reverse mortgage laws that define a reverse mortgage in a way that could be problematic and potentially conflict with HUD’s present regulatory guidance or even subject HECM for Purchase loans to state high cost loan limitations or, as may be the case in Texas, present difficult issues under homestead rights embodied in state constitutional law. In addition, ML 08-33 reiterates that lenders are responsible for determining whether a particular HECM loan is open or closed-end credit. Enhanced Borrower Counseling HUD requires approved HECM Counseling agencies to counsel senior borrowers interested in a HECM for Purchase loan on all topics covered in ML 08-33 and other HUD requirements and issuances. Counseling for the HECM for Purchase program was to become available on January 1, 2009. However, as of the date of publication, industry members have reported that many counseling agencies have not yet augmented their interview protocol to incorporate the topics covered in ML 08-33. Counseling agencies are encouraged to ensure that seniors interested in HECM for Purchase receive counseling as required by ML 08-33. In its HECM for Purchase FAQ, HUD encourages all first-time homebuyers to meet with a reverse mortgage counselor that offers pre-purchase counseling to educate themselves on the responsibilities of becoming a homeowner. Prior to signing a sales contract, FHA encourages a home inspection of all properties that will serve as collateral for HECM for Purchase transactions. The inspection serves two purposes: (1) to determine the magnitude, if any, of repairs and/or rehabilitation the home may require, as well as (2) to help the buyer negotiate the purchase price in situations where the home requires repair or rehabilitation. HUD recently published a HECM for Purchase training presentation for HECM counselors (HECM for Purchase Presentation). According to the Presentation, to help seniors avoid potential pitfalls, the HECM counselor must evaluate the senior borrower’s financial situation, including the availability of funds for the required monetary investment and whether the funds are from an allowable FHA source. Counselors are also instructed to educate the
senior borrowers about the home buying process and the obligations related to the HECM loan, including (i) real estate taxes and hazard insurance, (ii) homeowner association fees, and (iii) home maintenance costs.
HUD’s prior guidance in Mortgagee Letter 2006-20 issued in connection with traditional HECM refinance transactions generally permitted existing liens to be subordinated to the first and second HECM liens, if certain requirements are met.
Closing a HECM for Purchase Transaction
Although this issue remains unclear, given the apparent negative treatment of subordination agreements in HUD’s HECM for Purchase FAQ, entering into a subordination agreement with the existing lien holder in connection with closing a HECM for Purchase transaction does not appear to be prudent, absent further guidance or clarification from HUD concerning this matter.
Required Down Payment
As noted above in this article, seniors must make a monetary investment sufficient to satisfy the difference between the HECM principal limit and the sales price for the property, plus any HECM fees that are not financed. This down payment by the senior borrower, together with the proceeds from the HECM transaction, will provide the consideration for the purchased property. ML 08-33 states that senior borrowers may choose to make a larger down payment in order to retain a portion of the available HECM proceeds for future draws. For example, the senior borrower may elect to provide more funds than those necessary to settle the transaction, thereby establishing, for example, a line of credit that can be drawn upon after closing as long as the borrower’s net principal limit remains available (and the borrower lives and continues to occupy the property as a principal residence). Lenders originating HECM for Purchase loans need to be mindful of several important considerations in this area. First, lenders may wish to consider informing the borrower of the borrower’s right to make a larger down payment. Lenders may also wish to ascertain the borrower’s intent to reserve a portion of the available net principal limit for future draws. In addition, lenders need to consider how the amount of money the borrower must produce to close the transaction will be determined prior to closing, and whether estimated amounts paid by the borrower to close the loan, that are over and above what is necessary to close, may need to be refunded to the borrower if the borrower does not wish to reserve loan proceeds for future draws. Also note that, according to HUD’s FAQ, the title company (settlement agent) is responsible for disbursing the HECM for Purchase loan proceeds in accordance with applicable state laws. (b)
Satisfaction of Prior Liens
In HECM for Purchase transactions, lenders are required to ensure that all outstanding or unpaid obligations incurred by the prospective borrower are satisfied at closing. Importantly, HUD’s HECM for Purchase FAQ appears to prohibit subordination agreements subordinating all or part of the property’s indebtedness behind the first and second HECM for Purchase security instruments. However,
Cancellation of Transaction and Right of Rescission
