The Reverse Review July/August 2012 by The Reverse Review

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this issue

INSIDE

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LESSONS ON LO

LICENSING

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MOBILE TECHNOLOGY FOR ORIGINATORS PG. 27 TIPS FOR COMPLIANT ADVERTISING PG. 30 + marty bell SITS DOWN IN OUR HOT SEAT PG. 14

THE

REVERSE review

j u ly / a u g u s t 2 0 1 2

the of the

Reverse Mortgage Market Where Are We and Where Do We Go from Here?

An in-depth analysis of the industryâ&#x20AC;&#x2122;s future

Jim Milano

The Reverse Review July/August 2012

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CLIENT FOCUS

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At our core, each of us finds what truly matters. At Urban Financial Group, our path to success boils down to six unwavering principles: Client Focus, Integrity, Teamwork, Respect for Each Individual, Innovation and Responsible Citizenship. These values are woven into the DNA of our entire staff and embedded in our culture. These six principles guide our behavior and set the bar higher for each of us every day. So in a world where people and businesses are faced with and tempted by shortcuts, we at Urban resolve to take the right path – every time. It’s this determination to do the right thing that has made us a leader in Reverse Mortgage lending. When you let your values guide you, the right path becomes clear. Goals are reached. Business grows. Find out how we can partner with you. Email us today.

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* According to RMI measuring number of endorsed wholesale units January – December 2011

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The Reverse Review July/August 2012

From the Publisher as we work to service a very important demographic in this country.

Every year since the inception of our product, we have made changes and refinements as an industry. With new product offerings, new liquidity channels, refinements to counseling, and other essential changes, it’s clear that the program has successfully progressed and adapted to better suit our market.

A note from reza jahangiri

As I write this note, the

dust from the MetLife exit has settled and we are turning to another page in the tale of our industry. The most recent chapter ended with Fortune 50 companies exiting the industry to focus on their core business models, despite the fact that their reverse business channels were performing well. The short version of the story is that there are ebbs and flows in any cyclical, marketsensitive, highly regulated industry. The reverse mortgage sector is at the tail end of a consolidation phase and reset. It matters less that we do 50,000 versus 150,000 units this year; it’s more important that we continue to evolve as an industry

Senior Publisher Reza Jahangiri

Publisher

Erik Richard

Editor-in-Chief Jessica Linn

Creative Director Traci Knight

There are only certain things under our control. When it comes to everything else, we have to take a step back and allow the product to do its work. The reverse mortgage has always been, and will continue to be, a unique tool that can allow seniors to age in place and offset some financial pressures. That’s not going to change, no matter the volume.

Senior Publisher

Copy Editor

Kersten Wehde

Marketing Director alycia colacion

Advertising Sales Rep. Brianna Conlon Printer The Ovid Bell Press Advertising Information phone : 949.269.1600 email : brie@reversereview.com Subscriptions email : information@reversereview.com

{ Reza Jahangiri }

Editorial Content email : jessica@reversereview.com

Want to talk to Reza? Reach him at reza@reversereview.com.

© 2012 Reverse Publishing, LLC All rights reserved. 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, Reverse Publishing, 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, 3800 West Chapman Ave., Orange, CA 92868

Feedback is very important to us here at The Reverse Review. Send us your thoughts on past articles or something that is on your mind and we will publish it in this section. information@reversereview.com

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Table of Contents g

NRMLA

Heads West

TRR 7/ 8.12

13 | NRMLA in Irvine

FEATURE

Members attend the Western Regional conference in Irvine, California.

Want the online version? Check out reversereview.com/magazine.

Servicing

29 | What Happens After a Reverse Mortgage Closes? – Part III An up-close look at the process

Originating

Rya n L a R o se

16 | Atlas Shouldn’t Shrug

In the face of regulatory uncertainty, originators can glean lessons from Ayn Rand’s classic.

30 | Advertising Review Redux Pointers for keeping your ads compliant

jim cory

C h ri st o ph e r J . W i l l is an d M e rc e d e s K e l l e y T un s tal l

19 | Cold Water on Mainstreaming Already?

Recent legislation threatens to restrict widespread use of the HECM.

Secondary

Market

32 | The Risks of GNMA Issuance

ja mes e. veale

Legal

A snapshot of the issuer’s obligation in the HMBS program

Underwriting

Michael Gluf

23 | A Counseling Query How to interpret counseling guidelines in HUD’s Mortgagee Letter Ra lph Rosynek

Appraising

25 | Perspective Why you should consider both sides of the story Bill Waltenbaug h, s r a

Tech

27 | Mobile Technology In the Reverse Space A new tool emerges for loan originators.

An in-depth analysis of the industry’s future

Spotlight Article

34 | Lessons on LO Licensing Industry leaders sound off on the licensing issue. Pa u l Fio re D a n S h a c k e l f o rd J o sh u a S h e i n

Legislative

45 | Update from Capitol Hill Housing counseling takes center stage. h . w e st ri c h a rd s

EV ER

V ER SE

W THE RE REVIE

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What a Great Business to Be In!

this issue

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s e n i or v i c e pr e s i d e n t o f n r m la

INSIDE

Br ought t o you by Reverse Mort gage D aily

Featuring Marty Bell

46 | the last word

E REVIEW THE VERS RE R

LESSONS ON LO

LICENSING

B r ou gh t to y ou by R e v e rse M a rk e t In sight

The industry’s headlining stories of the past month

14 | the hot seat

MOBILE TECHNOLOGY FOR ORIGINATORS PG. 27 TIPS FOR COMPLIANT ADVERTISING PG. 30 + MARTY BELL SITS DOWN IN OUR HOT SEAT PG. 14

HE REVERSE REV IE W

The industry’s latest stats and rankings

10 | industry update

E TH

WT VIE RE

07, 09 | Stats

W IE

Essentials

A look at the future of the HECM market

RE V

Jim M i l a n o

Tr e vor Gauthier

ER EV

38 | The Longevity of the Reverse Mortgage Market: Where Are We and Where Do We Go from Here?

“Seniors are living longer, health care costs continue to rise, and many seniors own their homes free and clear but have a significant amount of net worth tied up in their homes... I believe that the industry is poised to grow exponentially over the next five to 10 years.”

THE

REVERSE review

J U LY / A U G U S T 2 0 1 2

the of the

REVERSE MORTGAGE MARKET WHERE ARE WE AND WHERE DO WE GO FROM HERE?

An in-depth analysis of the industry’s future

Ji m Mi la n o

E d O ’C o n n or

JUly/august 2012

cover

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The Reverse Review July/August 2012

Contributors Want to write for this magazine? 2 Email jessica@reversereview.com for more information.

John K. Lunde

Marty Bell

John K . L un d e

MArty B ell

ji m c ory

07, 09 | The Industry Stats and Rankings g John K. Lunde is president and founder of Reverse Market Insight, Inc., a performance data analysis and consulting firm specializing in the reverse mortgage industry. RMI clients include eight of the top 10 reverse mortgage lenders, plus investors, servicers and vendors to the industry. rminsight.net 949.429.0452

14 | hot seat g Marty Bell is NRMLA’s senior vice president of communications and marketing. This is Bell’s professional Act III after careers in books, journalism and the Broadway theater. Bell is the author of two novels and four nonfiction books, and his writing has appeared in publications including Playboy and New York magazine. Bell wrote and produced the awardwinning documentary film The Boys of Summer and produced 15 Broadway shows (including Ragtime, Fosse and Dirty Rotten Scoundrels) that won 27 Tony Awards.

16 | Atlas Shouldn’t Shrug g Jim Cory is co-founder and CEO of Legacy Reverse Mortgage, a reverse mortgage originator in San Diego, California. Cory began his reverse mortgage career 13 years ago and he serves on the board of directors for the National Reverse Mortgage Lenders Association. He has a bachelor of arts degree from the Pennsylvania State University.

Jim Cory

James E. Veale

Ralph Rosynek

Ryan LaRose

Christopher J. Willis

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800.991.4613 Twitter: @LegacyJim

j a mes e . v eale

r alp h r osy nek

bi ll waltenbaugh

19 | Cold Water on Mainstreaming Already? g James E. Veale, CPA, MBT, has been originating reverse mortgages since early 2005. In 2007, Veale joined Security One Lending as a senior vice president shortly after it started its reverse mortgage operations. Veale has more than 40 years of experience in the tax industry and has been a California real estate broker for two decades. He and his wife, Marilu, operate the S1L branch in Lakewood, California.

23 | A Counseling Query g Ralph Rosynek is the vice president for National Correspondent Production at Reverse Mortgage Solutions. RMS is a premier provider of reverse mortgage servicing, a Ginnie Mae seller/servicer and offers mortgage banking support to the reverse mortgage industry. Rosynek is currently a member of the NRMLA Board, co-chair of the Professional Development Committee and holds HUD HECM Direct Endorsement credentials. rrosynek@rmsnav.com 708.774.1092

25 | Perspective g Bill Waltenbaugh, SRA, is the chief appraiser at Kirchmeyer & Associates, Inc., a national appraisal and valuation company. As a certified appraiser with more than 20 years of appraisal experience, Waltenbaugh has experienced firsthand the many changes that have significantly reshaped the appraisal landscape, from the advent of licensing to the implementation of HVCC. Waltenbaugh also holds the SRA designation with the Appraisal Institute and is active in both regional and national professional organizations.

t r e v o r g a ut h i er

ryan lar ose

27 | Mobile Technology In the Reverse Space g Trevor Gauthier is the executive vice president of sales and marketing at Mortgage Cadence. Gauthier is a seasoned businessto-business enterprise software solutions sales and marketing professional with experience overseeing marketing, public relations and sales operations. His responsibilities include the development and execution of marketing and communication strategies, branding, content creation, market identification and segmentation and pioneering strategic approaches and executable plans to maximize sales activity and returns on investment.

29 | What Happens After a Reverse Mortgage Closes? – Part III g Ryan LaRose is president and COO of Celink, an independent reverse mortgage subservicer. LaRose has more than 12 years of servicing experience and has worked exclusively in reverse mortgage servicing since 2005. In addition, he is an active member of the NRMLA servicing and technology committees. celink.com 517.321.5491

c h r i stop her j. w i lli s

Bill Waltenbaugh

Trevor Gauthier

jcory@legacyreversemortgage.com

30 | Advertising Review Redux g Christopher J. Willis is a partner at Ballard Spahr LLP and a member of the firm’s Dodd-Frank Task Force and Collection Documentation Task Force. Willis’ practice focuses on consumer financial services and financial institutions law, including counseling clients and defending them in individual and class-action lawsuits. Willis writes and speaks regularly on unfair and deceptive trade practices, the Truth-in-Lending Act and mortgage lending litigation.

