Reality Hits The Reverse Mortgage Industry! Michael Banner page
A new reality hits the reverse mortgage industry. With loan limits being increased, the introduction of the new HECM for purchase product, and the slashing of origination fees followed by them being capped; where it will all stop no one knows. However, with the continuous changes, this monthâ€™s feature article gives us a glimpse into the minds of four industry leaders and provides us with their insights on these and other changes, how they have affected their business individually and what they plan to do to adapt.
MBA’s reverse MortgAge lending CONFERENCE 2009 Westin G aslamp Q uarter + san D ieGo, C alif. september 9–11, 2009
The Mortgage Bankers Association (MBA) is committed to helping you do business better by providing conferences and events that highlight issues affecting your business and our industry. MBA’s Reverse Mortgage Lending Conference 2009 is a unique forum where real estate finance professionals meet to discuss originator and equity investor interests in the reverse mortgage sector. The program is engineered to provide policy updates along with the latest information regarding emerging issues and trends plus an exploration of new technologies designed to help reverse mortgage lenders operate more efficiently. Don’t miss this valuable opportunity to network with industry partners and exchange ideas about the hottest innovations available for increasing business opportunities and ensuring responsible lending.
Register today so you can reserve your hotel accommodations early and save on registration fees. To register visit www.mortgagebankers.org/rml09.htm or call (800) 793-6222, select option 3. MBA thanks its conference sponsors. We are grateful for their support. First American, Appraiserloft.com, reverse Mortgage solutions, inc., Bay docs, inc., Celink and reversevision * Sponsors as of 7/9/2009
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© 2009 The Reverse Review, LLC. All rights reserved. The Reverse Review, LLC is a California limited liability company and is the publisher of The Reverse Review magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, The Reverse Review, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 11440 W Bernardo Ct, Ste 220, San Diego, CA 92127
Michael Banner tells it like it is, while incorporating the opinions of industry leaders regarding their feelings about the industry and how the current changes are directly affecting the way they do business. Essentially, all businesses must adapt to the current RM environment in order to make it to the finish line.
oing the distance! Whether you are running a marathon, climbing a mountain, or working towards building an empire, we all know it can be challenging. At times it is hard to keep up the pace and it is very easy to loose sight of the end goal. In our industry, which is still relatively young, and where there has been a dramatic increase in the number of participants; we are all running to be the ones who ultimately make it to the finish line. A large part of making it to this finish line is realizing the new realities of the industry and learning to adapt in order to survive. So, I have great admiration for this month’s cover story, “Reality hits the reverse mortgage industry!” Initially, the word “reality” may come across with a negative connotation, however, it is exactly the opposite.
I hope this issue of many boiling topics gets you through the hot summer months. See you all in September!
Erica English Editor-In-Chief
14 Anatomy Of A HECM Counseling Session Robert Walther
20 Making Purchases Part Of Your Portfolio Sam Collins
24 FEATURE: Reality Hits
The Reverse Mortgage Industry!
36 The Next Wave -
Washington And Vermont Lead A Surge Of State Legislation
32 Why The Reverse
Weiner Brodsky Sidman Kider, PC
Mortgage Is Here To Stay! Monte Rose
ESSENTIALS 5 Note From the Editor
8 Ask the Underwriter
12 Industry Statistics
42 Ask the Servicer
44 Press Release
46 The Last Word
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My CONDOlences… By Ralph Rosynek I regret to inform you of the impending demise of the Spot Condominium Approval Form and Process effective October 1, 2009. While this date seems like a point too distant to work into your reverse mortgage itinerary, it will be upon us sooner than expected and now is the time for you to be considering this and other condominium impacts of the passage of the Housing and Economic Recovery Act (HERA) of 2008. (I’m not sure if this makes sense…something might be missing??) The Federal Housing Administration (FHA) is implementing a new approval process for Condominium Projects to insure mortgages on individual units under Section 203(b) of the National Housing Act. FHA will now allow lenders to determine project eligibility, review project documentation, and certify to compliance of Section 203(b) of the NHA and 24 CFR 203 of HUD’s regulations. HUD will continue to maintain a list of Approved Condominium Projects. The requirements of this Mortgagee Letter are effective for all case numbers assigned on or after October 1, 2009 except as noted.
the Mortgagee Letter! These changes are going to greatly impact our ability to keep turn times for condominium loan approvals similar to present without the cooperation of all parties to the transaction. A “bakers dozen” of key areas of the Mortgage Letter affecting the most typical of HECM transactions, the refinance, are highlighted below: 1. The lender will have two condominium project approval processing options. The applicable documentation requirements will be the same for each option a. HUD Review and Approval Process (HRAP). b. Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.
The best clarity recommendation is to review the Mortgagee Letter 09-19 in detail. A complete copy is available at: http://www.hud.gov/ offices/adm/hudclips/letters/mortgagee/.
2. The processing options stated above will be applicable to condominium developments that are: a. Proposed/Under Construction; b. Existing Construction; or c. Conversions.
This article is one of several which will be published to assist you with implementation of the changes. You should note that discussion with the industry continues as well as additional information and clarification from HUD/FHA is expected prior to implementation.
3. The Condominium Project is eligible if it has been created and exists in full compliance with applicable State law requirements of the jurisdiction in which the Condominium Project is located, and with all other applicable laws and regulations.
The changes noted are effective with case files pulled in the FHA Connection on or after October 1, 2009 and affect any HECM secured by a condominium unit. No indication as to completion timeframes for
4. The Condominium Project is ineligible if it is one of the following types: Condominium Hotel or “Condotels”, Timeshares or segmented ownership projects, Houseboat projects, Multi-dwelling unit condominiums [i.e. more than one dwelling per condominium unit or all projects not deemed to be used primarily as residential.
those originations under case files pulled prior to October 1, 2009 has been provided at this point. As you grab your morning coffee and donut, you may want to go back and grab the whole box, as many Underwriters did when they first read
5. Site Condominiums are single family detached dwellings encumbered by a declaration of condominium covenants or condominium form of ownership. Condominium Project
initial project approval. For purposes of calculating the owneroccupancy percentage: a. On multi-phased projects the owner-occupancy percentage is calculated on the first declared phase and cumulatively on subsequent phases if the ownership of the condominium project remains the same; b. If multi-phasing includes separate ownership per phase, each phase is calculated individually; or c. Single-phase condominium project approval requests must meet the owner-occupancy percentage requirement.
approval is not required for Site Condominiums; however, the Condominium Rider (Attachment D) must be included in the FHA case binder submitted for insurance endorsement. Manufactured housing condominium projects (MHCPs) may not be processed as site condominiums; these projects will require approval under HRAP. 6. The Spot Loan Approval process as defined in Mortgage Letter 1996-41 is eliminated with issuance of this guidance effective with casefile numbers issued as of October 1, 2009. The DELRAP and HRAP processes have been streamlined to allow for uncomplicated condominium project approvals eliminating the need to approve units on a “spot loan” basis. 7. Project Approval is not required for FHA-to-FHA streamline refinance transactions or FHA/HUD Real Estate Owned (REO) Division sales. 8. If a lender elects to use the HRAP option, then environmental reviews will not be required for projects that, at the time that condominium project approval is requested, have progressed beyond that stage of construction where HUD has any influence over the remaining uncompleted construction (see the Mortgagee Letter for additional details on Environmental Reviews). 9. The following requirements apply to all Condominium Project approvals: • • • •
Projects consist of two units or more. Projects must be covered by hazard and liability insurance and, when applicable, flood insurance. First right of refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100. No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units. One investor may own no more than 10 percent of the units. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants. No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment. At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan. At least 50 percent of the units of a project must be owneroccupied or sold to owners who intend to occupy the units.2 For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies). Legal Phasing is permitted for condominium processing. It is recommended that developers submit all known phases for
10. FHA concentrations have been established for projects consisting of three or less units to have no more than one unit encumbered with FHA insurance. Projects consisting of four or more units will have no more than 30 percent of the total units encumbered with FHA insurance. 11. A current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance. A current reserve study must be no more than 12 months old – if recent events or market conditions have affected the finished condition of the property that information must be included. When reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed. 12. Condominium Project approvals will expire two years from the date it has been placed on the list of approved condominiums. This will also apply to all projects currently on the list of approved condominiums. Further participation in the program after this twoyear period has expired will require recertification to determine that the project is still in compliance with HUD’s owner-occupancy requirement and that no conditions currently exist that would present an unacceptable risk to FHA. Items that should be given consideration are: a. Pending special assessments, b. Pending legal action against the condominium association, or its officers or directors, c. Hazard, liability insurance and when applicable flood insurance. 13. There are quite a number of additional items covered by the Mortgagee Letter including manufactured homes in a condominium association, processing project approvals and certifications, FHA Connection reporting and changes, insurance requirements, environmental information, quality assurance and phasing. Additionally checklists and exhibits have been attached to the Mortgagee Letter for use and reference. As indicated, there remains quite an amount of information not noted by this article and very relevant to the HECM origination transaction. Over the next few months, investors will be determining their participation and procedures in the approval process as updated information is received from HUD/FHA. Caution should be addressed with upcoming condominium originations prior to October 1, 2009 to avoid confusion and delays.
contributors Ralph Rosynek - Ask The Underwriter, page 8
Ralph Rosynek is President and CEO of 1st Reverse as well as a HECM DE Underwriter. Mr. Rosynek has been involved in mortgage lending for over 30 years with the last 5+ years exclusively providing reverse mortgage lending solutions. To contact Mr. Rosynek or to learn more about 1st Reverse Financial Services, Please visit www.1streverse.com or call 877.574.1000.
John Lunde - Reverse Market Snapshot, page 12 John Lunde is President and founder of Reverse Market Insight, the premier source for market intelligence and analytics services in the reverse mortgage industry. RMI clients include five of the top ten reverse mortgage originators, both lender and independent servicers, as well as some of the largest financial services firms in the world. Find out more at www.rminsight.net or call 949.281.6470.