As stated in HUD’s HECM for Purchase FAQ, the senior borrower may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior borrower decides to cancel the transaction, he or she must notify all parties in writing. Where earnest money has been provided, HUD advises that the senior borrower should review the sales contract to determine if the earnest money is refundable. ML 08-33 also points out that purchase money mortgage transactions generally are not rescindable under the federal Truth-in-Lending Act (and Regulation Z). However, ML 08-33 also states that HECM for Purchase lenders are strongly encouraged to consult with their counsel to assure compliance with all applicable federal and state laws, including the Truth-in-Lending Act, its implementing Regulation Z, and any applicable right of rescission thereunder. In this regard, note that under a HECM loan, subsequent advances of credit after closing may not be so exempt unless a right of rescission is offered to the consumer at the outset of the transaction. In addition, the characterization of loan proceeds as purchase money or non-purchase money may be relevant not only for purposes of determining whether to give the notice of right to cancel and when to give it, but also with respect to whether the lender has delayed its performance for the applicable 3-day rescission period. This is an extremely complicated and technical area of law, which is best left to consumer compliance officers and counsel. Lenders should consider providing seniors with a carefully tailored notice of right to rescind any non-purchase money proceeds of a HECM for Purchase loan. (d)
According to HUD’s HECM for Purchase Presentation, if the home to be purchased with the proceeds of the HECM loan requires repairs, the repairs must be completed by the seller
prior to close. These materials prepared for counseling community also provide that senior borrower cannot put any money into repairs before the senior borrower owns the home. While the logic of not investing in repairs prior to the transfer of title makes sense, the direction in these materials that all repairs must be completed prior to close does present a conflict with HECM regulations and prior Mortgagee Letters issued by HUD concerning repair set asides. HUD is encouraged to clarify the use of repair setasides in HECM for Purchase transactions in order to resolve this conflict. . (e)
Delayed Borrower Occupancy Requirement
ML 08-33 provides that HECM senior borrowers must occupy the property within 60 days from the date of closing. In addition, ML 08-33 requires lenders to ensure that the property, when used as collateral for the HECM, will serve as the principal residence of the HECM borrower. This delayed borrower occupancy requirement is further explained in HUD’s HECM for Purchase FAQ. According to the FAQ, when purchasing a new principal residence, the HECM borrower has 60 days to occupy the home. Unlike a traditional “forward” mortgage, there is an increased risk to FHA when the HECM borrower does not occupy the home. Therefore, the HECM for Purchase FAQ states that, prior to closing, the HECM borrower and seller should agree to a date for physical occupancy of the property, and the lender should confirm occupancy prior to submission of the case binder to the local HUD Homeownership Center (HOC) for endorsement. To date, there appears to be no written guidance from HUD concerning specific means of verifying occupancy within the required 60-day period. However, at least one HOC has provided informal guidance indicating that HUD will handle the 60-day occupancy requirement in a similar fashion as with traditional “forward” FHA-insured mortgages. According to the HOC’s informal guidance, the borrower is expected to sign documentation acknowledging the requirement, and confirming their intention, to occupy the property within 60 days. Such documentation should be included in the loan file. Anti-Flipping Provisions and Seasoning Requirements ML 08-33 added a caution for lenders to be vigilant to protect against mortgage fraud and property flipping, including the coercion of seniors to use a reverse mortgage for the purchase of distressed properties at prices in excess of fair market value. ML 08-33 instructs lenders to take steps to ensure that: (i)
only current owners of record sell properties that will be financed; (ii) any resale of a property may not occur 90 or fewer days from the last sale; and (iii) for resales that occur between 91 and 180 days where the new sales price exceeds 100% of the previous sales price, FHA will require additional documentation validating the property’s value. If a lender suspects a senior has become a victim to a property flipping scam, the Processing and Underwriting Division of the local HOC should be contacted. Complaints may be reported to HUD’s Inspector General Hotline at: HUD Office of Inspector General Hotline, GFI 451 7th Street, SW Washington, DC 20410 Toll free: 1 (800) 347-3735 TDD: (202) 708-2451. NRMLA also is considering a set of Best Practices recommendations for NRMLA members to provide helpful and practical additional guidance about avoiding property flipping scams. **********************
As with any new lending program, rolling out HECM for Purchase presents many challenges for reverse mortgage industry participants. While HUD has provided some guidance, with additional guidance that may be forthcoming, there remain a number of practical and legal/regulatory hurdles originators and lenders will need to address. This article has highlighted a few of those pitfalls and encourages originators and lenders to work with their risk mitigation experts and counsel to develop documentation, policies, procedures and processes that permit them to offer HECM for Purchase in a manner that furthers the FHA program, as well as the interests of the seniors we serve. Due to 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 may be reached at firstname.lastname@example.org and email@example.com .