Report May 2012

Top Lenders Report

12345 MetLife Bank, N.A.

One Reverse Mortgage Endorsement

928

Endorsement

410

Lender

Urban Financial Group

Security One Lending

Endorsement

309

Endorsements

227

Endorsements

GENWORTH FINANCIAL HM EQUITY

227

GMFS LLC

AMERICAN ADVISORS GROUP

205

ROYAL UNITED MORTGAGE LLC

THE FIRST NATIONAL BANK

172

TOWNEBANK

REVERSE MORTGAGE USA INC

109

UNITED NORTHERN MORTGAGE

SUN WEST MORTGAGE CO INC

OPEN MORTGAGE LLC

M & T BANK

ENVOY MORTGAGE LTD

CHERRY CREEK MORTGAGE CO INC

CONTINENTAL HOME LOANS INC

NEW DAY FINANCIAL LLC

HIGH TECH LENDING INC

SENIOR MORTGAGE BANKERS INC

SIDUS FINANCIAL LLC

ASSOCIATED MORTGAGE BANKERS

NETWORK FUNDING

GREENLIGHT FINANCIAL SERVICES

ATLANTIC BAY MORTGAGE GROUP

MONEY HOUSE INC

AMERICAN PACIFIC MORTGAGE

MAVERICK FUNDING CORP

MAS ASSOCIATES LLC

ASPIRE FINANCIAL INC

REVERSE MORTGAGE SOLUTIONS INC

NATIONWIDE EQUITIES

MCM HOLDINGS INC

PLAZA HOME MORTGAGE INC

GREAT OAK LENDING

MORTGAGESHOP LLC

SUCCESS MORTGAGE PARTNERS INC

NET EQUITY FINANCIAL INC

VANGUARD FUNDING LLC

Trailing Twelve Month Endorsements

INDUSTRY SUMMARY Retail Endorsement Growth

4.39%

10,000

Wholesale Endorsement Growth

8,000

5.83%

6,000 4,000

Total Endorsement Growth

2,000 0 5 6 7 8 9 10 11 12 1 2 3 4 Retail

Wholesale *Numbers represent months

5.01%

*Figures above reflect change from prior month

Endorsement

274

Lender

Generation Mortgage Co

RETAIL UNITS CHG%

WHOLESALE

TOTAL

UNITS CHG%

3,106 -16.14%

2,079 -13.91%

5,185 -15.26%

May 3,535 13.81%

2,322 11.69%

5,857 12.96%

Apr Jun

3,352

-5.18%

2,159

-7.02%

5,511

Jul

3,705 10.53%

2,099

-2.78%

5,804

5.32%

Aug

3,612

-2.51%

1,972

-6.05%

5,584

-3.79%

Sep

3,032 -16.06%

1,612 -18.26%

Oct

2,675 -11.77%

1,978

22.7%

4,653

0.19%

Nov

2,676

0.04%

1,891

-4.4%

4,567

-1.85%

Dec

2,949

10.2%

2,212 16.98%

5,161 13.01%

Jan

2,870

-2.68%

2,547 15.14%

5,417

Feb

2,504 -12.75%

1,870 -26.58%

4,374 -19.25%

Mar

2,614

TOT

4.39%

36,630

1,979

5.83%

24,720

-5.91%

4,644 -16.83%

4,593

4.96% 5.01%

61,350

reversereview.com

8 TRR

The Reverse Review July/August 2012

Contributors me r ce des kelle y t unstall

Mercedes Kelley Tunstall

Frank Howard

Michael Gluf

Paul Fiore

Dan Shackelford

f r ank h owar d

mi c h ael gluf

31 | title tip g Frank Howard is president and CEO of eTitle Express, Ltd, one of the leading originators of reverse mortgages in the Washington metropolitan area. With more than 35 years of experience in the mortgage and title industries, he has closed more than 3,500 reverse mortgages and authored one of the first adjustable-rate mortgages in the country. Howard has also served on Fannie Mae’s advisory board of directors.

32 | The Risks of GNMA ISSUANCE g Michael Gluf is VP of secondary marketing for Security One Lending. Previously, Gluf worked for global investment bank KBC Financial Products. His responsibilities included deal management with a focus on GNMA HMBS. At KBC, he securitized more than $1 billion in notional of HMBS and completed several large whole loan transactions. Gluf is now responsible for trading activities and investor relationship management. He has a degree from Boston University.

Pa ul F i o r e

d an sh ac kelf or d

JOS HUA sh ein

34 | lessons on lo licensing g Paul Fiore joined AAG to head the retail platform in California. Fiore was most recently the chief learning officer at Senior Lending Network, where he developed SLN University. Fiore has been a speaker at NRMLA and MBA meetings, and he joined SLN as VP of internal production, helping to build their reverse mortgage sales center to the fourth-largest reverse mortgage retail provider.

34 | lessons on lo licensing g Dan Shackelford is senior vice president at Security One Lending. Shackelford joined the firm in 2007 and oversees the retail division. Based in San Diego, Security One Lending is positioned primarily as a retail-based mortgage banker and has experienced strong and consistent growth, distinguishing itself as one of the top reverse mortgage lenders in the country. Prior to S1L, Shackelford created and developed several successful businesses outside of the mortgage industry that are still flourishing today.

34 | lessons on lo licensing g Joshua Shein recently joined Maverick Funding to expand its national reverse mortgage network and establish its Maryland operations. Previously, Shein was CEO and president of 1st Maryland Mortgage Corp/Great Oak Lending Partners. Under his leadership, the company became one of the fastest-growing reverse mortgage companies in the U.S. Prior to that, Shein was a co-founder and VP at NAJO Emergency Products, a manufacturer of spinal immobilization products. He graduated cum laude from Ithaca College.

j i m mi lano

h . w es t r i c h ar d s

E d war d O’Connor

38 | THE LONGEVITY OF THE REVERSE MORTGAGE MARKET g Jim Milano is a partner with the law firm of Weiner Brodsky Sidman Kider. Milano’s practice focuses on regulatory compliance for the financial services industry, particularly with respect to reverse mortgage issues. Milano is nationally recognized as one of the leading lawyers in the area of reverse mortgage law, and is a frequent speaker on topics of interest to industry members at various trade association conferences and webinars.

45 | update from capitol hill g H. West Richards, executive director of the Coalition for Independent Seniors, served in the U.S. House of Representatives and held the distinction of serving as the youngest chief of staff in Congress. Richards worked in association with the law firm of Troutman Sanders, LLP and later headed up Business Development for Arthur Andersen Business Consulting in Atlanta.

46 | last word g Ed O’Connor, CRMP, is sales manager for Nationwide Equities Corporation. He previously served as president of Advanced Funding Solutions. O’Connor owned an accounting and tax practice for 16 years. He still maintains his status as a licensed IRS agent and is the co-founder of the Long Island chapter of the National Aging in Place Council. O’Connor has a degree from NYIT and is a retired Nassau County police detective.

30 | Advertising Review Redux g Mercedes Kelley Tunstall is of counsel in the Consumer Financial Services group at Ballard Spahr LLP. Tunstall counsels clients on compliance with consumer financial services laws, including proceedings of the Consumer Financial Protection Bureau and the Federal Trade Commission. Tunstall is a member of her firm’s Collection Documentation Task Force and specializes in helping financial institutions develop, market and service financial products using new technologies and methods.

Joshua Shein

Jim Milano

H. West Richards

Edward O’Connor

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eoconnor@ourcustomersfirst.com

516.984.3731

Saver market share

hecm endorsement trends

% % % % %

Looking for more statistics? Go to rminsight.net for all of the industryâ&#x20AC;&#x2122;s latest stats and rankings.

4/1/12

3/1/12

2/1/12

1/1/12

12/1/11

11/1/11

10/1/11

20%

16%

14%

12% $1,000.0

$800.0

$600.0

$400.0

$200.0

$0.0 5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/10

5/1/10

4/1/12

Reverse Market Insight - Logo

3/1/12

October 9, 2009

2/1/12

1/1/12

12/1/11

11/1/11

10/1/11

9/1/11

reversereview.com

3/1/12

2/1/12

1/1/12

12/1/11

11/1/11

10/1/11

9/1/11

8/1/11

$1,200.0

8/1/11

$1,400.0 7/1/11

$1,600.0

7/1/11

$1,800.0 6/1/11

Fixed

6/1/11

5/1/11

4/1/11

3/1/11

2/1/11

1/1/11

12/1/10

11/1/10

10/1/10

9/1/10

8/1/10

7/1/10

6/1/10

5/1/10

4/1/10 ARM

9/1/11

8/1/11

7/1/11

6/1/11

5/1/11

4/1/11

3/1/11

{ FIGURE }

2/1/11

4/1/10

Fixed Rate Percentage

hecm endorsement trends

1/1/11

{ FIGURE }

03 in the millions

initial principal limits

hecm endorsement

Report { FIGURE }

80%

75%

70%

65%

60%

55%

50%

PANTONE COLORS 3005C

8 TRR

Process Blk C

Brought to you by:

18%

REVERSE MARKET

INSIGHT

10%

The Reverse Review July/August 2012

Industry Update

July/August Edition

Brought to you by:

an update of this past month’s breaking news

News direct to you: The industry’s headlining stories at your fingertips Want even more up-to-the-minute news? Visit reversemortgagedaily.com.

headlining news

servicing reverse mortgages, its “welldefined policies and procedures,” a change in the company’s tax vendor and its single-point-of-contact program for borrowers experiencing default.

1. MN GOVERNOR VETOES

// May 25, 2012

ANNUITIES BILL TO PROTECT SENIOR CONSUMERS, REVERSE BORROWERS

Governor Mark Dayton (D-MN) vetoed a bill that sought to amend how annuity sales are regulated, saying that it did not offer enough protection for senior consumers, including reverse mortgage borrowers. The proposed bill would have lessened an insurance provider’s responsibilities to the consumer when selling an annuity. Gov. Dayton said he would not sign the bill until it holds insurance companies and agents accountable for the suitability of longterm deferred annuities to senior citizens. // June 5, 2012

2. MBA PRESIDENT DAVID

STEVENS TO JOIN SUNTRUST MORTGAGE

Former housing official David Stevens, who has served as MBA president and CEO for the past year, will leave the association to become president of SunTrust Mortgage in June. Previously, Stevens served as assistant secretary for housing and commissioner of the FHA. // May 30, 2012

S&P RAISES CELINK RANKINGS AS REVERSE MORTGAGE SERVICER Standard & Poors affirmed Celink’s servicer ranking as “above average” and raised its sub-ranking for loan administration from “above average” to “strong.” Listing the company’s strengths, S&P noted Celink’s history of 10

| TRR

4. SUPREME COURT’S RULING IN RESPA CASE A WARNING TO CFPB?

The Supreme Court ruled in favor of Quicken Loans in a case filed over split fees charged by a Quicken loan officer. The court’s ruling supports the interpretation that Section 8 of RESPA requires the division of a fee between two entities. The decision defies the CFPB’s interpretation of the Real Estate Settlement and Procedures Act (RESPA); the bureau submitted a brief in support of the plaintiff’s interpretation of the act, stating that a single entity can charge an unearned fee. // May 31, 2012

5. CFPB RELEASES NEW RULES ON CONSUMER FINANCIAL LAW ENFORCEMENT

The CFPB posted three final rules and an interim rule regarding the bureau’s procedures for enforcing federal consumer law. The rules clarify how the CFPB will handle investigations and hearings, state-specific notifications and the implementation of the Equal Access to Justice Act. Initially listed as interim, the rules were finalized based on public feedback. // June 6, 2012

Have a news story for this section? Email your story to jessica@reversereview.com.

6. NATIONSTAR CONTINUES

TO BUY MORE OF MORTGAGE SERVICING MARKET

Nationstar Mortgage purchased Bank of America forward servicing this week, adding to its growing servicing portfolio, which includes MetLife and Bank of America’s reverse mortgage servicing rights. The company is on the fast track to becoming the largest residential mortgage servicer in the U.S. with more than 1 million residential mortgages in its portfolio and purported plans to expand. // June 6, 2012

7. FIVE FEDERAL AGENCIES

TO PARTAKE IN OVERSIGHT OF LARGE FINANCIAL INSTITUTIONS

Five federal agencies announced plans to work together to supervise large insured depository institutions that have more than $10 billion in assets and their affiliates. The Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration and Office of the Comptroller of the Currency will work with the CFPB to supervise those large institutions to minimize unnecessary regulations, avoid duplication and decrease risk of conflicting directives. // June 5, 2012

8. DODD-FRANK MEETS ONLY 33% OF RULE DEADLINES

The Dodd-Frank Wall Street Reform and Consumer Protection Act is slow to implement changes, according to a progress report from international law firm Davis Polk & Wardwell LLP. Of the 211 rule-making deadlines that have passed as of June 1, only one-third have been met and 148 deadlines have been missed, according to the report. // June 4, 2012

Industry Update COUNSELING AND PHONE SESSIONS ARE EFFECTIVE

People who receive housing counseling to resolve foreclosure issues were successful in 69 percent of the cases, with 56 percent of counselees able to become current on their payments, according to a HUD report. The study, which did not specifically single out reverse mortgage borrowers, also found that phone counseling clients tend to have higher incomes and more savings, and achieve “stronger housing outcomes” than inperson clients facing foreclosure. // May 31, 2012

10. HUD APPROVES

NEW REVERSE MORTGAGE COUNSELING AGENCY

Debt Management Credit Counseling Corp (DMCCC) has been approved by HUD to provide reverse mortgage counseling. The agency will provide reverse mortgage counseling over the phone nationwide as well as face-toface counseling at its Lighthouse Point, Florida, headquarters. // May 31, 2012

11. CFPB MEETS WITH FED,

INDUSTRY ON LO COMPENSATION AND AUDIT PLANS

CFPB officials met with Department of the Treasury representatives and nearly two dozen professionals in the residential lending industry to discuss loan originator compensation. Those present reported that the bureau’s flat-fee compensation plans are a “done deal”

Number Here are some interesting facts

about reverse mortgages.

transamericacenter.org

and that CFPB wants licensing and regulations to be the same for banks and nonbanks. // May 30, 2012

12. WSJ: RETIREES TURN TO

SAVINGS ALTERNATIVES, HOME EQUITY

A Wall Street Journal columnist wrote that retirees will need to look to alternative sources to build a suitable nest egg, listing working longer, cutting down on spending and taking out a reverse mortgage as possible options. The article cited research from the Boston College Center for Retirement Research, which indicates that taking out a reverse mortgage is a viable way to build retirement savings. // May 21, 2012

AGE of REVERSE MORTGAGES IS HERE In an article for the Dallas Morning News, syndicated columnist Scott Burns wrote, “The age of reverse mortgages is here.” Burns, who is also a founding partner of investment advisory Asset Builder, said the HECM Saver has brought a sea change that has opened a “floodgate” of interest. Burns’ column continued to praise the product. “Used for long-term planning rather than emergencies,” he wrote, “reverse mortgages are likely to become a major tool for the millions of Americans who have a lot more equity in their homes than in their retirement savings.” // June 3, 2012

80%

do not have a backup plan if they are forced into retirement sooner than expected.