Robert C. Walther - Anatomy Of A HECM Counseling Session, page 14 Robert C. Walther is the HUD Operations Director for Consumer Credit Management Services a non-profit HUD approved Counseling Organization. Mr. Walther is an expert in the realms of non-profit compliance and reverse mortgage counseling protocol. He is a exam qualified national reverse mortgage counselor and oversees a staff of certified counseling professionals. www.debt-mgt.org or 866.213.8522. Sam Collins - Making Purchases Part Of Your Marketing Portfolio, page 20 Sam Collins is the President of Sam Collins Reverse Marketing, LLC avnd Founder of REMALO, the Reverse Mortgage Association for Loan Officers. REMALO is a web based National sales, marketing, training, and full service center, created exclusively for Reverse Mortgage Loan Officers, Correspondents, Branch Managers, and key executives, and brokers. www.remalo.org or 877.262.7656 Michael Banner - Reality Hits The Reverse Mortgage Industry!, page 24 Founder of LoanWell America, Inc., Michael is one of few Reverse Mortgage professionals accredited to teach continued education classes to CFP’s, CPA’s, attorneys & insurance agents. Michael has been interviewed by the Wall Street Journal, Tampa Bay Business Journal &the Reverse Mortgage Wire. A member of NRMLA’s State & Local Issues Committee & sits on the Board of Directors of FPA of Tampa Bay. For more information: Michael.Banner@loanwellamerica.com or 877.700.0555.
contributors Why The Reverse Mortgage Business Is Here To Stay!, page 32 - Monte Rose Monte Rose has helped hundreds of seniors obtain a reverse mortgage during the past 17 years. He is an accomplished speaker and widely quoted industry expert, appearing in financial publications and nationally syndicated media. He was head of national retail sales for Financial Freedom Senior Funding Corporation. Monte is a Certified Senior Advisor and a Certified strengths Coach with Gallup University. For more information, call 800.516.0545 or e-mail firstname.lastname@example.org. The Next Wave - Washington & Vermont Lead A Surge Of - Joel Schiffman State Legislation , page 36 Joel Schiffman is a member with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. Mr. Schiffman can be reached at email@example.com or by telephone at 949.798.5570. Ask The Servicer, page 42 - Ryan LaRose Ryan LaRose is the Executive Vice President of Celink, an independent reverse mortgage subservicer. Ryan has over 12 years of servicing experience; exclusively in reverse mortgage servicing since 2005. In addition, Ryan is an active member of the NRMLA servicing and technology committees. Visit his website at www.CeLink.com or contact him directly at 517.321.5491. The Last Word, page 46 - Karen Keating Karen Keating is a partner at Tradition Title Agency. Her vision and leadership have greatly influenced Traditionâ€™s evolution and growth. Prior to joining Tradition, Karenâ€™s exuberant personality and principled work ethic resulted in a successful career in sales and senior management positions. Throughout her career, Karen has developed an eye for groundbreaking opportunities such as the growing field of reverse mortgages. www.traditionta.com or 631.328.4410 The Next Wave - Washington & Vermont Lead A Surge Of - Fed Kamensky State Legislation , page 36 Fed Kamensky is an associate with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. Mr. Kamensky can be reached at firstname.lastname@example.org or by telephone at 202.628.2000.
Federally mandated HECM counseling is a valuable tool in helping prospective Reverse Mortgage clients understand the complex nature of Reverse Mortgage Loans and to assure that the particular loan they are considering is the best possible solution for their specific financial, health, and living situation. Effective HECM counseling results in more confident potential borrowers who are better prepared to make informed decisions about their financial future.
Anatomy of A HECM Counseling Session By Robert C. Walther
HECM Counseling Sessions are generally divided into fifteen distinct sections. The following is a brief explanation of each section of a HECM counseling session as provided by a HUD approved Housing Counseling Organization. Gathering Information In order to properly counsel senior homeowners on the benefits, and options to reverse mortgages it is essential that counseling agencies gather in-depth information concerning the senior’s financial, medical, and housing situations. In particular, counselors will work with the homeowner to develop a budget of their monthly expenses, a general appraisal of their current assets, as well as determining their primary reason for considering entering into a Reverse Mortgage. Counselors will also discuss whether the homeowner is considering selling their home in the near future and if the homeowner has discussed his or her intentions with their children or other close family members. At this point the counselor will provide the homeowner with the opportunity to include family members, advisors, or trusted friends into the counseling session for their benefit.
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At the beginning of the HECM counseling session the counselor will provide the homeowner with the disclaimer that the agency has no connection to Reverse Mortgage lenders and funders, the independent and impartial nature of HECM counseling, and the confidential relationship between the counseling agency and prospective HECM borrower. Further, the counselor will inform the homeowner that their role as a HECM Housing Counselor is solely to provide information and education concerning the HECM product and its alternatives, not to provide advice on what actions a homeowner should take or which products or alternatives a homeowner should utilize to meet their financial needs.
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The counselor will review with the homeowner the steps necessary to obtain a Reverse Mortgage. The potential borrower will be informed of the decisions they will be responsible to make in the process including their payment plan, type of interest rate, and whether they will escrow property taxes and homeowner’s insurance into their Reverse Mortgage. In addition, counselors will discuss the need for the lender to pull a credit report to check for delinquent federal debts and the need of an appraisal to determine the value of the homeowner’s property and to assess the physical condition of the property for any problems that may impair the homeowner’s ability to obtain a Reverse Mortgage.
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Basics of Reverse Mortgages Before reviewing the details and complexities of a HECM Reverse Mortgage it is important for the counselor to insure that the homeowner has a basic understanding of Reverse Mortgages in general. Counselors explain that a Reverse Mortgage is a loan based on the equity of their home and how a Reverse Mortgage compares to a forward mortgage, with which most homeowners are significantly more familiar. Generally, counselors use the “rising debt / falling equity” explanation to compare reverse and forward mortgages. Many homeowners find this an easy way to understand how Reverse Mortgages function. Beyond these very basic elements of all Reverse Mortgages counselors also review the consumer protection provisions within HECM Reverse Mortgages that often make them an attractive product to older homeowners. In particular, clients are informed that they are not required to make any payments towards the proceeds they receive from a Reverse Mortgage or to ever sell their home as long as it remains their primary residence and they maintain their obligations under the terms of the loan. Further, counselors educate the homeowner on the meaning and benefits of the nonrecourse limit and the protection that it provides for their heirs and estate. Finally, in this section counselors will review with homeowners the factors that determine the proceeds they will be eligible for including the age of the youngest borrower, the expected interest rate on the loan, and their home’s appraised value. HECM Eligibility Requirements Counselors will review with the prospective Reverse Mortgage borrower the basic eligibility requirements for receiving HECM Reverse Mortgages. Potential borrowers will be informed of age, deed, and primary residency requirements, as well as the requirement for the property to be free of liens or that all liens are paid in full at closing. Counselors discuss the requirements for property eligibility including the types of dwellings that are permitted and the requirements for property conditions prior to closing on a Reverse Mortgage loan. Borrower Obligations In order for a Reverse Mortgage to be a successful and beneficial endeavor for a homeowner it is essential that they understand and meet their obligations after receiving a loan. Counselors inform the homeowner of their responsibility
to maintain property tax and homeowner’s insurance payments, if they choose not to escrow these items with their lender. Counselors review the client’s financial information and potential loan funds to help the homeowner determine if they will have the resources to meet these payments in the future. Counselors also discuss the benefits and drawbacks of escrowing these items; particularly, the added interest that would accrue by escrowing these items versus the safety and peace of mind of not having to make these payments as homeowners continue to age. Borrowers are educated on the requirement that the home remain their primary residence and to maintain the condition of the property to meet government standards. Homeowners are made aware of their servicer’s ability and responsibility to make these payments on their behalf, from the remaining Reverse Mortgage proceeds, should they fail to keep these payments current. In this section of the counseling potential borrowers are made aware of the various actions that could result in a mortgage default and the loan becoming due and payable earlier than otherwise necessary. Impact On The Homeowner’s Heirs and Estate Counselors will disclose to the potential Reverse Mortgage borrower that depending on the housing market and other factors there is a great likelihood that there will be less equity remaining in their property after repaying the Reverse Mortgage than they currently possess. Counselors also re-address the non-recourse limit, and the important protection this provision grants to their heirs and estate. Finally, prospective borrowers are advised of the basic timeframe their heirs will have to sell the property and/or repay the loan, and that any equity that remains following the repayment of the Reverse Mortgage remains with the heirs or estate. Impact On Public Benefits and Tax Implications In many scenarios there is a possibility that the loss of public benefits like Supplemental Security Income or Medicaid could end up creating financial harm for Reverse Mortgage recipients. It is important that homeowners understand how to manage and maintain their public benefits after attaining a Reverse Mortgage. Homeowners are counseled on the fact that proceeds received from a Reverse Mortgage are not considered income for most government-sponsored programs. As well as the potential risk of losing these public benefits by accruing too much money in their bank accounts or other assets. Prospective borrowers are informed of ways to utilize the line of credit option with their Reverse
Mortgage to ensure that they do not have an excessive amount of income in their bank accounts at the end of the month when eligibility for public benefits is determined. Concerning potential tax consequences, homeowners are informed that since reverse mortgage proceeds are not considered income by the federal government and they are not taxable. However, many homeowners assume that the interest accrued on their reverse mortgage qualifies as a tax deduction as is often the case with a traditional forward mortgage. Counselors work with homeowners to explain that interest is not deductible until the reverse mortgage is repaid. Homeowners with complicated tax scenarios are advised to speak with tax specialists who have the expertise to advise potential Reverse Mortgage recipients on their tax options and tax implications for their heirs and estate.