Grandma Rita's Heirs and the 20-Year "Mistake" Atare E. Agbamu, CRMS credit card access checks over a period of 5 years and piled up more than $29,000 in credit card debt at 15 percent interest.
Rita Monita of Lake Hekmo, Minnesota was 75-years old when she took a HECM reverse mortgage in 1997. The extra cash from the government-insured loan dramatically transformed her life - for the better. Before the reverse mortgage, daily living was a struggle. Her total monthly income from Social Security and a small pension was $1,200. Her monthly expenses were about $1, 600. She financed the $400 shortfall with expensive
A widow, a mother of two, and a grandmother of five, Grandma Rita, as she is fondly called, did not share her monthly budgetary nightmares and ‘shame’ with her children. She soldiered on in silence. At a Bingo party at her church, Holy Hope of
Lake Hekmo, Susan Parkman, her friend of more than 35 years casually mentioned reverse mortgages. She described how it helped a lady at her senior center. She asked Grandma Rita to look into them. She did, but not before she opened up to her two children about her financial struggles and the hope reverse mortgages could hold for her. There were still a lot of unknowns about reverse mortgages. So with her son, Jason Monita, she went for HECM counseling. The counselor, Linda Wisdome, gave them the benefit of her HUD-approved knowledge: HECM is a FHA-insured home loan, loan proceeds are tax-free (but consult your tax advisor), no monthly mortgage payments for as long as she lives in her home, HECM is a non-recourse loan, there would be no liability to the heirs, there is a three-day right of rescission, and other known features and benefits of the loan. Unquestionably, Wisdome did a masterful job. Grandma Rita and Jason were reassured. Wisdome gave her a certificate attesting to the counseling and a list of lenders. Then she called a lender to begin the loan process. Tru-Reverse Financial, Inc. (TRF) is one of the most experienced reverse mortgage lenders in Lake Hekmo. Their marketing brochures and their advertising messages in the local paper, Lake Hekmo Times, boasts of their “trained, experienced, and knowledgeable” loan officers. Following a brief diagnostic conversation with Grandma Rita, the manager, Tom Goldcash, assigned Grandma Rita to one of his finest loan officers, John Goodheart. Goodheart, 56, is a former pastor with a very good head and solid ethics. Goodheart reinforced what Linda Wisdome had told Grandma Rita at counseling about the soundness of HECM, punctuating every comment with the HECM mantra: “The U.S. government is behind it.” At one point in their conversation, Grandma Rita worried aloud about “possible liability to her children” in case her home value drops. Goodheart confidently read what most reverse mortgage participants accept as gospel: The HECM is a “non-recourse” loan. This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt. --- HUD HECM Handbook 4235.1 - Rev. 1 (1-3C)* Both Grandma Rita and Jason were again reassured. The
loan process proceeded, the loan was closed, Grandma Rita’s debts were paid off, she got extra cash to supplement her Social Security and pension income, and sunshine poured into her life for the first time since her husband, Peter Monita, died. Because of her experience, Grandma Rita became one of the strongest advocates of reverse mortgages among her sometimes skeptical peers until she died at 85 in December 2007. She always called it her “freedom loan.” In June 2006, the investor who bought her reverse mortgage loan from TRF assigned it to the Federal Housing Administration (FHA is a unit of U.S. Department of Housing and Urban Development, a.k.a., HUD) because the loan balance crept closer to 98 percent of the FHA lending limit (a.k.a. Maximum Claim Amount [MCA]). For more than a year before her death, Uncle Sam, through HUD, became her lender. Upon her death, her estate received a ‘due and payable’ notice from HUD. Her estate owes $105,000, representing loan advances, interests, servicing fees, and other charges over a ten year period. As part of the loan termination process, her home was valued by an HUD-approved appraiser at $85,000, or $20,000 short. As executor and one of two heirs to his mother’s estate, Jason talked with his sister, Jennifer Jamaka, about their mother’s directive to pay off the loan and keep the house in the family. The rugged rambler on a 7 acre overlooking the majestic Lake Hekmo has been homestead to the Monita clan for 6 generations. It was a simple decision. They would pay HUD the appraised market value of the property from the insurance policy they inherited from their mother, in accordance with their mother’s wish. After all, they have been repeatedly told that a reverse mortgage borrower “will never owe more than the loan balance or the value of the property, whichever is less.” Jason wrote a check for $85,000 to HUD, representing the market value of the property at loan termination as determined by an appraisal done by HUD. Two weeks later, Jason received a letter from HUD. The estate of Rita Monita must pay HUD $105,000, the full loan balance at termination because it did not sell the home. “That could not be right!” Jason exclaimed to himself. Every literature he had read about HECM reverse mortgages, every professional he had spoken with (including lawyers), even HUD’s HECM Handbook mentioned earlier said that “ …the HECM borrower (or his or her estate) will never [my
emphasis] owe more than the loan balance or the value of the property, whichever is less…” Well, the value of the property at termination is less, and Jason Monita ‘rightly’ sent $85,000, oblivious to HUD’s actual interpretation of ‘non-recourse.’ Non-recourse is one of the essential features of the HECM loan. Without it, most borrowers would not touch it. It would be too risky for them and for their heirs. So important is the HECM non-recourse as defined in paragraph 1-3C of the HECM Handbook and so inconsistent was HUD’s actual implementation of the policy that AARP, in a major national report on reverse mortgages in December 2007 (“Reverse Mortgages: Niche Product or Mainstream Solution?”), urged HUD to “Clarify that the HECM non-recourse limit means that borrowers or their estates will never owe more than the value of the home” (Recommendation 5, pp.111-112). The AARP report said: “Some borrowers’ heirs may be in for a rude surprise when they learn that HUD is administering a key provision of the HECM program in a way that differs from what loan officers or counselors may have told them.” There are potential Jason Monitas across America today. For almost 20 years, there are also many Linda Wisdomes and John Goodhearts in the reverse mortgage industry who thought they knew what they are talking about when they tell consumers that HECM’s non-recourse policy means what HUD’s HECM Handbook (4235.1 – Rev. 1) said in paragraph 1-3C.
“It is disappointing that this has come to light after all the years the industry, various associations and consumers (of course) were led to believe differently based upon the commonly-accepted interpretation of HUD’s guidelines for the HECM product,” said Sarah Hulbert, CEO of Senior Financial Corp., Chair of NRMLA’s Ethics Committee, and 17year veteran of the industry. Hulbert says HUD’s new non-recourse policy clarification requires counselors and originators to ask new questions and explain HUD’s clarification of non-recourse in Mortgagee Letter 2008-38. For example, we should ask: • Do you (or your heirs) intend to retain ownership of the property after the reverse mortgage loan balance is paid? If the answer is yes, counselors and originators must explain the non-recourse “clarification” in Mortgagee Letter 2008-38. HECM’s non-recourse policy as administered by HUD is conditional: If an HECM borrower’s estate sells the home, it is fine. If it keeps it, it must pay the full balance of the loan, “whichever is more?” Think reverse. Move forward!