14.TEXAS TO SEE A NEW

REVERSE MORTGAGE PRODUCT IN 2013?

As the last state to approve reverse mortgages, Texas is still without the HECM Purchase product due to state legislation. That could change as primary voting season wraps up and new efforts to introduce the loan in the state are launched. Approval for the Purchase program would require a joint resolution and constitutional amendment. According to the former Texas Mortgage Bankers Association President Scott Norman, support is being garnered now in preparation for January, when the proposed legislation is expected to resurface. Texas is the second state for reverse mortgage volume overall, having surpassed Florida in early 2012. // May 30, 2012

13. DALLAS morning news:

9. HUD SURVEY FINDS HOUSING

15.THAILAND LOOKS TO

REVERSE MORTGAGES TO EASE AGING PROBLEM

A reverse mortgage company is conducting a feasibility study in Thailand for a HECM-type product for homeowners over 60 years old who are unable to qualify for a traditional mortgage. The Secondary Mortgage Corporation (SMC) intends to be the first in the country to offer this kind of loan, and plans to do so by contracting with particular banks. SMC’s studies are looking at interest rate, spousal issues and the amount of equity that can be borrowed. // May 31, 2012

Recent Study Released Transamerica Center for Retirement Studies surveyed

3,609 American workers about their readiness for retirement.

60% agreed that their nest egg is not sufficient

43%

54%

56% have no retirement strategy

plan to work past the age of 65

plan to work after they retire

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The Reverse Review July/August 2012

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2012 Western Regional Meeting May 16-17 Hyatt Regency Irvine, Calif.

in Irvine

BY INVITATION ONLY

NRMLA MEETS IN IRVINE In what is becoming an annual pilgrimage, NRMLA members gathered for the sixth straight year in Southern California for the Western Regional Meeting. The May forum discussed new opportunities as financial planners and Realtors learn more about the flexibility of the reverse mortgage product. Daytime activities for the 185 attendees from 70 different companies included presentations by HUD staff from Washington, D.C., and the Santa Ana Homeownership Center. Evening events included Urban Financial’s bowling party, AAG’s Newport Beach boat cruise and RMS’ cocktail reception. — Marty Bell, NRMLA

10 1. FNB ’s Jake Stockham and Urban Financial’s Jonathan Scarpati 2. Reverse Fortune’s Shannon Hicks and Ibis’ Ashok Shinde 3. Speaker Jim Milano of Weiner Brodsky Sidman Kidder talks about LO Compensation 4. Former MetLifer Cheryl Chargin 5. Guests enjoy a networking lunch outside the Hyatt Regency 6. Cherry Creek’s Dan Harder and Primary Residential Mortgage’s Kevin Rodman 7. AAG’s guests watch the sun set on the water in Newport Beach 8. Landmark Network’s Hunter Gorog and Erik Richard 9. AAG’s Teague McGrath 10. Urban Financial’s Kristen Sieffert and Christopher Russow with The Reverse Review’s Brie Conlon

Who was at NRMLA 2012 reversereview.com

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The Reverse Review July/August 2012

THE HOT SEAT

things you need to know or may have been wondering July/August 2012

the hot seat From his most embarrassing moment to his thoughts about the reverse space, we get the personal and professional facts from Marty Bell, SVP of NRMLA, in our monthly edition of The Hot Seat.

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marty PERSONAL

NRMLA

Senior vice president

My parents taught me humor and kindness.

You can’t always be your brother’s keeper.

When I was a kid I refereed Peter Bell’s basketball games. I didn’t want him to

FUN FACT

go home sad, so if he didn’t score, I put him on the foul line a lot near the end. >

When I was younger I wanted to be taller.

I’ll never forget Sly and the Family Stone at the old Forest Hills Tennis Stadium in the summer of 1970.

My first job was editor and columnist at Sport magazine.

The craziest thing I’ve ever done was walk through Central Park at midnight—but I was with Kareem Abdul-Jabbar. Really!

B efore I entered the reverse mortgage industry I was a Broadway producer, a politics junkie, thinner.

his first job was editor and columnist at sport magazine

My most embarrassing moment was at the White House. Explanation required: I had the privilege of producing the first entertainment of the Clinton administration. As I was teaching in the East Room, I felt a tap on my shoulder, turned and found the first lady there in a revealing gown and jewels. I blurted out to Hillary Clinton, “My God, are you gorgeous.” We both blushed.

Every morning I read The New York Times.

I can’t go without jokes.

My favorite time of the day is definitely night. I miss those late-night, post-show dinners in NYC. >

The worst purchase I’ve ever made was two counterfeit tickets to a sold-out Knicks-Lakers game from a dude on 7th Avenue.

My favorite book is The Great Gatsby.

Something nobody knows about me is I was briefly married to Angelina Jolie.

I entered this industry because watching my parents age (they’re now 88) inspired me to want to help others through it.

PROFESSIONAL >

The most fascinating thing about the reverse mortgage is its poetry: You spend most of your life working to support your home and then, when you can no longer work, your home supports you.

The biggest challenge in the reverse mortgage industry is clearly explaining an inherently complex product.

If I could change one thing about the reverse mortgage industry it would be the name of the product.

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The Reverse Review July/August 2012

DISCUSS

originating

Atlas Shouldn’t Shrug Jim Co ry

little more than a year ago, I wrote an article for The Reverse Review that compared the history of recent mortgage regulations to Greek mythology. That article was written at a time of great uncertainty in both the reverse and forward mortgage markets. We again face an unpredictable future in the reverse industry, so I will once again take to the keyboard and attempt a timely Greek analogy. My previous article, titled “A Tale of Regulators and Originators,” equated the slew of mortgage regulations and congressional acts with mythological Greek gods and heroes, from HERA to MDIA (pronounced “Medea”), culminating with Dodd-Frank, which I referred to as Zeus. A year ago, we were waiting to see what effects Dodd-Frank would actually have, and now in 2012 we are finally seeing the acceleration of these anticipated regulatory changes.

Going to the source

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Two significant events for reverse mortgage originators are due in July. Zeus’ first lightning bolt is the release for comment on a set of new Mortgage Loan Originator Compensation rules that are required by Dodd-Frank to take effect by January 21, 2013, under the jurisdiction of the new CFPB. The other significant event, less a lightning bolt than a gathering of thunderheads, is the July 21 release of a report to Congress on the reverse mortgage program, also under the jurisdiction of the CFPB. Both events promise to bring with them additional rulemaking, regulatory burdens and, as always, extreme uncertainty for reverse mortgage lenders, brokers and their loan officers. The outcome of these events will be further complicated by the general public’s mistrust of the program along with detractors in the media, a great number of financial “experts” who

don’t agree with the program for one reason or another, and, of course, plenty of adult children of reverse mortgage-eligible borrowers. At this point, you might be asking yourself what in the world this has to do with Greek mythology. Bear with me a bit longer. Being an avid reader, I recently committed to a book widely regarded as one of the best of the 20th century, Ayn Rand’s Atlas Shrugged. And if you’re wondering, no, I have no idea as to the true and correct pronunciation of her first name. And no, I actually don’t know how it ends, as I’m only on page 800, and though I appreciate the journey as much as a story’s conclusion, I would never and have never skipped to the end of a book (not counting books I was assigned to read in school). What I do know is that Atlas Shrugged has been

In light of increasing regulation, extreme uncertainty about the future and chronic questions and myths portraying the reverse mortgage program in a bad light, we reverse mortgage originators should not follow Ayn Rand’s characters’ plan. While uncertainty abounds and increasing regulations make life more difficult, we should not and cannot shrug and go into hiding.

originating called her masterpiece, a supposedly brilliant story and philosophical work of some note.

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secondary market

Ayn Rand begins the book by asking about the leader of shruggers, writing, “Who is John Galt?” To this we say, “Who cares? We’re not him.” As stewards of this important program, we have a tremendous responsibility to fulfill, and no matter the obstacles, we mustn’t shrug. x reversereview.com

legal

We’ve been through this before. Changes in regulations, laws and public opinion will come and go. We as an industry are strong and we will find a way through it all again. Surely if one Greek Titan can hold up the entire world for all eternity then we can suffer through another year of confusing new regulations and concerns about future stability.

servicing

Atlas shrugging in Rand’s novel involves business chiefs, leading thinkers in various industries and professions simply disappearing and letting their businesses fail and wither away with no plan for succession. They see many problems and believe things are not right with the way the world is working, so they give up. The colloquial term for this that is often used on the playground is “take your

Regardless, it is important for us to not shrug off our responsibility as the originators and original caretakers of this program. Our customers need us too much, as evidenced by the thousands of fantastic testimonials and the numerous studies that show extreme customer satisfaction with the program, and most especially the thank-you notes and Christmas cards that tell stories of how we saved someone’s home, retirement livelihood and way of life.

tech

Perhaps this comparison is something of a reach. I suppose those of us in the reverse mortgage business are not really holding up the weight of the world, and maybe the new regulations will be beneficial for our seasoned consumers and our veteran originators. Maybe the uncertainty that I see is not shared by all and maybe it’s not actually so ambiguous. And maybe public perception improves and our detractors retreat. Like the rules from a year ago, maybe they will be largely helpful and this will turn out to be much ado about nothing for the good players in the mortgage industry.

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I should remind you that I have not yet finished the book. If you’ve seen this 1,000-page tome, you understand why it spends more time as a bookshelf decoration than in the hands of readers. However, the width of the binding and the tiny writing are not the only stumbling blocks in finishing this monumental task. The

it is important for us to not shrug off our responsibility as the originators and original caretakers of this program. Our customers need us too much, as evidenced by the thousands of fantastic testimonials and the numerous studies that show extreme customer satisfaction with the program...

The reverse mortgage business right now is tough. There is renewed competition from many different sources vying for a rather small subset of the mortgage business. The looming regulations in July could make life significantly more difficult for lenders, brokers and loan officers. Our ability to generate revenue, compensate our salespeople and most of all, offer the customer the best possible loan options may change completely. We don’t know how the reverse mortgage report to Congress will read, and we don’t know if the public will ever truly embrace this program.

underwriting

This leads to the central point of this article, which is that in light of increasing regulation, extreme uncertainty about the future and chronic questions and myths portraying the reverse mortgage program in a bad light, we reverse mortgage originators should not follow Ayn Rand’s characters’ plan. While unpredictability abounds and increasing regulations make life more difficult, we should not and cannot shrug and go into hiding.

A ccording t o j im

ball and go home.” But we’re not on the playground anymore, nor are we aloof characters in a ’50s novel. We have a serious responsibility to our customers.

originating

Atlas Shrugged tells the story of several business leaders who, not liking the way they see the world working, decide that by quitting and going into hiding they will “stop the motor of the world.” The point is that they are like Atlas, the mythical Titan who was sentenced to hold up the world for eternity as punishment for fighting against Zeus and the Olympians. One of the main characters clarifies the connection, stating that Atlas, exhausted and disenchanted by new regulations, tough laws and public complaints, is shrugging underneath the weight of the world.

theme of Atlas shrugging and dropping the world because of a few regulations, a few detractors of note, and an often mistaken public opinion, is absurd. I’m not sure how the book ends, and this will be a spoiler alert if you have the time and inclination to tackle the reading of this monstrosity, but the protagonist has declined to join the shruggers so far. Who knows, maybe Ms. Rand and I will agree in the end.

AMeRicAâ&#x20AC;&#x2122;S ReveRSe TiTLe.

The Reverse Review July/August 2012

ouR NAMe SAyS iT ALL.

For more information, contact Bob Beverly, National Sales Director at: 18

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727.481.3626 email rbeverly@amrevtitle.com web www.amrevtitle.com direct

Proud member of NRMLA

originating

Cold Water on Mainstreaming Already?