Fixed Interest Rate vs. Adjustable Interest Rate Reverse Mortgages One of the most important and confusing decisions that potential borrowers must make concerning the acquisition of a Reverse Mortgage is whether to get an adjustable or fixed interest rate loan. Homeowners are advised of the various parts of a HECM interest rate including the index, margin, and mortgage insurance premium. Homeowners are lead through examples to illustrate how these three factors determine the overall interest rate they are charged and how the interest rate affects the amount of loan proceeds they will receive during the course of the loan as well as the amount they will be responsible to repay when the loan comes due. Homeowners are made aware of the payment plan limitations of fixed rate Reverse Mortgages when compared to adjustable rate mortgages. Counselors also review with potential borrowers typical adjustable and fixed rate Reverse Mortgage interest rates at the time of counseling. These rates are referred to later on in the counseling session when reviewing the possible Reverse Mortgage proceeds, amortization tables, and Total Annual Loan Cost percentages.
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Reverse Mortgage Costs For many homeowners the major perceived drawback to attaining a Reverse Mortgage is the upfront costs of the loan. By explaining the various costs of HECM Reverse Mortgages homeowners are able to make educated decisions about whether a Reverse Mortgage is a wise financial decision for them. Counselors review the major loan costs consisting of the Servicing Fee Set Aside, Lender Origination Fee, Upfront Reverse Mortgage Insurance Premium, the standard loan closing costs, as well as the interest rate charged
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on the loan. Once homeowners have an understanding of the purpose and necessity of these costs they are better prepared to make a fully informed decision. Once the appraisal is complete the lender can give final and accurate Reverse Mortgage costs to the borrower. Payment Plan Options The way in which a Reverse Mortgage recipient receives their proceeds can be one of the most important factors in whether or not they are satisfied with their decision to obtain a Reverse Mortgage. A potential Reverse Mortgage applicant must determine the best possible payment plan or combination of payment plans to meet their current and future financial needs. Counselors review the four payment plan options: lump sum, tenure, term, and line of credit. Counselors work with the prospective applicant to assist them in determining which factors are most important to their financial well being and which payment plan options best meet their needs. Many homeowners enter counseling sessions unaware of the options available to them and prematurely decide to take lump sum payments regardless of their financial, housing, and personal goals. This portion of the education often allows them to see the inherent security of options like tenure payments and the potential benefits of the line of credit option due to its continual growth. Homeowners are also advised of ways to combine payment plans like tenure or terms payments with existing income streams like annuities or pensions. Many homeowners are also pleased to hear of their ability to change their payment plan later in life for a marginal fee. IBIS Review (Reverse Mortgage Analyzer) Counselors will review IBIS printouts detailing the possible funds a client may be eligible for from a Reverse Mortgage as well as an estimation of the costs of the Reverse Mortgage both initially and over the course of the loan. Counselors will review the benefits and drawbacks of fixed and adjustable interest rates based on the current index and margins available. Counselors will walk clients through potential amortization schedules on the different loan types they are considering. Counselors also review Total Annual Loan Cost calculations, which are given for two years into the future, the clientâ€™s life expectancy, and 40% beyond the clientâ€™s life expectancy at a home appreciation of 0%, 4%, and 8% for the interest rate, and payment plans that the prospective borrower is currently considering. This section of the counseling is essential in helping a potential applicant understand the true cost of a Reverse Mortgage over time
and in comparing it to other options that may be available to them. Financial Planner and Annuity Disclosures Counselors inform clients that they are never required to meet with a financial planner or estate planner in order to obtain a Reverse Mortgage and that any costs associated with these services are not normal or customary. If a client informs a counselor that they were forced to pay to meet with a financial planner prior to counseling, the counselor will provide the client with information to report this abuse to their local HUD housing office. If a potential Reverse Mortgage applicant is planning on obtaining an annuity with the proceeds from a Reverse Mortgage the counselor will discuss the potential drawbacks of annuities in connection with Reverse Mortgages and other options that are available to the client. If the client is considering an annuity the costs and benefits of the annuity will be included in the Total Annual Loan Cost projections provided to the client. Options To A Reverse Mortgage An essential element of Reverse Mortgage counseling is educating homeowners on the options available to them. Under no circumstance is it the counselorâ€™s job to pressure a homeowner against receiving a Reverse Mortgage in favor of another option, any more than it is their responsibility to pressure a homeowner into a Reverse Mortgage. It is, however, critical for homeowners to understand all the options that are available to them to ensure they make the best possible decision on their own behalf. It is important to note that some options may be available to some homeowners and not others, and that counseling sessions are often tailored to meet the specific needs of the client based on the information gathered during the intake process. In general, the benefits and drawbacks of the following options are discussed with homeowners during a HECM Counseling session: Selling their current primary residence and downsizing into a more affordable home or other living facility; Deferred payment repair loans for homeowners in need of property repairs; property tax deferral programs; governmental benefits like SSI, Medicaid, and other county, state, and federal programs that could be of benefit to the homeowner. Homeowners are given in depth explanations of each program, as well as contact information to obtain these services in their area.
Referrals One of the most important services provided to homeowners during the HECM counseling session are referrals to organizations and programs that may be able to assist the homeowner in overcoming financial, personal, or medical problems that are contributing to their need to attain a Reverse Mortgage. In many instances these referrals work best in combination with another option, like a Reverse Mortgage, not in place of any other particular service or product. For instance, homeowners may have drug, alcohol, gambling, or health issues that lead them to spend excessive amounts of their income or savings in unproductive or unnecessary ways. In many cases the money received from a Reverse Mortgage will only exacerbate these problems and within a relatively short period of time the homeowner may again be experiencing financial hardships. Unfortunately, homeowners may have used up their largest asset, their home, and now have no other options to secure their financial future. Alcoholics Anonymous, Narcotics Anonymous, Gamblers Anonymous, local Area Agencies on Aging, AARP, Senior Job Bank, National Council on Aging, Social Security Administration, and Meals on Wheels Association of America are just some of the resources counseling agencies refer homeowners to on a daily basis. By understanding the content covered in a counseling session Loan Officers are better prepared to assist their clients through the Reverse Mortgage process and to understand the essential role that the HUD certified counselors play within that process. In the most productive situations the motives of Loan Officers and HECM Housing Counselors are the same: to provide prospective Reverse Mortgage borrowers with the best possible service with an end result of the best possible outcome for the prospective borrower. Meeting the individual needs and interests of each homeowner is the only way to ensure the positive public perception of the Reverse Mortgage industry. Contributor: Ryan Smart / Consumer Credit Management Services Inc.
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3310 Pollock Place â€˘ Raleigh, NC 27607 www.reversevision.com (919) 834 0070 â€˘ firstname.lastname@example.org
Making Purchases Part of Your Marketing Portfolio Sam Collins
hen I first started my reverse mortgage business it was considered to be a niche business. However, as reverse mortgages have grown in popularity and caught the attention of other originators, the term niche has become somewhat skewed. If you are to become an expert in the reverse mortgage business it takes an entirely different mindset than that of the traditional mortgage business. Very few can transition from traditional mortgages to reverse mortgages, all the while maintaining focus of time and resources. So, from my standpoint, reverse mortgages are still a niche if you devote your entire focus on dealing with the senior market. Thankfully, the Homeowner Rescue Act (HERA) of 2008, HR 3221 now permits reverse mortgages for purchase. This enactment coupled with the new national loan limits a unique opportunity is waiting for those who want to â€œniche the nicheâ€? with the HECM for purchase program. Yes, spreading the word to your current, past, future clients, professionals, and now realtors are the keys to your future success. I am not going into detail about processing and underwriting for a HECM for purchase. However, many questions can be addressed and answered on the HUD site. I also have it posted on our REMALO association web site for your review. Most recently two HUD mortgagee letters (2009-16 and 2009-19) have clarified some of the finer points, as noted in the earlier HUD original mortgagee letter 2008-33. Yet, not all areas have been fully addressed. My recommendation is to check with your lender to get their guidance. You can also call HUD at the following: 800.CALL.FHA or 800.225.5342, or visit HECMhelp@hud.gov How do you proceed with your marketing efforts to
capture purchase business?
1. You must familiarize yourself with all the nuances and details that comprise property eligibility. Of particular importance is new construction, by making sure it is FHA approved and the property is completed with a certificate of occupancy (CO) before your senior client can move in. Your loan will not close until this condition is met. 2. Repairs are very important. With a HECM for purchase, unlike a refinance, all repairs must be completed before the senior client moves into their newly purchase home. 21
3. Most obvious is making sure your senior client is age appropriate, 62 or older, and they have enough assets to do a HECM for purchase. This is different from a HECM refinance, because now we have dig deeper and understand assets for down payment and closing. 4. You become the reverse mortgage expert. To get really good with the HECM for purchase product, this must become your area of expertise. You must learn every aspect of a HECM purchase. 5. You must be willing to work closely with realtors. I can hear some of you now saying, “I don’t know if I can work with realtors”. Relax! Realtors are people to and once they realize that you can help them by presenting more opportunities, they will surely become your best friends. Getting the word out Seniors often think about moving, but as we know, most want to stay right where they are. Yes, in the comfort of their home. However, with the higher cost of fuel, utilities, maintenance, taxes and insurance they may be considering downsizing or moving to their dream home. In the worst case, you may find someone who has a peaked interest in the HECM refinance.