Almost one year after the AARP report’s release and almost 20 years of HECM origination practice, HUD has “clarified” its non-recourse policy. In Mortgagee Letter 2008-38 of December 5, 2008, curiously addressed to “Single Family Servicing Managers” given the broader audience for this very important policy “clarification,” HUD said: Some program participants mistakenly infer from this language [paragraph 1-3C of the HECM Handbook] that a borrower (or the borrower’s estate) could pay off the loan balance of a HECM for the lesser of the mortgage balance or the appraised value of the property while retaining ownership of the home. This is not correct and is not the intended meaning of the quoted provision. Non-recourse means simply that if the borrower (or estate) does not pay the balance when due, the mortgagee’s remedy is limited to foreclosure and the borrower will not be personally liable for any deficiency resulting from the foreclosure. (For additional guidance please reference 24 CFR 206.27(b) (8)).
The Birth of a New Industry Part II Michael L. Banner
Recently I “Googled” Reverse Mortgage, my results, 3,230,000. Then I “Googled” social security benefits, my results, 5,650,000. I had to smile… Social Security benefits, the accepted savior of past and present senior generations, the monthly check every senior has looked forward to and depended on for 74 years, (The Social Security Act was put into effect in 1935), and the Reverse Mortgage has accumulated 60% as many inquires in just the last few years. If this is not proof that this incredible product has firmly entrenched itself in our society then I don’t know what is… As this staggering product continues to expand into all arenas of the financial industry, it now takes possibly its biggest step, The HECM Purchase. The ability for a senior citizen (Lets use a 62 year old for this example) to purchase a home with approximately 50% down and be guaranteed no payments for the rest of their lives is an amazing consideration. Furthermore, there is of course no income or credit qualification. And just for the fun of it, lets add in, the February 2009
older you are the smaller the down payment you have to part with. Is this one of those crazy no income, no asset mortgages that every newspaper and news network claims caused the downfall of Wall Street and created the real estate market to tumble into it’s worst environment in decades? No…. it’s the HECM Purchase! There’s just no way to get around it. The reverse mortgage has powers and abilities far beyond those of normal mortgages. It is… the Super Mortgage of the mortgage world. Let’s consider what is going on around us right now. We all have our own frame of reference. I live and do most of my business in Florida so this will be mine. Right now real estate values have dropped 25-30% and even more in certain areas. With a record amount of foreclosures still in process I wouldn’t be surprised if values dropped even further. We have builders and developers going out of business like never before. We have projects that cease before completion. We have resales on the market for going on a year. We have Realtors and mortgage professionals dropping out of their chosen profession at record rates. I have a feeling, wherever you may be reading this today, your situation is very similar. Look at your newspapers, look at the ads. Builders, developers and sellers of all types are offering to pay all closing costs, down payment assistance, giving away thousands in extras, free plasma TVs and cruises. There are even several builders across the nation who offered free cars with upper scale homes. Yet, the sales are few and far between. Now imagine this ad...
Imagine the ad above as a billboard. Imagine it on the Long Island Expressway in New York, the Jersey Turnpike, the Florida Turnpike, Interstate 75/85 in Atlanta or the largest highways of your state. Imagine this ad on television and on radio. Oh, the houses will sell… But, just like everything else connected to the reverse mortgage product the implications of the HECM Purchase reach much farther. Let’s look at the profile of today’s average reverse mortgage client. They are not 62 years old. They are not just reaching retirement age, purchasing their new home and looking forward to the stage of life they have worked so hard to reach. They are 75 years old. Their savings have been depleted much quicker than they ever anticipated. They are not living the quality of life they imagined years before. It is very possible they cannot afford the luxuries they imagined they would have at this point in their lives. In fact, it is very possible they are concerned about affording the “basics” of life we all take for granted. How many of you have walked into a McDonald’s lately and been greeted at the counter by a senior citizen? How many of you have entered a WalMart and been offered a cart by man or woman in their 70’s?
New Government Program Attn: 62 Year Old Home Buyers & Above With a Minimum of 50% Down No Income/No Asset Verification No Monthly Payments for the Rest of Your Life! Guaranteed! You Cannot Be Rejected!
I have so much respect for these seniors who have reentered the work force at this point in their lives. I have an equal amount of respect for these mega giants that have given our seniors the opportunity to be employed. Despite all the problems our Nation is facing right now these are just two examples of how great this Country really is.