Want to see more stories like this? Visit reversereview.com. originating

Ja m es E . Veale

underwriting appraising tech servicing

“An insurance broker or agent shall not participate in, be associated with, or employ any party that participates in, or is associated with,

AB 689

(1) Except as provided in subdivision (b), individuals transacting

insurance shall not receive compensation, commission, or direct incentive for providing reverse mortgage borrowers with a

This 2011 law deals specifically with the sale of annuities.

legislative

AB 793

The new law also prohibits insurance producers from obtaining compensation in the following situation:

agent or broker from offering title insurance, hazard, flood, or other peril insurance, or other similar products that are customary and normal under a reverse mortgage loan.

spotlight

Last year, California passed a law that effectively restricts insurance producers from originating reverse mortgages.

(b) This section does not prevent an

secondary market

Recent California Legislation

noncasualty insurance product that is connected to or a result of the reverse mortgage.

the origination of a reverse mortgage, unless the insurance agent or broker maintains procedural safeguards designed to ensure that the agent or broker transacting insurance has no direct financial incentive to refer the policyholder or prospective policyholder to a reverse mortgage lender.”

“‘Suitability information’ means information that is reasonably appropriate to determine the suitability of a recommendation.” The 13th item is “Whether or not the consumer has a reverse mortgage.”8

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legal

ecently, state regulators in California seem determined to limit the use of reverse mortgages to seniors with an “immediate need for cash” who “have no other means.” The reaction is beginning to chill long relationships between legislatures and some insurance producers, and even upset hourly fee-based certified financial planners (CFPs) and registered investment advisors (RIAs).

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The Reverse Review July/August 2012

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originating

Response of the Key Regulator

legal

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legislative

Right now there is no major move to repeal or amend AB 793. It seems that California originators will encounter less acceptance of reverse mortgages as a financial planning tool in the financial advising community in California than in other states. x

spotlight

In May 2012, the Financial Planning Association of Orange County, California, held its quarterly education forum at the University of California in Irvine. One of its guest speakers was Dr. John Salter, CFP, director of the personal financial planning department at Texas Tech University. Those who attended seemed very intrigued by the use of HECMs in financial planning. Unfortunately, few of those attending were aware of AB 793 and those who were did not address the issue. The same was true of the NRMLA convention, also held in Irvine in 2012.

secondary market

Some insurance companies are rumored to be unaware of the new law. At least one insurance company is looking into taking back commissions earned from transactions with reverse mortgage borrowers, going back to the date of enactment rather than the later date when it actually went into effect. Without direction from employers, some California insurance producers who are also NMLS licensees are looking at voluntarily dropping their NMLS licenses. For the near future, the situation will be in some turmoil.

servicing

The CA DOI attorney went on to describe the reason for the legislation, noting that the department was informed of numerous instances of reverse mortgage originators working together with insurance producers to provide funds for questionable sales of insurance products

Since California law does not distinguish between proprietary reverse mortgages and HECMs, could these new laws impede the reintroduction of proprietary reverse mortgage products in California? Will it mean insurance companies will be less interested in providing reverse mortgage products or working in our industry?

tech

The CA DOI attorney stated that the primary concern of the department was new acquisitions of prohibited products, not necessarily residuals or renewals. When asked how the department viewed the meaning of “connected to or a result of the reverse mortgage,” she said they will be looking for the use of reverse mortgage proceeds and they expect to use the standard of presumed use if a reverse mortgage is in place. Many of us had hoped that the interpretation would be limited to transactions surrounding the time the reverse mortgage was funded.

Repercussions Of Mainstreaming

Several have pointed out that the only opponents to the legislation at the committee level were NRMLA and MetLife. Some have asked where the MBA and other lenders, particularly those lenders with insurance activities in California, stand in regard to the legislation.

appraising

The attorney said the commissioner could take action against repeat violators of AB 793 that would not only prohibit compensation, but also suspend or terminate their licenses and annuity endorsements. When pressed further about how this penalty would be practically enforced, the attorney was worrisomely vague.

While the statements of the CA DOI attorney are not binding to the CA DOI, they are indicative of the direction enforcement will tend to take. It seems the commissioner does not view reverse mortgages as something that should be incorporated into financial planning for the more affluent, but something that should be relegated to “an option of last resort” for the less affluent.

While the new legislation would not appear to have any impact on those who use reverse mortgages strictly as a replacement for cash reserves, insurance producers will have to ensure that the funds being used to purchase prohibited products are not coming from the reverse mortgage. In regard to annuities, most sellers will no doubt end up concluding that they are unsuitable for anyone who has a reverse mortgage outstanding. (The law did not differentiate between fixedand adjustable-rate reverse mortgage products.) Outside of California the challenge will be in helping insurance producers understand that the new rules only apply to transactions requiring a California insurance license or otherwise governed by California insurance law.

underwriting

An attorney from the California Department of Insurance (CA DOI) called me to clarify several questions raised by originators and insurance producers in and outside of California.

throughout the state. One example she acknowledged was a husband-and-wife team who visited California regularly from a neighboring state and presented seminars during which the wife would provide the reverse mortgage as the means to obtain the annuities that the husband (a fully licensed California life agent with annuity endorsement) was selling at the same seminar. Apparently they were quite successful.

originating

Immediately upon passage, the California commissioner of insurance released a statement urging the governor to sign AB 689 and AB 793 into law. “There is an increasing need for [these bills] as the growth of the reverse mortgage business has led to aggressive marketing and abuse, especially when they are marketed along with insurance products such as annuities,” Commissioner Jones said. “A reverse mortgage should be an option of last resort only for seniors with an immediate need for cash and [who] have no other means.”

Without direction from employers, some California insurance producers who are also NMLS licensees are looking at voluntarily dropping their NMLS licenses. For the near future, the situation will be in some turmoil.

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July/August 2012

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Underwriting

Like what you see? Find all of our archived articles about underwriting at reversereview.com.

Ral p h Ros y nek

deed (or legal representative for cases involving documented lack of competency)

* The non-borrowing spouse Previously, HUD only recommended that the non-borrowing spouse be counseled.

Counseling Requirements for Persons with a Reversionary or Remainder Interest, Trustees and Trust Beneficiaries Under FHA regulations at 24 CFR section 206.35, if a HECM borrower holds a life estate in the property

The look on the counselor’s face might be quite interesting when he sees the village that shows up for counseling if the lender decides that every single party involved must attend! x

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legislative

ML 2006-25 indicated HUD’s position on Remainder Interest:

While lenders may vary in their interpretation of who constitutes a “required to be counseled” party to the HECM transaction, a more conservative approach appears to be the inclusion of all parties. In this case, the remaindermen are included in the “all persons” definition. I recommend being extra cautious about including other parties in the HECM counseling process, as it may take more time to close the loan.

spotlight

How far should we interpret the intention of HUD? In a life estate, the remainder interest is not conveyed until all owners are deceased. Although the remaindermen may be required to sign the deeds of trust/ mortgages and other documents created in the new HECM transaction, was it really the intention of HUD to also require these individuals to be counseled?

ML 2011-31 specifically called out non-borrowing spouses as an update to ML 2006-25 and provided guidance to clarify “signatures required on the counseling certificate.” The mortgagee letter said nothing about reversionary or remainder interest.

secondary market

Some lenders believe this was a way to ensure all parties affected by the HECM transaction before and after the closing would be informed of the loan’s features, benefits and consequences through counseling. Additional policy by some lenders may include timeframes prior to application as well. Readers are cautioned to review specific lender discussion and policy regarding parties and timeframes as the availability of individuals to undertake counseling, the counseling cost and the growing size of the team needed to assist borrowers may affect the time needed to complete the transaction.

*A ll owners shown on the property

legal

What did HUD really mean by all the owners on the deed? Were they referring to the current deed prior to the HECM transaction or the new deed resulting from the HECM transaction after ownership changes?

* The counselor

servicing

Many lenders have interpreted this guidance to mean that anyone who is on the deed and/or title at the time of application must be counseled, regardless of whether or not they are living in the property or regardless of whether they are being removed from the title.

The certificate must be signed and dated by:

tech

All owners shown on the property deed (or legal representative, in cases involving documented lack of competency) and a non-borrowing spouse must personally receive counseling.

While counseling is not required for persons with a reversionary or remainder interest in the real estate, or trustees and trust beneficiaries who are not HECM borrowers, FHA strongly encourages that these individuals seek HECM counseling. Persons with a reversionary or remainder interest in the real estate, or trustees and trust beneficiaries who do not attend HECM counseling, should nonetheless be familiar with the program requirements for the FHAinsured HECM.

appraising

The Mortgagee Letter states:

I think we all agree that in the case of owners of record who will be quit claimed off the deed, the owner in question needs to understand that this means he will be removed from the deed. This is particularly important for the non-borrowing spouse. ML 201131 also clarifies who should sign the counseling certificate.

underwriting

ately, I have noticed a renewed interest in further clarification and interpretation relative to HUD’s Mortgagee Letter 2011-31 regarding who must be counseled.

originating

A Counseling Query

that will serve as the security for the FHA-insured HECM, persons with a reversionary or remainder interest in that property also must execute the HECM mortgage. The referenced “reversionary or remainder interest” is an interest in the real estate that will serve as the security for the FHAinsured HECM.

m WE knoW The Reverse Review July/August 2012

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value

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reversereview.com

spotlight

As the chief appraiser at Kirchmeyer & Associates, a national AMC, I have

secondary market

When it comes to valuing a property for mortgage lending, one’s success depends upon the success of others. The appraiser

I’m not sure things are going to get better any time soon. Everyone is still too concerned with covering his or her own assets. However, if we’re ever going to get past the current hypersensitivity prevalent in the industry, we need to start understanding and appreciating each other’s perspectives. x

legal

Our opinions and interpretations are often the result of our life experiences. However, our outlook may change when we take the time to consider things from another person’s perspective. Hearing a constant ticking might be bothersome to some, but to others it’s a sweet, sweet sound.

On the other hand, given the current regulatory environment, lenders are being extra vigilant. They need to make sure all the i’s are dotted and all the t’s are crossed. To accomplish this goal both automated and manual processes, such as AVMs and desktop reviews, are being used to check every report for reliability. The more processes and eyes used to examine a report, the more questions and concerns will be raised.

So what is the solution? The short and simple answer is communication and common sense. But just because a solution is simple, doesn’t make it easy to implement. With all of the new rules and regulations, appraisers are being extremely cautious. As such, stalemates can occur over the most trivial things. I’ve managed disagreements over adjustments that didn’t even have an impact on the final value. Everyone is so caught up in being correct, they lose sight of the overall purpose of the assignment.

servicing

Several years earlier my dad had a heart valve replaced. Now, I don’t know much about mechanical valves but I do know they make a rhythmic ticking sound very much like a clock or metronome. Believe it or not, when it’s quiet, one can clearly hear the sound of my father’s heart at work.

While we were sitting in this driveway, waiting for the sun to come up, I heard my father’s heart working… tick… tick… tick. After a few minutes, I looked over and asked, “Does that sound ever bother you?” He responded, “What sound?” I said, “The sound of your heart ticking!” He just smiled and replied, “It sounds good to me!”

tech

once had a compliance inspection that had to be completed while my parents were visiting. Wanting to get the inspection out of the way, I scheduled the appointment for as early as possible. To take advantage of the time my parents were in town, I asked my father to accompany me on the inspection. When we arrived at the property it was too dark to take photos, so we parked at the end of a long driveway and waited for the sun to come up.

Appraisers often feel like they are being stipulated to death. Standard guidelines are expanding and lenders keep adding more specific requirements and requests. If it’s not an extra comparable, it’s an extra photo, comment or addendum. Justifiably, appraisers feel like they are required to provide more and more for less, and without extra turnaround time.

appraising

B ill Walt enba ug h, S Ra

underwriting

Perspective

the opportunity to see both sides of the story. As an appraiser, I can relate to the frustrations of the position. As an authorized agent to the client, I also understand the concerns of the lender. When I take the time to examine a concern or request from both sides, I can easily relate to the frustrations of both. What seems simple and trivial from one perspective is actually a major concern to the other.

originating

needs the client, the client needs the appraiser and the AMC needs both. Without each other, we have nothing. However, probably now more than ever, it seems like everyone is at their wits’ end with one another. The appraisers are frustrated with the lenders, the lenders are frustrated with the appraisers and both are frustrated with the AMCs.