Here are a few ways you can get the word out about HECM for purchases: 1. Realtors: If you were in the forward or traditional mortgage business, call your old realtors. If not, drive through your local neighborhoods and capture the agent’s names and contact information. The agents who are listing homes are great ways to get started. Don’t forget, when seniors want to purchase a house, they most likely will have a house to sell. This is a win-win for your agent. 2. 55 and older communities: Contact the realtor in the sample house or the agency in charge of that community. Give the agent a presentation about your HECM purchase program. Offer to be available to sit in the office and provide an analysis if the senior would qualify for a HECM purchase. 3. Senior centers and local civic groups: These are great areas to provide education to your local seniors. Your presentation should be education centered and not sales based. Provide examples and ask your realtor to come with you to provide additional information about affordable communities. 4. Print Media: You can partner with a local realtor and publish a classified ad promoting a new community or a listing that would interest a senior client. 5. Church groups: Seniors gravitate toward church and religious groups. Offer to give an educational seminar about reverse mortgages and include a portion for the HECM purchase. Realtors Need You Do you think it might be advantageous to a realtor to be able to sell at least one more house per year? How about two or maybe more? If so, do you think a realtor might be interested in learning more about a HECM for purchase. You bet! So, the best and most efficient way to get the word out about HECM purchases is to concentrate your efforts on the Realtor community. You should call your local agents and try to connect with the owner or the branch manager. You will find that most realtor offices have sales meetings at least a minimum of once per week. Perfect! The Realtors office is a great place for you to introduce yourself and educate agents on this new opportunity for them. You, the HECM for purchase expert, hold the key to the vault. You have educated yourself to become the person who can get what they want. The real estate market is still soft in most parts of the country. Agents, now more than ever, are willing to lend an ear to new solutions and opportunities to help them further their business and give them new innovative strategies. You need to develop your own purchase presentation that works for you. If you want to save time, I have one done for you and it can be found on REMALO. Now is the time to “niche the niche”. If you want to create a tremendous opportunity for future growth in your originations and success, consider adding HECM for purchases to your portfolio. Good luck with your new adventure!
Advertorial by Premium Reverse Leads
reverse mortgage, can you send me some more information?” is the best of leads (expect
Finding the Hot Prospect Hot or cold? Qualified or not? Loan officers know that long-term success means keeping their production pipeline filled with hot and qualified leads. Unfortunately, because of the surge in the number of reverse mortgage companies in 2005 and the resulting deluge of marketing that seniors began to receive, response rates on traditional outbound marketing such as direct mail have dropped from more than a 3% response to below 0.5% response in most cases. Other marketing channels such as print advertising, radio, and television have seen similar declines in their effectiveness over the last five years. Managers have responded by rigorously holding each marketing campaign up to a time-tested measuring stick – “cost per close.” For example, compare campaigns A and B. Campaign A will reach 5,000 homeowners and will cost $1,750 to run. Campaign B will reach 100 homeowners and will cost $8,000 to run. On the surface, Campaign A seems like a much better bet but several pieces of information are missing. Campaign A Reach 5,000 Cost $1,750 Cost per reach $0.35 Expected response rate 0.5% Cost per response $70.00 Qualification rate 60% Cost per qualified response $116.67 Close rate 15% Cost per close $777.78
referrals, of course). The challenge is how to increase the volume of these inbound inquiries without radically increasing marketing. Premium Reverse does exactly that. Premium Reverse is a marketing agency that since 2006 has been managing ongoing reverse mortgage marketing campaigns for dozens of lenders and brokers across the country including three of the largest reverse mortgage lenders. Their model has two unique features: - National reach in order to get economies of scale - Passive approach – only inbound inquiries are passed along to the appropriate geographic lender The downside to this approach is that the number of prospects that pass through Premium Reverse each month is quite limited. Less than 1,000 inquiries are processed each month. The upside, however, is that each reverse mortgage lender generates strictly high-interest, qualified, local, inbound inquiries. The cost per reach is very high – often $80 or more. However, because of the high level of interest and qualification, the cost per close is at or below the cost of other marketing channels. Furthermore, the manpower invested in developing each prospect is significantly lower than other channels.
Campaign B 100 $8,000 $80.00 100% $80.00 100% $80.00 15% $533.33
Once three additional inputs are taken into consideration (response rate, qualification rate, and close rate) the apparent winner between the two campaigns flips to Campaign B. At this point, the logical question is: does a traditional marketing campaign that generates a 100% response rate of perfectly qualified prospects exist? No, of course not. However, most loan officers are already fielding a few “leads” in this category of über-hot, qualified prospects each month. These prospects are the Holy Grail of leads – the inbound inquiry. Whether an email, a walk-in, or phone call, the prospect that contacts a lender with the simple request, “I’m interested in a
Historically, lenders confirm closing ratios ranging from a low of 9% to a high of 22% with an average of 16%. The large variation in performance is highly correlated with two variables: loan officer’s tenure in the reverse mortgage industry and state of origin. Unsurprisingly, loan officers with more than three years of reverse mortgage experience outperform their peers by a wide margin. As for geography, states such as Florida and California are the most competitive whereas small states typically outperform. For more information about Premium Reverse, please contact: Fidess Ferrer 1-800-854-8673 Fidess.Ferrer@PremiumReverse.com www.PremiumReverse.com
Reality Hits The Reverse Mortgage Industry!
It’s time for this sensitive subject. In fact, it’s way over due… The number one priority for all reverse mortgage entrepreneurs is to ensure that the senior client is getting the most benefits from this great product we have chosen to represent. To make sure that this is the right product for them, that it meets their needs, that it assists them in maintaining or increasing their present life style. Furthermore, we must make sure our representatives are trained correctly, have the finest tools available and are kept current with constantly changing guidelines. Really and truly, if you are the owner of a reverse mortgage company, then take a moment right now and pat yourself on the back. We are a noble group! I’m damn proud, as well as you should be, to be a member of this club! We have chosen to earn a living, as have each of our employees, in an industry that helps people, but now comes the sensitive part. We do need to make a living! At the same time when incredible positive changes like abolishing county loan limits were replaced with a national limit of $417,000, when that limit was increased to $625,500 and when the HECM for purchase was announced, other changes were also taking place as well… Origination fees were fees cut and then capped. YSPs slashed and appraisal-underwriting guidelines tightened to a level that borderlines paranoia. Add to this the fact that turnaround time in underwriting is now measured in weeks rather than days.
t took decades of untruthfulness, an act of congress and 750 Billion Dollars to cap the incomes of dishonest CFO’s on Wall Street! Yet just a matter of months to cap the income of tens of thousands of honest hardworking reverse mortgage professionals who right now, right this very moment are sitting at a dining room or kitchen table with a 62+ year old client attempting to increase that clients quality of life… No other industry in the financial sector has seen its gross profit slashed so quickly and yet continued to serve their client base with integrity quite like the reverse mortgage industry. You know a funny thing happened to me just yesterday at a gas station. I was telling the owner of the station that fees in my industry were cut by almost 40% by new government regulations, and you know what? He charged me full price for the gas anyway! And then I told the landlord of my 4,000 sq. ft. office the same thing and guess what? They still want their rent! And my employees, who are without a doubt the greatest group of warm hearted people I have ever had the privilege of working with, they all still want to be paid every 2 weeks! (Some of them want to be paid more…LOL) Now, before a group of bleeding heart liberals label me as some greedy mortgage guy who wants to charge seniors high fees, (Or worse yet, Senator McCaskill calls me and tells me I’m just in the reverse mortgage industry for the money) let me make my position very clear. I would like to see the closing costs on reverse mortgages decreased greatly from where they sit today. Our seniors deserve this product at a much lower cost, but those reductions cannot come 100% from the side of the industry that is out on the streets doing all the hard work! It is the independent mortgage entrepreneur that is the backbone of this industry! It is from them the national players get the bulk of their business, and it is that group that is having trouble surviving in today’s market place. I am watching, hearing and reading about too many reverse mortgage professionals leaving this industry due to the circumstances mentioned above. I am watching friends close the doors of their family business as their incomes continue to decrease and their expenses continue to rise.
This is just wrong.
"It is the independent mortgage entrepreneur that is the backbone of this industry! "
The remainder of this article will be the opinions of four top industry leaders, Brett J. Carter, President and Co-Founder of 1st Mariner Mortgage and Co-founder of NGFS; Marty Taylor, Owner/CEO of Stay in Home Mortgage, Inc.; Dave Bancroft, President of Omni Reverse; and Aman Makkar, Founder and CEO of AppraiserLoft. Let’s see how these conditions have affected their companies and their lives…
has nothing to do with it. If you don’t pay your property taxes with a conventional mortgage, you can lose your house. If you do not pay your property taxes and you own your house free and clear, you can lose your house. If you do not pay your taxes you may lose the house, a reverse mortgage does not create a greater risk for loss of the home.
Brett J. Carter – Co-founder & President, 1st Mariner Mortgage. Co-founder, NGFS
Q: What do you think is the most important thing we can be doing right now, as reverse mortgage professionals, to put forth the right message to the public?
Q: We all agree that reducing the closing costs of a reverse mortgage is a good thing for our industry, but how have the combination of the reduction in the origination fee; the $6,000 cap and the decreasing of our YSPs affected your company? A: The reduction in origination fees as well as the compression in gain on sale for HECM product, due to the secondary market issues, has had a significant impact across the industry. The common misconception is that in this business every company is making huge profits at the expense of the consumer. The reality is that this is a very thin margin business and the perceived profits are not a reality. You have to be extremely efficient in your operations and produce relatively high volumes to turn a profit. The reduction in origination fees lowered revenue per transaction by up 33% in some cases, while the cost of originating a loan did not change. I think a reduction in revenue of 20% to 33% while fixed cost remain, would have a negative impact on any industry. That combined with the turmoil in the secondary market has made 2009 a very challenging year for the industry. Q: In addition to the above, how has continued decreasing home values affected your company? A: Home values are the major challenge facing the industry and the US economy. We have seen our pull-through rates drop to the 60% range from the 90% range and it is all due to property values. The most unfortunate thing is many seniors who need to pay off their current mortgage cannot do so due to the declining values. The real shame is if they had gotten a HECM in the first place, instead of a conventional mortgage, they would not find themselves in this situation. Q: Although we have enjoyed a positive press cycle for the last several months, lately very negative and very misleading opinions have been shown in the media towards the reverse mortgage product. How do you feel this negatively affects your company & our industry? What do you feel can be done, as an industry, to combat these very negative and very false opinions that are being presented as fact? A: This is the most unfortunate trend in the past year. We are seeing such a tremendous amount of misinformation regarding the product and the industry from people of stature who have not taken the time to learn about the product and the benefits. We hear the same misconceptions over and over as fact from the press and the people in the government. The most recent is that somehow if you have a reverse mortgage and you don’t pay your property taxes you can lose your house. This is an interesting perspective since a reverse mortgage
Q: So many people have entered the reverse mortgage industry in the last 2 years. Many of them with very good intentions… How has this affected your company? A: The reverse mortgage industry has tremendous growth potential as we respond to the demographic shift occurring in the country. This has attracted too many new faces to the industry most with good intentions, however, it is important for the industry to always act in the best interest of the senior and make sure that we are bringing people into the industry with high moral values and integrity.