Watch those houses and condos sell now!!!!! The potential for this program is literally unlimited.
Those of us who have chosen to be part of the emerging reverse mortgage industry are well aware of the staggering figures of “senior equity.” Estimated at 32 trillion as the baby boomers reach retirement age, it is the largest and yet most untapped source of equity in the nation. In other words, when a senior is in the market to purchase a new home the odds are very strong that they possess a very large down payment. Whether from their savings or the sale of their present home a senior, entering the retirement segment of their lives, has planned to either pay cash for their home and have no monthly payment what so ever or, place a sizeable amount down and have a very small monthly payment.
But at the same time I feel deeply troubled that these seniors have been put in this position. What went wrong? Did they retire too early? Did they not have enough savings to retire? Were they all irresponsible spenders? I don’t think so…
How about taxes and insurance increasing at staggering rates over the last decade? How about gas prices topping $4.00 per gallon just a few months ago? How about record low returns on their savings, CD’s, annuities and other investments? How about after 2008, even if their investments were in what have always been considered the most stable of stocks, their net worth decreased significantly? Or the most common occurrence, an unexpected health crisis that depleted their savings. How about they really didn’t do anything wrong? Maybe they just weren’t in the “earning” part of their lives but the “depleting of their savings” part of their lives during the worst economy this nation has experienced since the great depression. So now, let’s get back to the HECM Purchase. Imagine this scenario; a couple just sold their home in New York for $400,000 and is planning to move to Florida. (Not so hard to imagine) They lived in their New York home for many years so it was free & clear. Their plan, move to Florida, pay cash for their new home ($400,000) have no monthly payments and live their retirement years in quality. They have saved a certain amount of money. They have it invested in several different vehicles. Sounds great doesn’t it? The American Dream….
answers. And the answers need to come from a financial professional specifically trained in asset preservation and growth. But the end result is that reverse mortgage just enabled that senior client to greatly increase their cash reserves and have a higher quality of life for a longer period of time. And that is a really good thing… So, as I said last month, if you plan on being a reverse mortgage specialist. If you truly wish to enhance the quality of life of your senior clients, then make friends with a certified financial planner, a long term care insurance provider an elder care attorney or the many other trusted senior advisors in the financial planning industry. Make a difference in their lives! Oh, what about that new law that an incredibly short sided congress past recently against cross selling financial products with the proceeds of a reverse mortgage? How does that affect my scenario above? That is next month’s article.
So how do we decrease the chances that in 10-15 years they won’t be strained to reenter the work force? Now we’re back to part 1 of my article from last month. The reverse mortgage may in fact be a mortgage but it is also the strongest financial planning tool ever created for the senior segment of our society. Let’s look at the above scenario one more time but add in one more factor. Let’s add in a trusted senior advisor, a trained professional who analyzed their reserves and made a suggestion. How about instead of paying $400,000 cash for your new home you put $200,000 down and we get you a reverse mortgage for the remaining $200,000 . You will have no payments for as long as you live in the home and you have an extra $200,000 in cash reserves that you never planned on having. And maybe, we can do something with that extra $200,000 over the next 15 years that will make sure you won’t ever be saying “would you like fries with that?”