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The Reverse Review July/August 2012

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evolve

tech originating underwriting

Mobile Web applications are just one new technology outlet now available to lenders. But just how mobile Web apps relate to the largely non-tech-savvy elderly reverse borrower might surprise you.

appraising

Mobile Technology in the Reverse Space

tech

Tre v o r Ga u t h i e r

lending process, now is the time for reverse lenders to adopt technologies aimed at increasing transparency.

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reversereview.com

spotlight

At a time when reverse lenders are looking for new ways to reach seniors, do not underestimate what technology can bring to the process. Seniors may not be looking to access your website from a tablet or mobile phone, but they will appreciate your willingness to come to them and help them navigate the reverse mortgage process through mobile technology. Clear, concise Web tools that match the look and feel of your brand will soon become a crucial role in the mortgage process. By being an early adopter, you could have a hand in developing the future of the reverse mortgage industry and ultimately surpass your competition. x

secondary market

In addition to the increased customer experience, mobile Web origination

technology allows brokers to view their current loan pipeline, manage and add leads, and access calculator tools, breathing new life into the fundamental point-of-sale process. Chief Information Officer of Generation Mortgage Walt Carter expanded on this: “Seniors are increasingly hesitant to put their trust in the hands of lenders, so being able to create a personal experience and bring the information to the borrower is extremely powerful. We at Generation Mortgage are looking forward to being an early adopter of this technology. Reverse mobile origination tools are profoundly important for increasing customer service and satisfaction, all while enabling brokers to increase their sales.” With borrowers having more knowledge, and therefore more power, in the reverse

legal

These new tools are specifically designed for the loan originator or broker with the sole purpose of getting closer to the borrower. Imagine being able to meet your borrower where they are most comfortable—in their home—and displaying loan comparisons right on a tablet or mobile phone. This unique approach helps create a personal experience and is ultimately an extension of the lender’s brand. Think of the mobile origination Web application as the ultimate recruiting tool for your brokers. By empowering them with advanced, on-the-go tools, brokers are able to better assist reverse borrowers and ultimately increase sales.

servicing

he reverse mortgage business has always presented lenders with a unique challenge beyond what they may have grown accustomed to in the forward market. With more regulatory requirements and recommendations in place, lenders have to quickly adapt while continuing to meet the needs of the reverse borrower. Now, as technology continues to advance, reverse lenders are able to take advantage of new tools to not only meet a borrower’s needs, but to further simplify the process and ultimately increase sales. Mobile Web applications are just one new technology outlet now available to lenders. But just how mobile Web apps relate to the largely nontech-savvy elderly reverse borrower might surprise you.

The Reverse Review July/August 2012

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Clarify

servicing

Have a question for our servicer? Email us at information@reversereview.com and your question will be answered in a future issue.

Ryan L aRose

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reversereview.com

spotlight

Putting together a reverse mortgage securitization involves far more than just structuring the transaction. It is impossible to understand the reverse mortgage servicing process without understanding the very “high touch” aspects of the reverse mortgage product. The truest value of servicing extends above and beyond the cost of processing paperwork. When a servicer takes on a new loan for the life of the borrower, he becomes the calm, reassuring voice of reason for the lender, the monthly point of contact for all things financial, and the helpful hand to hold during grief and transition. x

secondary market

Servicing staff managing this process require the patience of a saint and the sensitivity and compassion of a funeral director.

tech

Going to the source

The death of a borrower or the borrower’s spouse is, without a doubt, the most difficult and traumatic situation a servicer has to deal with—and this happens on a daily basis. Servicers work with grieving family members, offering gentle hand-holding and advice about their

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Reverse mortgage borrowers are responsible for maintaining regular and timely payment of the taxes and insurance on their property. When the borrower has no money for taxes or insurance, a servicer is faced with a

very complex and delicate situation. Some borrowers have family members who can help them and some have financial reserves outside of their reverse mortgage. Unfortunately, a percentage of any reverse servicing portfolio will represent borrowers who have little or no additional resources. In some cases, the borrower has only Social Security income to live on and has fully drawn and spent the proceeds of his reverse mortgage. However you feel about these situations (i.e., foreclose or ride it out), servicers must work diligently with these borrowers to resolve the default. Servicers must respect each borrower’s dignity and there is nothing easy about coming to a resolution in these cases.

From an investor’s standpoint, I totally appreciate the need for return on investment. Today more than ever, I understand the need for multiple investors in the reverse mortgage space. The difficulty, as I see it, is a potential new investor’s lack of understanding about servicing the unique needs of reverse mortgage borrowers. The demographic composition of reverse mortgages is changing daily with the influx of retiring boomers who now qualify for the product. The majority of them come into the reverse marketplace as technically savvy and informed consumers and money managers. Servicing is evolving to meet their needs and serve them best.

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everse mortgages are typically held for the remainder of the borrower’s life, the length of which is being redefined every day. The past four years have wreaked havoc on retirement funds and pension plans, and this unfortunate financial situation has been stressful for borrowers. In light of this fact, it’s important that we carefully examine the borrower’s process so that we do not create any added, undue stress. The first two installments of this series addressed typical and expected borrower experiences, including repair administration challenges and occupancy requirements. This third and final installment will cover three inevitabilities in the reverse mortgage industry and in life itself: taxes, insurance and death.

responsibilities regarding the loan, and perhaps even continuing to assist them by working alongside heirs for the next year to properly dispose of the property (in the event that the last surviving borrower has passed away). Servicers managing this process require the patience of a saint and the sensitivity and compassion of a funeral director. Celink servicing “honors a lifetime” and at no time is that more meaningful and true than at the end of a borrower’s life.

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What Happens After a Reverse Mortgage Closes? – Part III

The Reverse Review July/August 2012

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Advertising Review Redux Ch ri s t o p h e r J . W i lli s an d Me r ce des K elley Tu nstall

hese days it seems like all you hear are discussions about the CFPB and the new ways it is thinking about identifying unfair or deceptive practices, not to mention all of the mortgage-related developments flying around. With fears of fraud and deceit in the air, it is important to ensure that your advertising review practices are updated and thorough.

Improving Your Image When reviewing advertising, it is important to remember the adage “a picture is worth a thousand words.” Make sure that you pay close attention to the images in your advertising and make sure that the image itself is neither misleading nor in conflict with the ad’s message. For example, showing a picture of a young family in an ad for a reverse mortgage conflicts with one of the basic tenets of the product and could be viewed as misleading.

Advertising review has always been about preventing an unfair or deceptive act or practice by ensuring that claims in advertising are neither false nor misleading and that necessary disclosures are contextually relevant. Here is a review of general advertising review principles and a quick list of areas where you may need to update your practices:

Disclosures About Disclosures

Substantiate Your Claims If advertising for your reverse mortgage products claims that the loan can be completed within a certain timeframe, make sure you have substantiation for that claim. In other words, you want to have documentation prior to making the claim in an ad showing that many applicants succeed in closing their reverse mortgages within the period of time advertised. Make sure to update your substantiation over time and adjust the claims in your advertising accordingly.

It’s All in the Disclosures Be careful about making claims in advertising that require extensive disclosures. Since mentioning specifics about reverse mortgage products (such as terms, interest rates or payment amounts) requires extensive Regulation Z disclosures, be sure that there is enough room on the ad for the disclosures to be readable and relevant to the consumer. If you find yourself making disclosures smaller and smaller in order to fit them on the page, consider removing the claim giving rise to some or all of the disclosures from the ad instead.

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Within the art of advertising review is the sub-specialty artistic discipline of achieving proper disclosure. In the majority of regulatory or class actions resulting from unfair or deceptive advertising, improper or inadequate disclosure is at the heart of why the ad is found to be unfair or deceptive. The disclosure should be proximate to the claim giving rise to it, prominent enough to attract the consumer’s attention (and in a large enough font to be readable), and feature clear and understandable language. And, of course, the disclosure should only clarify the claim, not qualify the claim.

Updating Your Advertising Review Practices Advertising is following technology and expanding into corners of a consumer’s life not imaginable just a decade ago. Here are some tips for advertising in some of these new, hot areas: 3 Make sure to disclose properly in mobile ads

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frank howard A mother passes away and leaves her home to her two daughters. One daughter is 62 years old, lives in the home and wants to take out a reverse mortgage. How do we protect both of the daughters’ interests?

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Establish a Life Estate Deed naming the nonresident sibling as the remainderman. The title will pass automatically to her upon the death of her sister. To protect the nonresident sibling, if the resident wants to sell the home, a subordinate lien can be placed on the property for half the equity of the home based on the appraised value once the reverse mortgage has been recorded.

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Remember that the risks associated with unfair or deceptive advertising claims are particularly high because there are so many quarters from which a legal action can come. Almost every state has statutes addressing unfair or deceptive acts or practices, many of which have private rights of action, allowing consumers to bring individual and class-action lawsuits on the basis of an ad. Those same statutes also provide for enforcement by state attorneys general, and these lawsuits are even more dangerous than private

To compound the risks of litigation under state law, the CFPB has its own authority to investigate and take enforcement action under the “unfair, deceptive or abusive” provisions of the Dodd-Frank Act. The bureau can gather information about potential violations through its examination authority over mortgage companies, or through civil investigative demands. It also has the power to bring enforcement actions in federal court or in administrative proceedings. And the remedies it can seek can be draconian: restitution, disgorgement, rescission or reformation of consumer contracts, and civil monetary penalties as high as $1 million per day for a willful violation. x

3 3 3 3 Many mobile phone users access standard websites from their mobile phone — review Web advertising with an eye toward optimization for the mobile experience

3 3 3 Follow best practices for text message campaigns

class actions. Unlike a class-action plaintiff, a state attorney general is generally not required to prove that a deceptive ad actually caused damage by misleading consumers. Rather, an attorney general typically needs to prove only that an ad has the tendency to mislead consumers.

3 3 Review the privacy policies for social media sites before asking for consumer input or conducting conversations with consumers on those sites

Have a question for this column? Email information@reversereview.com.

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The Reverse Review July/August 2012

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According to michael It would serve the health of the HECM marketplace to diversify its issuer base, spreading the overall amount of issuer risk across more firms, thus creating greater efficiency in market pricing. But this is only possible if issuers carefully manage their responsibilities according to Ginnie Mae’s MBS guide.

The Risks of GNMA Issuance O Mich ael Gl u f

btaining approval under Ginnie Mae’s HECM Mortgage Backed Securities program can provide loan originators direct access to the most important liquidity source in the HECM market, but this opportunity is not without risk. An understanding of issuer obligations is essential in building a sustainable platform that utilizes the HMBS takeout. It would serve the health of the HECM marketplace to diversify its issuer base, spreading the overall amount of issuer risk across more firms, thus creating greater efficiency in market pricing. But this is only possible if issuers carefully manage their responsibilities according to Ginnie Mae’s MBS guide. My goal here is to give a snapshot

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of the most important obligations to which issuers will be held.

Capital/Net Worth Requirements

Initially, new issuers must meet the minimum net worth requirement of $5 million to enter the HMBS program. Beyond that, they must maintain a ratio of 6 percent of net worth to total assets to meet ongoing eligibility requirements. Additionally, there is a liquidity requirement wherein 20 percent of the net worth must be in the form of cash or cash-equivalent assets.

Commitment authority In order to issue securities, the issuer must first obtain commitment authority from GNMA in the amount equal to the aggregate unpaid

principal balance (UPB) of the loans to be securitized. The pricing for commitment authority is $500 for the first $1.5 million and $200 for each additional $1 million or portion of a million. Using this formula, every $100 million of commitment authority will cost $20,300.

GNMA Guarantee Fee Six basis points are due to GNMA annually on all outstanding issuance, and this is paid on a monthly basis. The issuer is responsible for making these payments, which will not be reimbursed until maturity of the loan. The security that any given loan is in will accrue six basis points less than the actual HECM note rate so that at maturity, there will be an excess payable to the issuer for this amount.