A: I think it is important to continue to express, at every opportunity, the true value of the HECM product and the positive impact it has on seniors and their quality of life. The HECM product can provide such a positive impact for retirement income; aging in place and long-term care concerns. It is a great product and we need to consistently get this message out. Marty Taylor – Owner/CEO Stay in Home Mortgage, Inc. Q: We all agree that reducing the closing costs of a reverse mortgage is a good thing for our industry, but how have the combination of the reduction in the origination fee; the $6,000 cap and the decreasing of our YSPs affected your company? A: Yes, anytime that we can reduce the cost to our senior citizens it’s a good thing. However, while originators have less revenue coming in due to the $6K cap, the cost of doing business continues to rise. Consider all of the new regulations and “tightening up” within the industry. This is not just from lenders, but also from HUD and various states’ regulators. Depending upon the size of your business, the need for a full time compliance officer is no longer a luxury - it’s a must. With live pricing, and the importance of locking-in rates, one now needs to have a top quality full time person to manage this complex area. Along with this, we are dealing with increasing margins as Fannie Mae tries to energize the secondary market. In the long run, this is good for the industry. However, it’s not good for seniors (or originators). The pool of seniors who are eligible for a reverse mortgage is shrinking. Many seniors who are in need no longer qualify for a loan unless they bring money to the table, which oftentimes, is not possible. As all of this is happening, the back-end YSP is shrinking in some cases by as much as 50% or more. There are few businesses that can absorb this escalation of costs, while revenues shrink, and still maintain the level of personal service that seniors require and deserve. Q: In addition to the above, how has continued decreasing home values affected your company? A: This is another area of major concern. The paradox here is that while the market is expanding, it’s also shrinking. The baby boomers who are approaching retirement are the least likely to want, or need, to do a reverse mortgage as they are in the early stages of retirement. However, those seniors aged 68 years or older are suffering the most as their home values drop and in many cases unable to qualify. It’s heartbreaking to hear our clients say, “I just wish I had done this last
year when they did qualify.” In many cases, waiting has cost them dearly. This has also adversely affected our company. After all of the work that has gone into educating the client, and all of the time that has been spent preparing the loan for submission, we too often hear from the underwriter saying that the appraisal needs to be adjusted downward. Due to this, in many cases the loan is lost. We spend a considerable amount of time and energy upfront to keep these last minute surprises to a minimum. When this happens, the cost is double to our bottom line. We are working twice as hard and yet we are doing fewer loans. Need I say more?
A: Treat your clients well. This ensures that they will be positive advocates for reverse mortgages as they spread the good word to friends and neighbors. Also, if you’re called upon for speaking engagements say “yes.” If you’re not a member of NRMLA, become a member today. Remember, it’s not appropriate to enter this field solely to increase your pipeline. It’s necessary to make reverse mortgages the core competence of your company.
Q: Although we have enjoyed a positive press cycle for the last several months, lately very negative and very misleading opinions have been shown in the media towards the reverse mortgage product. How do you feel this negatively affects your company & our industry? What do you feel can be done, as an industry, to combat these very negative and very false opinions that are being presented as fact?
Dave Bancroft – President- Omni Reverse
A: There is much that we can do individually by always presenting the facts in a professional and honest way. Make sure that your loan originators are well trained and they always follow the code of ethics set down by NRMLA. In addition, establish your own set of principles and mission statement. See to it that your employees adhere to these values. Remember, the sun does not rise and set on the loan. Don’t be afraid to walk away from a loan if it’s not a good fit for your client. If everyone one in this business followed these and other commonsense rules, we would go a long way in avoiding negative press. Another important point, if you’re not a member of NRMLA - join immediately. This organization is the best spokesperson for all of us at large. If they need your help, say “yes”. Do whatever is necessary, at the state level, to educate and inform your representatives. They need to know about all of the right things this industry does to insure that our senior citizens are treated in the best possible way. At Stay In Home we have a saying, “Our society will eventually be measured by how we treat our senior citizens”. On an individual basis, if everyone did the right things, the overall problems would be minimal. One final thought about the press; sensationalism does sell and with the subprime meltdown there is plenty to talk about. Regulators, as a whole, are looking for cover and are making the reverse mortgage arena a “safe shelter” to show the public what they are doing to protect the senior population. Unfortunately, for us, this regulatory overkill may do more harm than good. Only time will tell.
A: Anytime we can make cheaper the process of completing a loan, we all win. The new laws to cap fees in our industry were well intentioned but unfortunately, the results fell short. The real issue, in my opinion, is at the heart of the MIP costs. This product is flogged by its price tag and without some kind of true definition of the MIP’s importance in this process; a reverse mortgage will continue to be seen as an expensive alternative and not the choice. The idea of limiting cost is fine for the consumer if they believe you but reducing YSP is a company killer. We lost tens of thousands of dollars in YSP the last go around and it was not of our doing and we could not prep against it. These surprises and restrictions had devastated the small player and its rippling effect can be seen throughout our industry. Capital is scarce and taking chances with money is unwise, so any limitation in income and revenue will continue to force people to exit.
Q: So many people have entered the reverse mortgage industry in the last 2 years. Many of them with very good intentions… How has this affected your company? A: In many ways, this has made us a better company. Competition, and our free enterprise system, will do that. On the other hand, what hasn’t helped us are those companies that are selling the product and have not made a commitment to learn the entire process first – those that are just in it to make more revenue. It’s not good enough to just know the mechanics of “how to do the loan”. More importantly, we must know how to explain the process to our senior clients in clear, simple terms. We need to do this in a manner that will help them really understand the product and not feel rushed into saying “yes”. I can’t tell you how many times we have had to re-educate seniors after they have talked to other companies – companies that did not have the facts straight. It only takes one bad experience to end up in the press and then the entire industry is painted in a negative light. Q: What do you think is the most important thing we can be doing right now, as reverse mortgage professionals, to put forth the right message to the public?
Reach out beyond just originating loans and become a crusader for the reverse mortgage industry.
Q: We all agree that reducing the closing costs of a reverse mortgage is a good thing for our industry, but how have the combination of the reduction in the origination fee; the $6,000 cap and the decreasing of our YSPs affected your company?
Q: In addition to the above, how has continued decreasing home values affected your company? A: The number one reason for fallout in our pipeline is value. I believe we have all the tools to do what we can at our level to try to predict comps but it still isn’t enough. The discrepancies are incredible and the fallout is at an all-time high. The new appraiser laws hinder our ability to communicate and the consumer is too emotional to know otherwise. Until the market begins to bounce back we will continue to see losses. Q: Although we have enjoyed a positive press cycle for the last several months, lately very negative and very misleading opinions have been shown in the media towards the reverse mortgage product. How do you feel this negatively affects your company & our industry? What do you feel can be done, as an industry, to combat these very negative and very false opinions that are being presented as fact? A: I can’t really say that a negative piece on NBC has the same effect as it once did. I have to believe that there is enough information online or from the AARP or from a company pamphlet to diffuse blatant misconceptions. My real concern is now and always has been the lack of knowledge in the professional community and throughout. Although Reverse Mortgages have been around for a whopping 20 years we still have a tremendous disconnect with the education of the true benefits of the product. The professional community needs to begin to engage the Reverse Mortgage and apply it to its clientele; maybe then they can help us explain the 95% satisfaction rate. I personally thought that the financial crisis would have propelled this product to the forefront, but it really has not. My solution is to somehow have all the Reverse Mortgage clients begin to tell their stories and to spread the positive word. I have always talked
about the “Got Milk” campaign and to apply it to Reverse Mortgages, financed or subsidized by educational grants. Until a senior stands up with pride and boasts about the positive nature of a Reverse Mortgage we will continue to have this molasses effect. Q: So many people have entered the reverse mortgage industry in the last 2 years. Many of them with very good intentions… How has this affected your company? A: I try not to make excuses for lack of production, for me, it just seems that success follows the committed. I remember the middle of 2008 when Omni’s production began to slide and I really had no answer why. I crushed data, looked at seasonality’s and its effects, ran numbers against our competition and just scratched my head. Maybe the marketing message needed a new twist; I gathered we were exiting the embryonic stage of the Reverse Mortgage and moving into a new phase. Maybe the sales staff needed motivation or a new incentive or the lenders were in cahoots, I just didn’t get it. I will never forget when John Lunde sat in my corporate office and I questioned him on some of the analytics and he replied sharply that the production numbers are being diluted by pure saturation of lenders in the market. He was completely right, I never anticipated that new entrants would cause the numbers to go down but that is exactly what happened. We went from a few hundred lenders to a few thousand in a very short time and those fishing holes just got pummeled by boats. It was an eye opener but this is a difficult industry and the marinating nature of the product can be too much to handle and we are now seeing the washout. Q: What do you think is the most important thing we can be doing right now, as reverse mortgage professionals, to put forth the right message to the public? A: I think the most important message is to tell people to take a second look at a Reverse Mortgage and tell them to really find out for themselves if it can benefit them. Become an educator and thwart the misconceptions and misnomers that continue to plague us. We have the cure and it can help millions of people find peace of mind financially and mentally. It has been a battle to say the least trying to survive in these cold waters but hard work and persistence will pay off. We will be looked on in history as the trailblazers who brought to the forefront a new way to live and enjoy our golden years. Aman Makkar – Founder and CEO- AppraiserLoft, a Nationwide Appraisal Management Firm Q: It just can’t be easy being an appraiser today… “Appraisals coming in to0 low” and “Underwriters cutting the appraisal” seem to be the mortgage professionals # 1 complaint right now. A: Since the implementation of HVCC, there have been a lot of complaints of appraisals coming in at lower values than originators would like. When we think about the effects of creating an arm’s length appraisal transaction, the appraiser is neither incentivized to appraise a property at a higher value or a lower value. Their job is to give their unbiased opinion of value. So, when I hear these comments of values being too low, I am concerned because this is not indicative of the values being inaccurate. And again, the appraiser is not incentivized to appraise the property at a higher or lower value. Underwriters are also being very cautious these days, and since they rely upon the use of an automated valuation model, they may be cutting appraisals due to AVM data lag, and the inability of an AVM to factor or discriminate foreclosure sales, vs. consumer sales.