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So what would they do with the extra money? Purchase long term care insurance to ensure that an unexpected medical emergency doesn’t deplete their savings? Purchase additional life insurance, while they are young enough and healthy enough to do so, to protect the spouse that survives the longest? It’s a complicated question with many possible February 2009
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the last word Sam Collins - You Are Terminated! Starting today you are no longer permitted to complain about your business, your originations, your income or your competition. I often send many new tips, suggestions, and recommendations to originators who require action. In other words, a “Things to Do List”. This “Things to Do List” is your call to action and is a requirement if you are to remain a player in today’s reverse mortgage space and not a casualty of today’s economy. I haven’t given up on you, that is why I am providing you with a list of actions of the Top 10 items to help see what is required of you to take immediate action. I know full well, 99% of you will do a couple of them; another 75% probably won’t do any. If you are in the latter, report to your local bicycle repair shop and don’t forget to wear the new work hat, with the following “I Will Never Complain About Business Again,” so the rest of us will know who you are and can give you a motivational kick to get moving. I find it amazing a lot of people just keep wishing for a change to happen without doing or investing anything different to make their businesses or income improve. I sincerely hope this does not pertain to you! Yet, it does describe of lot of folks and they are the ones you can’t help. Anyway, I wanted to reach out to you with my Top 10 Action items that will require action on your part to make change happen: 1. Brainstorm – Do you really know your senior clients? Many of you think you do, but do you really know what is on their minds? Create a focus group. Call 4-5 seniors together. Buy them a nice lunch, and then penetrate their minds. Listen for their pain and get into their world. Get them talking and just listen. You will be amazed at your results and what is the true reality of their world. Use this information to transform your paradigm. 2. Create Experiences - You need to go beyond the reverse mortgage product. Stop being like everyone else. Create an experience your senior will never forget. The experience must be so powerful they will let the world know about you. When you leave after your consultation, you want them to say, WOW! You want them to tell their friends and family! 3. Connection - You want to make a connection with your client. Do you have a local personality your market can identify with? I am sure there is community leader or a sports personality your local seniors love. Call that personality and invite them to become your spokesman. Include them in your promotional efforts and get them to buy into your good deeds and shout your name to senior prospects. 4. Become Cynical - I don’t mean become cynical in a bad way. Jot down all the bad stuff and what you have read and heard about the industry. Next, take the bad stuff and turn it around into good stuff. Don’t be like the elephant in the room. Confronting the bad stuff makes you the go to guy! Honesty will build relationships far more than any amount of money you can spend. 5. Build Relationships- Find people who have the same beliefs and aspirations as you. You want to associate with professionals, civic leaders, and others in the community who aspire to your beliefs, desires, and commitment to the senior community.
6. Be Creative - This is the part where the creative juices need to flow. Be on the lookout and cutting edge of something new and exciting for your senior clients. It doesn’t always have to be product, as a matter of fact; a service or a value added perk is more important and meaningful. (i.e. Birthday card) 7. Get involved - You need to present choices to your client. The direction of those choices is relevant to your information gathering and your ability to build your client relationship. When you develop a sincere relationship and understand the needs of your senior client, you are able to determine what is best for them, not you. 8. Improve Contact - This is the tough one and probably the one that most fail to recognize as a priority. Why, because followup requires hard work. Frequency and repetitive contact with your senior prospects must be ingrained in your daily actions. A one, two, three and strike out will get you absolutely nowhere. The real success comes with consistency of contact and the persistence of follow through. 9. Information Development – What is it your senior client really wants to know? They want information far reaching beyond a reverse mortgage and all its attributes. Your seniors want information that affects their lives. Provide information that gives them hope, a secure feeling, and sense of worth. Provide reports of interest and make sure you include at least one report in every correspondence with your client. 10. Be Apple – Be innovative, do something; create something that only your senior clients can relate to and connect with you and you only. Gather around your brain trust, bounce off ideas, run scenarios no matter how ridiculous they may sound. Take those ideas and use them as your building blocks. Revisit the ideas until you make something happen. We just completed a loan closing on a reverse mortgage. During the rescission period our senior called us and said she had just received a foreclosure notice. You could hear the quiver in her voice and her anxiousness as she coped with the possibility of losing her home. Once she heard the good news that her home would not be foreclosed upon, but could stay in her home and live a comfortable retirement, you could feel the release of stress by her sigh. Aren’t we lucky to make a difference in the lives of our senior clients? Today the world is a pretty scary place and who knows when it will end,. Unlike many, you have the choice to decide if you want to swim, tread water or drown. I hope you are a swimmer and survivor. Most of you I speak with are survivors and that’s good because our seniors need your professionalism and compassion. Erosions in their home values, stock portfolios, 401K’s, IRA, and other investment account have devastated many. To get the word out to your senior prospects requires action. Your actions can change the lives of seniors. Please take time to review the Top 10 Action items, but most all, make a commitment today to take make those actions a reality. Wishing you Success in 2009 and Beyond….
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