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The second area of exposure involves management and liquidation of REO. Once a property becomes REO, the issuer has six months from the date of foreclosure to file a claim with HUD. During this time, some costs are claimable to HUD. Only one appraisal fee is covered, and two-thirds of legal fees are covered. If the property is sold within six months at the HUDapproved appraisal value for less than the balance of the loan, the issuer can file a sales-based claim with HUD for the difference. If the property cannot be sold during this period, the issuer can file an appraisal-based claim for the difference between the appraised value and the balance of the loan. Consequently, it can become important to obtain additional updated

Issuing and servicing HECM securities can be a cash-intensive operation. It is important for current and new issuers to continue to effectively manage their financing and liquidity in order to ensure that they remain compliant with GNMA. The obligations set forth in the MBS guide have been put in place as guardrails against issuer defaults and to help issuers absorb mandatory cash events and potential losses on loans. There is much work to be done in creating a more dynamic marketplace for the HECM product, especially with the growth that is projected for the space over the next five years. The more active participants we have who understand the requirements of the HMBS program, the more even the playing field will be. x

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When any given loan participation reaches 98 percent of its original MCA, the loan must be bought out of the securitized pool by the issuer using its own funds. The funds then flow through to the bond investor just as in the case of any payoff, and the issuer can then assign the loan to FHA. There will be a period of time when the issuer will again have to utilize its own funds to finance that loan while going through the assignment process. In addition, the loan cannot be assigned to FHA if it is in any kind of default, such as having delinquent tax or insurance payments. For this group of loans that reach 98 percent in a default status, the only options are to cure the default by resolution with the borrower, or to outlay cash to make tax

To initially certify a pool of loans, documents for each loan in the pool must be delivered to a GNMAapproved custodian who will be in charge of ensuring that they meet GNMA criteria. Within 12 months of the initial certification, the issuer is responsible for delivering the final recorded mortgage, assignment and title documents. If this deadline is not met or an extension is not requested and granted by GNMA, the issuer will be considered in default and unable to certify any further pools.

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Buyout at 98% of Max Claim Amount (MCA)

The first area of exposure occurs between the “due date” (the date HUD is notified of due and payable) and the date the claim settlement is paid. For this time period, HUD will only reimburse interest on the loan at the debenture interest rate as opposed to the note rate. Depending on the note rate (if the loan stays in the security) and the issuer’s warehouse financing rate, the debenture rate, which is set at the time of the loan closing, may be much lower and could result in negative carry cost.

Unlike forward mortgage loans, when the borrower prepays or pays off his reverse mortgage mid-month, he is only required to pay interest until the day of the prepayment or payoff. On those loans, the issuer is required to make up the difference in interest accrued until the end of the month, which is guaranteed to the security holder. Any interest shortfall in a given month will be billed to the issuer.

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A HECM loan will become due and payable in the event that the borrower passes away, sells the property or the last surviving co-borrower fails to occupy the property for more than 12 months. The issuer must then notify HUD that the loan is due and payable and work with the borrower or the estate to satisfy the debt. If the estate cannot satisfy the debt, the issuer can then go through the foreclosure process to liquidate the property and file a sales-based claim with HUD.

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Interest Shortfall

Foreclosure and REO Management

appraisals of the property during and after this six-month window, even though they come at the cost of the issuer after the first. Beyond the sixmonth point, no further claim can be made to HUD and the issuer becomes responsible for all closing and legal fees involved if and when the property actually is sold. In addition, the issuer is still financing the remaining balance on that loan and is exposed to further decline in property value and preservation costs.

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The issuer is obligated to fund any additional principal on the loan beyond the initial draw. This will include monthly MIP payments on all loans, as well as future line-ofcredit draws on ARM products; it can also include repair set-aside draws. At the time of issuance, the total available UPB on the loan can enter the security, but beyond this, a separate loan balance is tracked for all future disbursements of any type. These “external” balances can be separately securitized into pools so that the issuer can monetize the draws earlier than maturity.

and insurance payments current. Until then, the issuer must carry the entire loan utilizing its own funds.

The Reverse Review July/August 2012

spotlight article INDUSTRY LEADERS SOUND OFF ON LOAN

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ORIGINATOR LICENSING.

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the establishment P D an aul F i of the SAFE ore Sh J o s ac k e lfo Act and the h ua She rd in Nationwide Mortgage Licensing System (NMLS), changes to the licensing requirements for loan originators have drastically altered the hiring landscape. Now, LOs who work for state-regulated companies must be licensed and registered, a process that requires a background check, a credit check, 20 hours of prelicense education and an exam on national and statespecific material. Those who operate under federally regulated banks face far less scrutiny; they need only to undergo a background check and register with the NMLS. In other words, bank LOs are exempt from the rigorous state licensing process and have the ability to originate loans in all 50 states, while LOs working for nonbank entities have to be licensed in every state in which they wish to originate. These LOs are also forced to undergo the process again for license renewal. This stipulation has made it difficult for some companies to remain competitive with federally chartered banks, who some say have an advantage under the exemption law.

This month’s Spotlight features A LOOK AT LOAN ORIGINATOR LICENSING.

Want to see more articles like these? Go to reversereview.com.

Nonbank loan originators must complete a rigorous, state-by-state licensing process involving a credit check and exam. The requirements are meant to protect consumers, but do they prevent talented LOs from doing their job?

As the new laws came into place for licensing, hiring became a challenge… Now we have to consider their credit, their background issues and their overall ability to pass a test on top of everything else. That has been a game-changer for us all. — Joshua Shein 34

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It has also led to hiring challenges as companies consider paying a premium for LOs who hold, in some cases, several state licenses, or invest in training and educating an LO in the hopes that he or she will successfully obtain a license. Also complicating the issue is the mandatory credit check. Some see this requirement as unfairly discriminating against a potentially skilled LO who, like many, may have suffered financial hardship in this tough economic climate. Companies now need to focus on a candidate’s credit history in addition to his product knowledge and ability to complete a sale. Reverse companies have had to adapt their hiring strategies to accommodate these stringent requirements. TRR spoke to three industry leaders and asked them to sound off on the hiring challenge.

spotlight article P aul F i o r e Director of Retail Lending / American Advisors Group No two states are alike in that they look at each applicant differently, and what may be sufficient for one may require more documentation for another. My recommendation to any LO who is working on obtaining a license is to make sure you are proactive with the states: Give them everything they need and be prepared to have additional documentation just in case they ask for it.

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Q :: Do you think that LOs often have trouble completing the licensing process? A :: Completing the licensing process can be time-consuming and difficult, depending upon a few factors. No two states are alike in that they look

Q :: How do you think the licensing requirements could be improved to best serve both the consumer and the LO? A :: Some of the things that states take issue with when trying to license an LO have nothing to do with whether or not the LO is competent to originate. I think we all need to be aware of the financial challenges many people have faced in this country. I know as a consumer, my biggest concern when doing business with someone is whether they are trustworthy and have a good reputation. I’m not so concerned with whether they had a problem with paying some bills because they were out of work due to long-term unemployment. I wish we would focus more on the moral compass and the aptitude of the individual.

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Q :: Do you consider clean credit to be a relevant requirement for LOs? A :: Not necessarily. Unfortunately, we have gone through the worst financial crises of our time—life happens. Many people lost their jobs or saw their homes go underwater and had to short-sell or maybe even be subject to a foreclosure action. It is important to consider things such as credit when reviewing a potential candidate, but it is just as important to make sure you are hiring the right fit for your company overall. If someone is a good person, demonstrates great sales acumen and appears to have the potential to be an asset to the company, we will really try and work with the licensing team to see if we can get over the hurdles that may exist to get them licensed.

Q :: Do you think that the licensing requirement gives federally chartered banks an unfair advantage over stateregulated companies? A :: Ideally, we would all be treated equally. I’m not sure how it can be considered a fair playing field if a federally chartered bank doesn’t have to license LOs like everyone else does. I do know this: If a borrower is working with an LO from our company, they have access to an LO’s background and they can be assured that the LO has passed the state’s licensing tests and is authorized to do business there. I think that should be the same for all lending institutions. Hopefully, we will get there one day.

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Q :: How do you approach hiring an LO who is unlicensed? What do you do to judge their potential to obtain and maintain a license? A :: When we recruit LOs, we look at the whole picture. I have a set of standard interview questions that I always ask and a lot of it focuses on culture. Before I even entertain the idea of hiring someone, we need to make sure that working here is a good fit for both the employee and the employer. We really dive deep into someone’s past experiences and try to learn if they will be successful working at our firm. We also look at the candidate’s credit history to see if there may be some things on there that will prevent the LO from getting licensed. If there are some “life events” such as foreclosures, bankruptcy or collections, we need to establish whether this potential LO is

Q :: What are some things an LO looking for employment can do to indicate that he or she is a viable candidate capable of completing the licensing process? A :: No matter what happened in the candidate’s past, he or she needs to be upfront and honest with both the employer and the state regulators. The worst thing potential LOs can do is not be truthful on their licensing applications. Any misinformation will lead to an automatic denial in most instances and states will inform each other when they feel an LO is trying to be deceptive.

at each applicant differently, and what may be sufficient for one may require more documentation for another. My recommendation to any LO who is working on obtaining a license is to make sure you are proactive with the states: Give them everything they need and be prepared to have additional documentation just in case they ask for it.

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Q :: Do you prefer to hire only licensed LOs? If so, do you pay a premium for them? I actually try to take a different approach. We are big fans of bringing in people without experience in the mortgage industry and training them to pass the tests and sell the product. Additionally, having a license means you are trained to sell forward mortgages, and forward experience doesn’t necessarily lead to success on the reverse side; it is a completely different demographic, a different sales process and requires a different set of skills.

going to take a proactive approach to clear up the issue and take the necessary steps to get licensed. It is a very detailed process and leads to some difficult hiring decisions.

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Q :: How has the licensing situation affected your hiring process and how have you adapted? A :: We really take a long and hard look at an individual’s credit history and we do a full background check. When you’re hiring someone to work in your sales division, it is extremely important that you hire people who not only have strong sales acumen, but also exhibit a credit history that indicates their ability to get licensed.

The Reverse Review July/August 2012

spotlight article dan s h ac k e lfo r d Senior vice president / Security One Lending Before even inquiring with a lender about employment, LOs should be prepared by visiting the NMLS website, which contains a wealth of helpful information, including a checklist of requirements specific to their home state. In some cases, they may even want to pull a free credit report to clear any errors with the credit agencies.

Q :: How has the licensing situation affected your hiring process and how have you adapted? A :: Undoubtedly, the licensing requirements have added delays to our hiring process. To reduce these delays, we’ve assembled a dedicated team to work with new LOs to immediately identify what needs to be done to get them licensed. We’ve definitely had to invest in additional resources to handle this, but we’ve dealt with this since 2008, so we’ve become very proficient at managing the overall process. The investments we’ve had to make are a necessity to ensure compliance and efficiency. Q :: Do you prefer to hire only licensed LOs? If so, do you pay a premium for them? A :: Our model is to hire the best reverse mortgage sales professionals in the industry. Most of these top loan officers are already fully licensed, or they’ve already completed the majority of the requirements. For those not yet licensed, we work with them to complete the necessary coursework in a timely manner. To help prepare them for the exams, we have partnered with an industry leader in online training, which has resulted in exceptional passing rates. Q :: How do you approach hiring an LO who is unlicensed? What do you do to judge their potential to obtain and maintain a license? A :: It’s important to set expectations with all hiring candidates and explain the requirements necessary to obtain federal and state licensing. This is not limited to just coursework and testing, but also involves a background check, credit history, fingerprinting and other requirements, depending on the 36

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state. During our initial conversation with the applicant, it is imperative to assess the LO’s willingness to commit to the process and ensure that they meet the personal history and credit requirements. Q :: What are some things an LO looking for employment can do to indicate that he or she is a viable candidate capable of completing the licensing process? A :: First of all, if a loan officer is committed to this business, they need to be proactive. Even if they are currently employed at a federally chartered bank, LOs should get their federal and state licensing completed. Not doing so will only limit their career options moving forward. Before even inquiring with a lender about employment, they should be prepared by visiting the NMLS website, which contains a wealth of helpful information, including a checklist of requirements specific to their home state. In some cases, they may even want to pull a free credit report to clear any errors with the credit agencies. Q :: Do you consider clean credit to be a relevant requirement for LOs? A :: The evaluation of credit is unique to each individual LO and the state in which they are pursuing a license. Many LOs have encountered hard times in today’s real estate market and their credit report has suffered as a result. This does not necessarily make them a bad LO. As with loan underwriting, you need to know the full story before making a blanket assumption.