Plummeting values, a record amount of foreclosures and short sales are playing havoc with the values all over the country. Q: How difficult has the above mentioned factor made the job of an appraiser? A: The appraiser’s job has only become more difficult because more questions are being asked in regards to the accuracy and appraiser’s opinion of value. The actual job of the appraiser has not changed. They still receive orders, make appointments, and inspect properties… but their office time has considerably increased with the 1004MC form and generally having to offer more explanations in the appraisal. Q: As the owner of a national appraisal management company are you seeing a big difference in different geographic areas of the country? A: No, these issues seem to exist from coast to coast, of course, with some pockets that have been less affected. Q: When you know you have done a proper job on arriving at a fair market value of a property and then you learn your “value has been cut” by an underwriter or review appraiser, who in most cases does not know your local market as well as you do, how does that make the average appraiser feel? Is it insulting to the professional appraiser? A: In most cases, licensed and certified appraisers would find this aggravating. Since this practice has become commonplace, it’s not so insulting… We have seen a few instances where value reconsideration from an underwriter or review appraiser has been warranted, but in most cases, underwriters are taking a very conservative lending approach. Q: In your professional opinion, what does the future hold for the appraisal industry if the current economic conditions continue to get worse? A: IF the current economic conditions continue to get worse, the future of most industries, including appraisal, look very bleak. The real estate sector has been a driving force in our economy and has impacted just about every industry, and every country in the new global economy. So my fellow reverse mortgage pioneers what now? The answer is certainly “easier said than done”, but yes, there is an answer. Rocky Balboa said it best, “It’s not about how many times you get hit, it’s about how many times you can get hit and still keep moving forward”. So we keep moving forward. We tighten our belts; we become more efficient entrepreneurs than we have ever been before. We answer the ignorant comments and opinions being made with a tireless campaign of educating the public and the financial sector on the benefits of a reverse mortgage. We support NRMLA! Without their incredible efforts we simply would not be heard in Washington and don’t just be a member, get involved! And finally, as I say at the end of every article...we go out there and help as many seniors as possible, because that’s what reverse mortgage professionals do…and it feels good! Have a great Month…
Advertorial by eCommission
Getting Creative with Cash Flow In a recent article for The Reverse Review, Michael Banner proclaimed, “…frankly I was tired of hearing that ‘reverse mortgages were just for poor people’ or that ‘it was a product of last resort.’” I couldn’t agree with Mr. Banner more! My business is commission advance and we’ve heard similar stereotypes that usually emanate from people who have never used our service before. Like reverse mortgage, commission advance has many positive benefits that perhaps people haven’t considered. For example:
“ Like reverse mortgage,
commission advance has many positive benefits
Because of this, they pay higher split percentages in favor of their loan officers.
By working with eCommission, we created a program whereby loan officers were given the choice of keeping their higher splits OR receiving immediate payment of Using eCommission to Help Fund Your Marketing their commissions (at a lower split). You’d be surprised Campaigns at how many opted for the reduced split amount. In an economy where having consistent cash flow is critical, We recently provided funding in the amount of $28,000 receiving immediate payment of all future commissions to a California based reverse mortgage company. Their was considered to be a reasonable trade off. Our client pipeline was over $200,000 so you’d wonder, with so pays the cost of the advances on behalf of their loan much pending, why would they need an advance? The officers. answer is simple: 90% of their pipeline was dedicated to a certain wholesale lender whose normal 3-4 day turn The result: He creates a program that keeps his loan had ballooned to 3-4 weeks. officers happy and recoups the advance expense while earning additional revenue per loan on the basis of the They had just committed to a local television ad campaign favorable split percentage. and frankly, the delays were killing their cash flow. We purchased 5 pending origination fees and advanced If you are interested in discovering how eCommission funds within 24 hours. The total cost to advance was less can benefit your Company, or if you think you can be than 5%. By spending a fraction of the ad campaign cost, a referral source of new business to eCommission, our customer completed their TV spots, which led to 29 please contact Sean Whaling, President of eCommission new originations. Financial Services, Inc. toll free at 877-882-4368, ext. 866 or email email@example.com or online at Using eCommission to Improve Recruiting Efforts http://www.ecommission.com/mortgageadvance.html eCommission recently completed funding for a national reverse mortgage company whose business model does not include providing loan officers with lead generation.
Why The Reverse Mortgage Business Is Here To Stay! Monte Rose
THE FUTURE* 65 AND OLDER POPULATION TO TRIPLE BY 2050 The world’s 65-and-older population will triple by mid-century to 1 in 6 people, leaving the U.S. and other nations struggling to support the elderly. The number of senior citizens has already jumped 23 percent since 2000 to 516 million, according to census estimates released June 23. That’s more than double the growth rate for the general population. As the fastest-growing age group, seniors account for just fewer than 8 percent of the world’s 6.8 billion people. However, demographers warn the biggest shift is yet to come. They cite a coming wave of retirements from baby boomers and China’s Red Guard generation. In the U.S. residents 65-and-older make up 13 percent of the population, but that will double to 88.5 million by mid-century. THE PRESENT At present there is a large population of older seniors, with approximately 40 million persons age 62 + in 22 million households. Collectively, these older Americans comprise nearly 13% of the total population of our country. They also represent a disproportionate share of the total wealth of the country. People age 50+ comprise 33% of the total net worth, 50% of discretionary spending, and 77% of all financial assets. Good News / Bad News The good news is that we’re living longer. The bad news is that we can’t afford it. Scientists have determined that the average life expectancy of
Key findings in the National Retirement Risk Index show that: The retirement landscape is shifting dramatically, making the outlook for retiring Baby Boomers and Generation X-ers far less sanguine than for current retirees. •
Nearly 45 percent of households are “at risk” of not having enough to maintain their living standards in retirement.
Explicitly including health care in the Index drives up the share of households ‘at risk’ to 61 percent.
Incorporating long-term care costs further increases the Index to 65%
Saving more and working longer may substantially improve the outlook.
Social Security will replace less pre-retirement income in the future.
4.5 million persons over the age of 65 are still employed, and probably wish they weren’t.
10% of non-retired persons have saved more than $100,000 for retirement, but they need a million dollars.
The Challenges of Aging People must find a way to pay for longevity, even as they strive to enjoy the best possible quality of life. The financial challenge of aging revolves around both retirement income and medical care costs, which increase due to age-related illness or chronic disease. There are no public solutions to these problems as they are and will remain under-funded mandates. Social Security is woefully inadequate to meet the retirement income needs of more people living longer, and private pension plans offer little additional help. Medicare and Medicaid are likewise unable to fund the medical costs that naturally occur as the price of longevity increases. The lifestyle challenge of longevity is created by the expectation of not just living longer, but of living better as well. The retirement horizon viewed through the “lifestyle lens” looks something like this: Survival…how to preserve assets and income to cover the basics during longer years of retirement
humans at the end of the Stone Age was 25 years. Life expectancy increased to 47 years in 1900, then to 77 years in 2000. Thus, general health and medical advances have increased average life expectancy more in the last century than in the previous 10,000 years. A word from The Center for Retirement Research at Boston College The National Retirement Risk Index (NRRI) measures the percentage of working-age households that are at risk of being unable to maintain their pre-retirement standard of living in retirement. It addresses one of the most compelling challenges facing the nation today — ensuring retirement security for an aging population.
Security…how to make the fewest personal sacrifices possible during those longer years of retirement Independence…how to finance longevity in order to live even better than during employment years Creative aging…how to productively celebrate the “second half of life” Any solution to the financial challenges of longevity will require maturing Americans to self-fund a major portion of their longer lives. Many of these Americans will be forced to continue to work. Some have wealth. However, statistically most of the wealth that these
How Americans possess is in the form of home equity; more than 80% of those aged 65+ own their homes, and those homes are usually their major asset.
Federal Reserve Bank statistics from mid-2007 revealed $21 trillion in home value, less $10 trillion in related debt, for net home equity on a national basis of $11 trillion. Seniors aged 62+ accounted for $4.3 trillion of that total, and the much larger Boomer cohort even more. The inescapable conclusion is that maturing Americans must monetize home equity in order to self-fund longevity.
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Sell…They could sell their homes and downsize or relocate, but then they would experience dimensions of displacement and discomfort. Refinance…They could refinance their traditional “first” mortgages, or take a “second” mortgage (HELOC), but in either case they would owe monthly payments that many could not afford. Share Appreciation…They could utilize “contract for sale” programs, pledging to sell and share appreciation, which can create huge windfalls to providers. Reverse Mortgage...For most senior Americans a reverse mortgage is the best, and often the only, financial product with which to finance longevity.
What’s good about reverse? It’s safe. A number of consumer safeguards are imbedded in a reverse mortgage transaction. Third party counseling, disclosure paperwork from multiple perspectives, transparent fee structure, the benefit is federally insured, and secure residency rights. It’s flexible. A reverse mortgage contains four flavors of flexibility. First, the manner in which a borrower may receive their benefit varies. Second, they may alter their benefit selection during the life of the loan. Third, the borrower may select from a rate menu that includes both adjustable and fixed rate options. Fourth, the repayment of the loan can be made at any time the borrower chooses in advance of a maturity event. Additionally, you may make periodic payments any time you wish. Yet, there is no payment mandate (short of a maturity event). This gives the borrower the option of treating this as they would a normally amortizable conventional loan with the obvious advantage being…the ease of obtaining a reverse mortgage. It’s beneficial. At its core, a reverse mortgage is a “cash flow” or liquidity tool. It transforms a fixed asset, the home, into cash…sort of a “bricks to bucks” transformation. OK, the business is here to stay, but what about me? 3 suggestions:
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1. Don’t allow what’s going on in the market to paralyze you. 2. Adjust your game. a. Fix your fundamental flaws. b. Find your “true north” (individual or corporate). 3. Get to Work * The Associated Press, June 24, 2009
The Next Wave Washington and Vermont Lead a Surge of State Legislation Weiner Brodsky Sidman Kider, PC With all the activity we’ve seen at the federal level this year as an outgrowth of the Housing and Economic Recovery Act of 2008, it is easy to neglect the changes state legislatures around the country are currently sowing that may significantly impact the reverse mortgage industry. Rightly or wrongly, in the aftermath of the subprime mortgage meltdown, many state regulatory agencies view reverse mortgages as posing material risks to consumers and are taking steps to get “in front” of a potential problem, rather than being criticized, as was the case in the subprime arena, for not acting quickly enough.
That siren call is no better exemplified than by the comments of the Comptroller of the Currency, John Dugan, who, while speaking at the American Bankers Association Regulatory Compliance Conference on June 8, 2009, compared reverse mortgages to subprime loans and warned regulators that they need to address this issue before real problems develop. Comptroller Dugan’s comments may seem to be hyperbole, but they are reflective of a trend that is already well underway. As this article goes to press, there are fifteen states considering reverse mortgage legislation, two states (Vermont and Washington) have enacted legislation and one state (Minnesota) passed legislation (containing an onerous suitability provision and a 10-day rescission period) that was vetoed by the governor. Less we neglect these developments while pre-occupied with HUD’s latest mortgagee letter, we focus in this article on the two pieces of state legislation passed this year and enacted into law, namely Vermont House Bill 222 and State of Washington House Bill 1311. Vermont The Vermont legislature enacted Vermont House Bill 222 (“SB 222”), which includes provisions that govern and limit the origination of reverse mortgages as well as providing protections to Vermont seniors who participate in certain types of financial products, such as life settlements. The Vermont Governor signed this measure on June 1, 2009. The provisions of SB 222 that relate to reverse mortgages become effective on July 1, 2009. Definitions SB 222 defines a “reverse mortgage loan” as a loan wherein the committed principal amount is secured by a mortgage on residential property owned by the borrower, that provides cash advances to the borrower based upon the equity or the value in the borrower’s owneroccupied principal residence, and that requires no payment of principal or interest until the entire loan becomes due and payable. The definition of a reverse mortgage under SB 222 also identifies the events that lead to the termination of a reverse mortgage. Under SB 222, a reverse mortgage becomes due upon sale of the property securing the loan, upon the death of the last surviving borrower, upon the borrower terminating the use of the real property as a principal residence, or upon the borrower’s default. A “financial institution” that may offer reverse mortgages in Vermont includes a bank or credit union organized or regulated under the laws of Vermont, the U.S. or any other state or territory, or a bank subsidiary, a licensed lender, or a mortgage broker. Limitation on Reverse Mortgage Programs The new Vermont reverse mortgage legislation limits the types of reverse mortgage programs that lenders can offer to senior borrowers in such state. SB 222 provides that a financial institution may not issue a reverse mortgage loan in Vermont unless it is a lender approved by HUD to enter into a loan insured by the federal government and the reverse mortgage loan complies with all requirements for participation in the HUD HECM or other similar federal reverse mortgage loan program, and the loan is insured by the FHA or other similar federal agency or is a government sponsored enterprise (GSE) reverse mortgage loan. The only GSE reverse mortgage product that was previously available to senior borrowers was Fannie Mae’s Home Keeper program. We note that Fannie Mae has discontinued the Home Keeper program as of December 31, 2008. Counseling
counselor and cannot be visited by a counselor in their home, telephone counseling may be provided by counseling agencies that are authorized by the Vermont Department of Banking, Insurance, Securities and Health Care Administration. The counseling certificate must be signed by the borrower and the counselor and include the date of counseling, the name, address, and telephone number of both the borrower and the organization providing counseling, and shall be maintained by the holder of the reverse mortgage throughout the term of the reverse mortgage loan. Lenders should pay particular note of the face-to-face counseling requirement under SB 222. The new Vermont legislation requires in person face-to-face counseling, except under certain specific circumstances. If counseling is provided over the telephone, the counseling agency must be authorized by the appropriate state agency. Of course, in addition to these new Vermont requirements, HECM lenders must comply with the applicable HUD HECM counseling requirements. Cross-Selling Prohibition Under SB 222, a financial institution may not require a reverse mortgage applicant to purchase an annuity as a condition of obtaining a reverse mortgage loan. A financial institution or a broker arranging a reverse mortgage loan may not: (i) offer an annuity to the borrower prior to the closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement, or (ii) refer the borrower to anyone for the purchase of an annuity prior to the closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement. Washington The Washington State Legislature enacted Washington State House Bill 1311 (HB 1311) that regulates reverse mortgage lending practices in Washington. The Washington Governor signed HB 1311 on April 21, 2009, and the new law becomes effective on July 26, 2009. HB 1311 creates the Washington State Reverse Mortgage Act (or “RMA”). In general, most of the provisions in the Washington RMA, including the reverse mortgage program approval requirement, apply to only proprietary reverse mortgages (defined below). However, some of the provisions of the RMA are of general application and impact lenders that originate FHA-insured HECM loans as well. Definitions The Washington RMA defines a “reverse mortgage loan” as a nonrecourse consumer credit obligation in which: (a) a mortgage, deed of trust, or equivalent consensual security interest securing one or more advances is created in the borrower’s dwelling; (b) any principal, interest, or shared appreciation or equity is due and payable, other than in the case of default, only after: (i) the consumer dies; (ii) the dwelling is transferred; or (iii) the consumer ceases to occupy the dwelling as a dwelling; and (c) the broker or lender is licensed under Washington state law or exempt from licensing under federal law. In addition to this general definition, the new law created two separate categories of reverse mortgages. First, the RMA defines an “FHA-approved reverse mortgage” as a “home equity conversion mortgage” or any other reverse mortgage product that is guaranteed or insured by the federal Department of Housing and Urban Development (“HUD”). Second, the RMA defines a “proprietary reverse mortgage loan” as any reverse mortgage loan product that is not a “home equity conversion mortgage loan” or other federally guaranteed or insured loan. A proprietary reverse mortgage loan in Washington may only be made to borrowers 60 years of age or above.