Q :: Do you think that LOs often have trouble completing the licensing process? A :: As long as an LO completely reads the requirements and follows the instructions step by step, they should not experience any difficulty. Also, it’s important for LOs to follow up with their state once their license application has been submitted. (Tip: You can usually find the name of the person who is working on your application within NMLS’s online system.) Q :: Do you think that the licensing requirement gives federally chartered banks an unfair advantage over stateregulated companies? A :: It certainly seems that the process to approve an LO is contradictory between federally chartered banks and state-regulated institutions. If the purpose of the SAFE Act was to increase uniformity among loan originators, then each LO should be subject to the same requirements. As the results of the SAFE Act and implementation of NMLS are evaluated, I believe that the licensing requirements will reach a more common ground over time. Q :: How do you think the licensing requirements could be improved to best serve both the consumer and the LO? A :: The process should continue to be reviewed and validated by those who have set the mandates to ensure that the regulations are doing what they were intended to do. Is there increased protection? Is there a decrease in fraud? The process should continue to evolve so we can protect consumers, but not prevent reputable LOs from being able to do their jobs.

spotlight article jo s h ua s h e i n vice president / maverick funding States could also work better together to coordinate approval levels and expectations. I think the varying requirements are incredibly complicated and also time-consuming and expensive to navigate. It slows down the hiring process, which hurts consumers, who ultimately need good people working for them. While the licensing requirements do help prevent non-serious, short-term people from jumping in and out of the business, some tweaks to the system would make a big difference.

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Q :: Do you think that your LOs often have trouble completing the licensing process? A :: The exam is challenging; it’s really tough. It also doesn’t really cover reverse at all, so the LO has to be trained and educated in forward loans just to obtain a license, and that’s a real challenge for us. We have people come in to learn reverse, they think they’re ready to be licensed, and then they have to go back and learn the forward process.

Q :: How do you think the licensing requirements could be improved to best serve both the consumer and the LO? A :: The test is too difficult. I’ve heard that the failure rate is really high, and I think that’s a good sign that it’s too complicated. I think there should be a test and that background checks are a good thing, but it doesn’t need to be as intense. States could also work better together to coordinate approval levels and expectations. I think the varying requirements are incredibly complicated and also time-consuming and expensive to navigate. It slows down the hiring process, which hurts consumers, who ultimately need good people working for them. While the licensing requirements do help prevent non-serious, short-term people from jumping in and out of the business, some tweaks to the system would make a big difference.

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Q :: Do you consider clean credit to be a relevant requirement for LOs? A :: We do look and see if there is any bankruptcy, judgments or liens that prevent the individual from getting a license. You have to have clean credit. Does it preclude the LO from getting a license? Absolutely not. That depends on the degree of the infraction and the reasons and explanations behind it. There has to be a sensible, credible cause for why it happened. When we run into people who have this issue, we definitely talk it out with the candidate and see if there’s a way to explain it. In some cases we’ll say, “We’ve dealt with this before. This state might allow it, this state won’t.”

Q :: Do you think that the licensing requirement gives federally chartered banks an unfair advantage over stateregulated companies? A :: No question about it, they absolutely have an advantage. I’ve lost good people to federal banks because it’s an easier road. However, achieving bank requirements is not without its pitfalls. I know most of the federally chartered banks are doing it the right way; they have their own vetting process that can be challenging. I’ve seen people get turned down when they could have been licensed to work at a nonbank. But still, at a bank you can avoid the test. And in that sense, it is not a level playing field. I think it’s something that should be balanced out.

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Q :: Do you prefer to hire only licensed LOs? If so, do you pay a premium for them? A :: I definitely do look first at highlicensed LOs—it certainly takes one major element out of the hiring process. You don’t have to wonder, “Will they pass the test?” In the hiring process, we can get a good idea about an LO’s background, but when you factor in the need to pass a test, the need to train and attend classes, it becomes more difficult to predict. As for paying a premium, we definitely explore and discuss our options, but we don’t set a specific premium. There are too many other factors involved. Experience, for one, is essential. You might have someone with 10 licenses who has never closed a loan. On the flip side, here in Maryland, you might have someone licensed in this state but not

anywhere else. Still, if the LO is good and you see potential, we would trust that he or she is capable of obtaining a license in other states. We definitely hire unlicensed LOs and put in the time to help train them. It’s a more involved approach than in the old days, but it can work.

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Q :: How has the licensing situation affected your hiring process and how have you adapted? A :: As the new laws came into place for licensing, hiring became a challenge. You didn’t have to pay nearly as much attention to it in the old days. Now the licensing requirements are a humongous part of recruitment, require a lot of attention and affect a company’s overall business plan. I do think it’s a good thing though. It calls for proper vetting. You have to pay attention to which states an LO has to get approved in, how many states you want them approved in, and the cost associated with that. You have to look at how much you’re investing in each loan officer, how much it’s worth, at what point and for what person. In the old days, we asked: Can they sell? Can they adapt to our process? Now we have to consider their credit, their background issues and their overall ability to pass a test on top of everything else. That has been a gamechanger for us all.

The Reverse Review July/August 2012

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Reverse Mortgage Market Where Are We and Where Do We Go from Here?

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An in-depth analysis of the industryâ&#x20AC;&#x2122;s future

Jim Milano

Where is the reverse mortgage industry today and where is it headed? To answer these questions, one should first look at the history of the reverse mortgage industry and the underlying “drivers” that could spur future growth, as well as expected “drags” and potential unexpected obstacles.

Abstract and Overview In this article I will review, briefly, the more recent history of reverse mortgages, particularly FHA-insured HECMs. I will outline where the industry stands today and provide some thoughts as to where I think the industry might be headed in the near and foreseeable future. In summary, the industry continues to face headwinds (and I submit that the most significant of these obstacles are not specific to reverse mortgages, but are based on broader economic or forward mortgage industry issues). Despite the downturn several years ago in the broader forward mortgage market, the reverse space is thriving as the senior population continues to increase exponentially. Seniors are living longer and have higher rates of homeownership, but they have not saved enough for retirement and a significant amount of their net worth is tied up in home equity. Public sources of retirement support will increasingly become strained. Thus, the current and future need for reverse mortgages as part of broader retirement planning and as a way to finance the senior population’s increasing longevity could not be more compelling. However, demographics do not equal destiny, and there are steps that reverse mortgage lenders (and the reverse mortgage industry as a whole) can take, not only to better serve this need, but also to protect themselves from unwanted and unwarranted threats to their professional reputation. Furthermore, trends in home prices, regulatory rulemaking and the return of a viable secondary market for all mortgages (not just reverse mortgages) will determine the future growth and profile of the reverse mortgage industry.

Brief History of the FHA HECM Program and Reverse Mortgages Authorized by Congress and started as an FHA pilot program in the late 1980s, the origination of reverse mortgages remained dormant until the early 2000s. Almost 8,000 HECM loans were originated in HUD’s fiscal year 2001. However, annual volume of HECM loans reached approximately 112,000 in HUD’s fiscal year ending September 2008. [Additionally, in 2007, conventional (or so-called “proprietary” or jumbo) reverse mortgages accounted for approximately 16 percent of the reverse mortgage market on a dollar volume basis.] If one were to advise a business leader that his or her market would increase by more than 1,200 percent in six years, certainly that would garner attention and interest. Nonetheless, HECM loan volume declined to 73,000 loans for HUD’s fiscal year ending September 2011. And while HECM volume is expected to be lower than 73,000 in 2012, as discussed below, in my view, the fundamentals for, and thus likelihood of, a significant increase in reverse mortgage volume beyond 2012 are well entrenched.

The Senior Population As of 2010, there were 40.4 million seniors (aged 65 or older). At that time, this number represented 13.1 percent of the U.S. population. This is 1 in every 8 Americans. Since 2000, the number of U.S. seniors increased by 5.4 million or 15.3 percent, compared with an increase of 8.7 percent for the under-65 population. However, the number of Americans aged 45-64 who will reach 65 over the next two decades increased by 31 percent during this period.

Since 1900, the percentage of seniors more than tripled (from 4.1 percent in 1900 to 13.1 percent in 2010). That is an increase by a multiple of approximately 13 (from 3.1 million to 40.4 million). In 2010, the 65-74 age group (20.8 million) was 10 times larger than in 1900. In contrast, the 75-84 group (13.1 million) was 17 times larger and the 85+ group (5.5 million) was 45 times larger. In 2010, there were approximately 57 million persons in the U.S. aged 60 and above, out of a total U.S. population of 310 million (or 18.4 percent). By 2020, that number is expected to increase to 76 million out of 341 million (or 22.2 percent). In 2009, the average life expectancy of a person reaching age 65 was 18.8 years (20.0 years for females and 17.3 demographics years for males). do not equal From 1990 to destiny, and 2007 the death there are steps rates for the 65-84 that reverse age population mortgage decreased. lenders (and In 2010, the reverse approximately mortgage 2.6 million industry as persons reached a whole) can and celebrated take, not their 65th only to better birthday, while serve this in that same year, need, but also approximately to protect 1.8 million themselves persons 65 or from older passed unwanted and away, resulting unwarranted in an annual threats net increase of to their 814,406. 8 professional reputation.

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The Reverse Review July/August 2012

In summary, seniors are living longer and the number of seniors is increasing.

Homeownership Rates of Seniors In 2009, 23.1 million households were headed by a senior. Eighty percent of these persons were homeowners. In 2009, 48 percent of senior households spent more than one-third of their income on housing costs (42 percent for owners). Furthermore, home equity has been and continues to be a major contributor to the net worth of seniors. In 2009, approximately 65 percent of seniors (or more than 15 million people) owned their homes free and clear. In 2008, at its height, the annual HECM volume was approximately 112,000 loans, or roughly 0.7 percent of those potentially eligible reverse mortgage borrowers (factoring in an assumption that 500,000 seniors already had obtained a reverse mortgage). This does not include seniors who did not own their homes free and clear. In summary, senior homeownership rates are much higher than the general population and many seniors have a significant amount of their net worth tied up in home equity.

Regulatory, Program and Other Headwinds Today, if you are in the reverse mortgage business, you are in the FHA lending business. That means you are either an FHA-approved mortgagee or you work with an FHA-approved entity that sponsors your company. Therefore, you are subject to FHA HECM program requirements and administration. We have heard our share of criticism about HUD, but one must remember that the department is both an insurer and program administrator of HECMs, and as such has created and maintained a viable and important foundation for our industry. As a business partner, HUD has generally attempted to be responsive to industry needs. However, further program maintenance and innovation is needed. From accounting issues to continued funding of HUD-approved 40

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reverse mortgage counselors, the need for a hybrid HECM program and limited underwriting rules or guidelines, there is still some work left to be done. HUD cannot do all of this work on its own. It needs input, support, comments and feedback from the reverse mortgage industry. The reverse mortgage industry’s increased dependence on HUD since 2008 is very much tied to broader trends and the downturn in the secondary and structured finance markets of the forward mortgage industry. In fact, for better or worse, the reverse mortgage market is somewhat tied to the forward mortgage market. Since the market downturn in 2008, the federal government has come to dominate the overall mortgage industry (including the reverse mortgage industry). Currently, a robust secondary and structured finance market has yet to return to the forward mortgage market. The return of forward mortgage securitizations is not transpiring quickly. The return of a viable market could be further stymied by regulatory uncertainty, particularly and more directly in the area of risk retention rules for securitizations, and indirectly (at least for reverse mortgages) by the bureau’s finalization of the Qualified Mortgage definition under the Ability to Pay rule, as mandated under the Dodd-Frank Act. By year end, we should have more information on the contours and details of the bureau’s Qualified Mortgage rule. However, the mortgage industry may not have a clear picture of risk retention requirements until 2013. Under those rules, issuers of securitizations could be required to retain 5 percent of the risk of any pool issued (which could be an impediment to all but the largest issuers), unless loans in the pool are Qualified Residential Mortgages. (Pools comprised solely of FHA-insured as well as Ginnie Mae-guaranteed loans will be exempt from the risk retention rules.) The definition of a Qualified Residential Mortgage must be finalized through coordinated rulemaking by several federal agencies (including HUD, the Federal Housing Finance Agency, the Federal Reserve Board and the SEC).

THE

senior p o p ulation

8,000 Almost 8,000 HECM loans were originated in HUD’s fiscal year 2001.

HECM loans reached approximately 112,000 in HUD’s fiscal year 2008. HECM loan volume

declined to 73,000 loans for HUD’s fiscal year 2011. Number of seniors 65+ has tripled

1900

3.1 million 4.1 percent of the population

2010

40.4 million or 13.1 percent of the population

Number of seniors 60+ in the U.S. is expected to rise

2010: approximately 57 million people, or 18.4 percent of the population 2020: estimated 76 million people, or 22.2 percent of the population

These agencies proposed a Risk Retention rule in April 2011, but that rule has yet to be finalized. Due to hyper-technicalities in the Dodd-Frank Act, a Qualified Residential Mortgage as it applies to the Risk Retention rule can be no broader than a Qualified Mortgage in order to comply with the Ability to Repay rule. The bureau has announced that it will issue an Ability to Repay rule by year end, and the whole mortgage industry awaits the issuance of that rule with bated breath. That rule will affect the final definition of “Qualified Residential Mortgage” under the Risk Retention rule and will determine the characteristics of reverse mortgages that are not insured by the FHA but may be securitized, as well as the necessary financial wherewithal of those entities able to do so, for years to come.

well under way since the exits of Bank of America and Wells Fargo. With the recently announced exit of MetLife Bank, that process needs to be adjusted. Of note is that these large bank exits were primarily driven by issues that were not related to the reverse mortgage business. The downturn in the overall mortgage market placed a great deal of pressure on Bank of America, primarily due to its acquisition of Countrywide just prior to the downturn. And, in a more recent side effect of the Dodd-Frank Act, Snoopy no longer wished to be a bank-holding company.

In summary, while HUD supports and maintains the reverse mortgage industry today, further improvement and honing of the HECM program is needed. And there is a need and desire on the part of the industry to be able to begin private securitizations again. However, depending on ongoing rulemaking related to the Dodd-Frank Act, the ability to undertake private securitizations of reverse mortgages not insured by the FHA may be limited to larger and more financially viable institutions. In addition, the pricing of such private securitizations will have to compete with the “full faith and credit” guarantee provided by Ginnie Mae for FHA-insured, HECMbacked pools. In this regard, ironically, the hyper-technical twists of the DoddFrank Act (and required rulemaking) may directly conflict with the majority’s stated policy goal of reducing the government’s role in mortgage lending.

Short-to-Close No More: Property Values Should Continue to Recover in the Near and Long Term

We Need a New Anchor Tenant Shopping mall businesses use marketing strategies that are based on attracting and maintaining so-called “anchor tenants.” With the exit of Bank of America, Wells Fargo, and most recently, MetLife Bank, the reverse mortgage industry is currently in need of larger lenders to step up and take the place of these large bank lenders. That process was

In my view, replacements for these large banks may begin to appear as early as the third quarter of 2012, and they should certainly be in place before the end of 2012.

Another current headwind to increased HECM production has been the challenge that some HECM applicants face with short-to-close situations. In some instances, the current amount of a senior’s outstanding forward mortgage lien is greater than the value of the property (i.e., the property is underwater). It is not possible for such a senior to obtain a HECM unless their current forward mortgage lender is willing to take a short payoff. However, there are indications that some forward mortgage servicers are willing to accept short payoffs or accept a principal reduction through a loan modification. Furthermore, a more recent and strong trend of investors purchasing REO properties in bulk, and renting them out, should have the effect of stabilizing neighborhoods and home prices (especially in locations such as Southern California, Las Vegas, Nevada, Arizona and Florida). These trends, and the overall continued recovery of the housing market, should substantially reduce the number of seniors facing a short-to-close scenario, and thus become another driver

of increased reverse mortgage production over the next few years.

Red Ink Rising: Federal Budget Deficits and the Cost of Longterm Health Care for Seniors The U.S. federal government will continue to face budget and deficit challenges over the next 10 years and beyond. In 2011, the budget deficit was projected to be more than $1 trillion, and the federal debt had reached $15 trillion. Based on projections, federal budget deficits will continue for the next 10 years at a minimum of $700 billion per year, potentially reaching as high as $1 trillion a year. That will add an additional $7 trillion-$10 trillion to the current $15 trillion national debt. These trends are not sustainable over the medium or long term. The four primary drivers of budget deficits are defense spending, entitlements (such as Medicare, Medicaid and Social Security), interest on the federal debt and so-called “tax expenditures” (i.e., tax breaks under our complex tax code). Entitlements and interest on the debt are not discretionary. Defense spending and tax expenditures are discretionary. In order to correct this unsustainable trajectory and ensure that the United States does not become a super-sized version of Greece, all areas of the federal budget will need to be reviewed and adjusted. Very difficult choices will have to made, including cuts to defense spending (such as ending undeclared “foreign wars” and high-priced weapons procurement programs), elimination of tax expenditures (including items such as the home mortgage interest deduction), and “welfare” reform (i.e., a leveling off or even reduction in benefits for Medicare, Medicaid and Social Security). The interest on the debt will not be reduced until the debt is reduced, and that will not occur for the next 10 years. As outlined above, the federal debt could nearly double over the next decade. Add to these federal budgetary strains the distinct likelihood that health care costs will continue to rise and the public benefits used to assist seniors in paying for health care could become severely 8 reversereview.com

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strained, the net result being a reduction in federal health care provisions and a need for alternative sources for payment. One source of funding may be seniors’ available home equity. In my view, the availability and utilization of seniors’ available home equity as a source for long-term health care funding will increasingly become a larger part of the public policy budget debates.

Retirement Planning As seniors move into the transitional “retirement red zone,” that period in one’s late 50s when one starts to take stock of their retirement profile and planning, some seniors will discover a shortfall or retirement funding gap created by merely relying on a combination of Social Security and retirement savings. Home equity, to the extent it exists, will have to be considered. Indeed, the well-documented publications of the Sacks brothers and Professor Salter prove and make clear that home equity must be considered

in retirement planning and financing seniors’ longevity.

New (or Underutilized) Products and Initiatives In 2008, Congress amended the HECM statute to provide for the HECM for Purchase program. Then, in 2010, HUD created the HECM Saver program. In my view, these programs have not been sufficiently marketed and are underutilized. Additional HECM production appears to be there for the taking. Furthermore, we continue to see persistent interest in conventional reverse mortgages and other equity release programs. As described above, one of the main impediments to the introduction or reintroduction of these types of programs is the lack of a secondary market. In the shorter term, one would expect consumer need and investor demand to create a whole loan market in this area, and once the risk retention rules are clarified, I expect to see the reintroduction of some conventional reverse mortgage securitizations.

Conclusion Notwithstanding recent, short-term and intermittent headwinds, everything works out in the end. If things do not appear to be working out, then it is not yet the end. The demographics of the growth and trend lines of the senior population, their profiles, needs and related metrics, are compelling. Seniors are living longer, health care costs continue to rise, and many seniors own their homes free and clear but have a significant amount of net worth tied up in their homes. Despite a downturn in the overall mortgage market, and other challenges facing the reverse mortgage industry, I believe that the industry is poised to grow exponentially over the next five to 10 years. x This article is based on the personal views of Jim Milano and does not represent the views or opinions of the law firm of Weiner Brodsky Sidman Kider PC, or its clients.

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The Reverse Review July/August 2012

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H. Wes t R ic h a r ds

Senator bob Menendez (D-NJ) a Chairman of the Subcommittee on Housing, Transportation and Community Development Senator Mike Crapo (R-ID) a Senior Member of the Subcommittee on Housing, Transportation and Community Development

legal secondary market

U.S. House of Representatives Rep. Tom Latham (R-IA) a Chairman of the Subcommittee on Appropriations for Transportation, Housing & Urban Development

spotlight

Rep. John Olver (D-MA) a Ranking Member of the Subcommittee on Appropriations for Transportation, Housing & Urban Development

legislative

Still, itâ&#x20AC;&#x2122;s important to keep in mind that this funding is not a sure thing by any means. Last year, Chairman Latham and several of his colleagues took issue with some of the forward mortgage counseling programs during the subcommittee markup for FY 2012. Latham felt compelled to zero out funding for all housing counseling, including funds for the HECM. Fortunately, CIS was able to restore the funding for FY 2012, but not without a challenge.

Senator Susan Collins (R-ME) a Ranking Member of the Subcommittee on Appropriations for Transportation, Housing & Urban Development

servicing

Chairman Tom Latham (R-IA) of the THUD Subcommittee on Appropriations has been a proponent of housing counseling, particularly for consumers looking at the HECM program. CIS has worked closely with Chairman Latham and his committee staff for the last three years to promote the need for more funding.

Senator Patty Murray (D-WA) a Chairwoman of the Subcommittee on Appropriations for Transportation, Housing & Urban Development

tech

In June, the collective efforts of CIS, NRMLA and others have helped to secure funding for housing counseling for fiscal year 2013 in both the U.S. Senate and, just recently, the House of Representatives. The House subcommittee included $45 million for housing counseling in its appropriations bill, and the Senate Transportation, Housing and Urban Development (THUD) subcommittee passed an appropriations bill that included $55 million for housing counseling.

Government funding for the program is no doubt essential to the health of the housing market in general and the reverse space in particular. HUD Secretary Shaun Donovan spoke at the Leadership Council of Aging Organizations (LCAO) meeting just one day prior to the markup, emphasizing the importance of funding for HUD housing counseling, as it is the only pot of money that goes directly to the HECM program. He urged everyone in the Aging community to make the case to Congress for this vital funding.

U.S. Senate

appraising

e all know how important housing counseling is for the reverse mortgage industry and for the seniors who could benefit from the service. It clearly helps educate consumers and assists in making an informed decision about the use of the product. In statistical terms, we know that counseling works. Just this May, HUD released survey results indicating housing counseling helped 69 percent of Americans facing foreclosure resolve their issues, with 56 percent of those counseled able to become current on their mortgages.

The funding for housing counseling will likely stay the course during the full committee appropriations process in both chambers as the House and Senate negotiate the final number for housing counseling during conference proceedings. According to CIS sources on Capitol Hill, the final number will likely result in a $50 million compromise. The portion set aside for HECM housing counseling by HUD has historically been 10 percent of the total dollar amount proposed, meaning we can probably count on $5 million for HECM housing counseling for FY 2013.

We hope that FY2013 will include the necessary funds to support the need for HECM counseling so that seniors can continue to benefit from the program. So far, funding for the program looks promising. The industry must thank the following members of Congress for their continued support of this mission:

underwriting

Housing Counseling Takes Center Stage

He and his staff have encouraged CIS and others to increase awareness and garner support for the bill from the House Financial Services Committee in order to make the inclusion of counseling funds more likely in the FY 2013 appropriations markup.

originating

Update from Capitol Hill

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Rep. Judy Biggert (R-IL a Chairwoman of the Insurance, Housing & Community Opportunity Subcommittee Rep. Luis Gutierrez (D-IL) a Ranking Member of the Insurance, Housing & Community Opportunity Subcommittee x reversereview.com

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Opinion

last word

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What a Great Business to Be In! Ed O’ Conno r

fter more than a decade originating reverse mortgages, I can confidently say this is a great business to be in. Where else can you have a dramatic impact on the lives of so many people, people who trust and rely on your experience and knowledge? Change brings about opportunity; opportunity brings more change. If you have been in this business for more than three years, you have seen many, many changes. I have seen this business evolve tremendously in my time, and while I don’t always agree with it all, I realize that I have to accept it and move forward. As an industry, we need to continue to focus on the ultimate goal, education—both for us and for the seniors. Seniors are a protected class and should be treated as such. Our industry is facing intense scrutiny right now, from HUD oversight to counseling protocols. This is a big sign that we need to do the right thing along the way. The bottom line is, the more we educate potential borrowers, the better off they are. The greatest thing we can do is continue to learn, educate ourselves and share that knowledge. The CRMP designation is one thing originators can obtain to add to that level of trust. Seniors may not understand the process of CRMP designation and the level of detail involved, but certified credentials do mean something. They offer consumers a level of assurance and comfort, signaling that the certified individual is recognized in his industry and among his peers as someone capable of executing his job properly and professionally. Earning the CRMP designation not only supports the NRMLA initiative, but can also offer the credited individual a sense of satisfaction that he is continuing to learn and improve his or her skills. 46

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Going to the source I don’t “sell” reverse mortgages, but I do educate my clients on the benefits of the product. If it’s the right fit, then the client can clearly see how they can improve their situation through the use of this tool.

This concept of education in the reverse space also applies to the sales approach. In my view, for example, I don’t “sell” reverse mortgages, but I do educate my clients on the benefits of the product. If it’s the right fit, then the client can clearly see how they can improve their situation through the use of this tool. This industry has made tremendous strides in marketing via television, radio and print, but we still have a way to go to reduce borrower anxiety about the product. This is only done through education and the development of trust. We have all seen the lawsuits out there claiming one injustice or another connected to a reverse mortgage filed by a remaining family member who was not involved in the process. Educating the public about the product can help continue to safeguard our clients. We can protect ourselves by spreading the word about how this product can be used properly to help seniors achieve financial security. Any way you look at it, the fact remains that education is the key to advancement in this business. The people you work with are your partners in business, so choose your staff, your loan officers and your vendors carefully. Everyone needs to share that same pro-education ideology in order to bring about the best results possible. x

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The Reverse Review July/August 2012

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