Licensing and Approval Prior to accepting an application for a reverse mortgage loan, financial “Forward” Mortgage Licensing institutions in Vermont must refer the borrower to a HUD-approved housing counseling agency and must receive a certification from the counselor indicating that the borrower has received in person face-to-face Reverse mortgages offered on the market today are, by definition, first lien reversereview.com 38 counseling. However, if the borrower cannot or chooses not to travel to a residential mortgage loans. Therefore, state mortgage lender and broker
licensing requirements applicable to first lien residential mortgage loans generally apply to reverse mortgages. The RMA states that mortgage lenders and brokers who participate in reverse mortgages in Washington must be licensed under Washington state law or enjoy an exemption pursuant to federal law. This licensing requirement is incorporated into the definition of a “reverse mortgage” under HB 1311 and appears to apply to proprietary reverse mortgages and FHA-insured HECM loans. Further, HB 1311 defines a “reverse mortgage broker or lender” as a licensee under the Washington Consumer Loan Act (“CLA”), or a person exempt from licensing pursuant to federal law. Reverse Mortgage Program Approval In addition to the above “forward” mortgage licensing requirement, a lender may not offer a proprietary reverse mortgage loan program to Washington consumers unless the program has been preapproved by the Washington Department of Financial Institutions (DFI). The preapproval requirement does not apply to FHA-insured HECM loans. The DFI has authority to issue regulations regarding preapproval process and document requirements, however, as this article went to press, the Washington DFI has not yet issued such regulations. Financial Requirements A licensee offering proprietary reverse mortgage loans in Washington must maintain a letter of credit in an amount necessary to fund all of its reverse mortgage loan requirements over the next 12 months or $3 million, whichever is greater. Licensees with a rating of either 4A1 or 5A1 from Dun & Bradstreet credit services for three consecutive years are exempt from this requirement. The licensee must also maintain a minimum capital of $10 million. A licensee may rely on the capital of its parent company if the parent: (1) has a net worth of at least $100 million, and (2) provides a binding written commitment to the licensee to make a minimum of $10
million available to the licensee. These capital requirements do not apply if (A) the licensee only originates proprietary reverse mortgages which are fully disbursed at closing, or (B) only originates proprietary reverse mortgages that are sold to an investor with either a 4A1 or 5A1 rating from Dun & Bradstreet credit services pursuant to a written commitment obtained prior to closing. Delivery to the investor must occur within 10 days of loan closing. Interest Compounding HB 1311 addresses the unintended consequences resulting from the 2008 enactment of Washington Senate Bill 6471 (SB 6471), which inadvertently called into question the use of compound interest with reverse mortgage loans offered by Washington Consumer Loan Act Licensees. Under the Washington Consumer Loan Act, all loans must be calculated using a simple interest method which prohibits compound interest. SB 6471 unintentionally made the prohibition on compound interest applicable to reverse mortgages. However, HB 1311 now expressly exempts reverse mortgage loans from the compounding of interest prohibition, as well as from billing cycle and interest rate calculation requirements under the Washington Consumer Loan Act. As such, reverse mortgage loans originated in Washington may provide for a fixed or adjustable interest rate, including negative amortization and compound interest. Prepayment Penalty Under the Washington RMA, the borrower may prepay a proprietary reverse mortgage, in whole or in part, at any time without penalty. There is an exception that allows lenders to recapture the fees and closing costs that the lender waived at loan origination if the borrower subsequently prepays the loan. However, such prepayment penalty (or recapture) may not exceed the total amount of the fees or costs waived by the lender at loan origination, and may not be imposed if prepayment occurs as a result
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of the borrower’s death. The lender must provide the borrower with prior written notice of any such permissible prepayment penalty. Maturity Events; Temporary Absences A proprietary reverse mortgage originated in Washington may become due and payable upon the occurrence of any “maturity event” (all borrowers cease occupying the home as a principal residence or the home securing the loan is sold or title to the home is otherwise transferred) or if a default by the borrower occurs as specified in the loan documents. However, a lender may not accelerate a proprietary reverse mortgage in Washington if the borrower is temporarily absent from the home not exceeding 180 consecutive days. Extended absences from the home exceeding 180 consecutive days, but less than one year, may not cause the mortgage to become due and payable if the borrower has taken prior action that secures and protects the home in a manner satisfactory to the lender. Late Charges The Washington RMA requires the lender to pay a late charge to the borrower if the lender fails to timely make a required loan advance under a proprietary reverse mortgage. The late charge is ten percent (10%) of the entire amount that should have been paid to the borrower. The lender is also liable for per diem interest on the late advance. In addition, the lender forfeits the right to collect interest and a monthly servicing fee for any month(s) in which the loan advance has not been timely made to the borrower. Treble Damages The Washington RMA also provides for civil penalties for lenders that fail to comply with their obligations under a reverse mortgage, including an FHA-insured HECM loan. If a lender defaults on any of the reverse mortgage loan terms and fails to cure such default after notice as provided in the loan documents, the borrower, or the borrower’s estate, is entitled to treble damages. A borrower may also seek other remedies that may apply. Importantly, the above treble damages remedy appears to apply to FHA-insured HECM loans as well as to proprietary reverse mortgages. In addition, lenders originating FHA-insured HECM loans in Washington should note that a violation of the requirements of the HECM program is deemed to be a violation of the Washington state law. Counseling Lenders originating proprietary reverse mortgage loans in Washington are required to refer prospective borrowers to an independent housing counseling agency approved by the HUD for counseling. The lender must refer the borrower to counseling prior to accepting a final and complete application for a reverse mortgage loan or assessing any fees. The lender must provide the borrower with a list of at least five independent housing counseling agencies approved by HUD, including at least two agencies that can provide counseling by telephone. Telephone counseling is only available at the borrower’s request. Lenders may not accept a final and complete application for a proprietary reverse mortgage loan in Washington or assess any fees without first receiving the borrower’s counseling certificate confirming that the borrower has received counseling. The counseling certificate must be signed by both the borrower and the counselor, and must include the date of the counseling and the names, addresses, and telephone numbers of both the counselor and the borrower. An electronic facsimile copy of the counseling certificate satisfies this requirement. Cross-Selling Restrictions
obtaining a reverse mortgage loan. Lenders and brokers may not offer an annuity to the borrower or refer the borrower to anyone for the purchase of an annuity prior to closing or before the expiration of the rescission period. Lenders and borrowers also are prohibited from providing marketing information or sales leads to anyone regarding the borrower, or receiving any compensation for such an annuity sale or referral. In addition, a lender or any other party to the transaction must maintain safeguards to ensure that individuals who offer reverse mortgages do not provide borrowers with any other financial or insurance products, and that such individuals have no ability or incentive to provide the borrower with any other financial or insurance product. Disclosures Lenders must include certain special language in their proprietary reverse mortgage loan documents for use in Washington and must also comply with several disclosure requirements. With regard to loan documents, the deed of trust securing a proprietary reverse mortgage loan in Washington must contain on the first page a special legend in sixteen-point boldface type stat states: “This deed of trust secures a reverse mortgage loan.” Lenders must also disclose in the loan agreement any interest rate or other fees to be charged between the date that the proprietary reverse mortgage loan is due and payable and when it is paid in full. A lender may not take an application for a proprietary reverse mortgage loan unless the lender has provided the prospective borrower with a statement advising the prospective borrower about counseling prior to obtaining the reverse mortgage loan within three business days of receipt of the completed loan application. The statutory text and formatting requirements for this disclosure are provided in the Washington RMA. In addition, reverse mortgage lenders in Washington must provide annual disclosure statements to borrowers, including details of the loan advances, balance, and other terms. The annual disclosure may be provided by the loan servicer. The legislation from Washington and Vermont are the first of what may indeed be a banner year for the enactment of state laws regulating reverse mortgages. The National Reverse Mortgage Lenders Association (NRMLA) is working with state regulators, legislators and other interested stakeholders in those jurisdictions with legislation pending. Its goal is to educate the parties about the product and preserve broad access to reverse mortgage credit. While the rhetoric heard in the state houses, like Comptroller Dugan’s remarks, can sometimes seem extreme, NRMLA’s involvement has ensured that there is nonetheless a fundamental appreciation among regulators and legislators for the real benefits reverse mortgages provide to seniors. The results, thus far, suggest that the state legislatures are able to appreciate where the bath water ends and the baby begins. We hope that continues to be the case. By Joel Schiffman and Fed Kamensky, of the law firm of Weiner Brodsky Sidman Kider, P.C. The law firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. The firm has offices in Washington, D.C., Newport Beach and Dallas. Additional information can be found at www.wbsk.com or by telephone at 202.628.2000. Messrs. Schiffman and Kamensky can be reached at email@example.com and firstname.lastname@example.org. This article provides only an overview of some of the federal and state laws and regulations that may affect reverse mortgage lending and finance matters. Although the practice of Weiner Brodsky Sidman Kider P.C. is national in scope, attorneys within our firm do not actively practice law in all jurisdictions, and these materials are not intended to and do not provide legal advice. Because of the generality of this article, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
The Washington RMA contains several cross-selling restrictions that apply to proprietary reverse mortgage loans originated in Washington. A lender or any other party to the transaction may not require the borrower 40 to purchase an annuity, insurance or another product as a conditionreversereview.com of
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ask the servicer By Ryan LaRose
What happens after a loan with required repairs is closed and sent to the servicing department? I was excited to receive this question from a Reverse Review reader. It gives me the opportunity to highlight and discuss a very detail-oriented servicing task that requires the expertise of highly specialized and trained servicing staff. A loan that closes with required repairs is also an aspect of the loan process where loan officers can have an especially significant and positive impact on the post-closing satisfaction and compliance requirements of the borrower. Repair administration is a fairly straightforward process. A portion of reverse mortgage loans close conditionally, with the borrower required to complete specific repairs to the property. Simply stated, at the time of appraisal the property does not meet HUD standards for soundness and safety, and the borrower is obligated to complete specific repairs. The required repairs are all detailed by the appraiser during the origination process and are spelled out in a Repair Rider to the Loan Agreement. During the origination process, the borrower then provides the lender with contractor bids for the work to be completed. As a safety net, and to mitigate any cost overruns by the contractor, the lender creates a “repair set-aside” for 150% of the total amount of the borrower-selected bid. The repair set-aside is often misunderstood to be a form of escrow account from which funds are disbursed. In fact, the repair set-aside is just that: a portion of the borrower’s available funds set aside for the payment of these repairs. Interest does not accrue on set-aside funds until they are disbursed to pay contractor invoices, required inspections, etc. and added to the loan balance. The repair administration process for the servicer begins at the time the loan is boarded. When a new loan is boarded with required repairs, it is assigned to specialized staff within the servicer’s repair administration department. The borrower is ultimately responsible for completion of
the repairs, from selecting a qualified contractor, all the way to payment for work completed. The repair administration department is in place to provide oversight and support to the borrower throughout this process by offering advice, assistance, and even mediation in the case of any contractor disputes. When all of the required repairs are reported by the borrower as complete, the following series of events is initiated: • The repair administration department orders an on-site visit by a HUD-certified inspector to confirm that the repairs are fully completed. • When the inspector’s report comes back as 100% complete, a twoparty check is cut (in the borrower and contractor’s names) from the repair set-aside. • The check is then sent to the borrower, who endorses and presents it to the contractor as payment for the work completed. • In the final step, the borrower has the contactor sign a lien waiver form, to protect against any contractor liens being placed against the property in the future.
Is there a deadline for completion of the required repairs? Yes there is. Borrowers are “on the clock” to complete the repairs from the time the loan closes because HUD guidelines require the repairs to be completed within 12 months from the closing date. If this deadline is not met, HUD requires the servicer to place the loan in default status and suspend any further loan advances (line of credit, tenure payments, term payments, etc.) In addition, the loan could be called due and payable for non-completion of required repairs. Originators and servicers typically do a fantastic job of setting expectations for the borrower up-front. Borrowers are strongly encouraged to begin repair work immediately after closing and without delay. The apparent simplicity of a servicer’s role in the repair administration process is deceiving. It may seem mundane to monitor repairs, order completion inspections (when needed), and disburse funds (when required), but the process can be infinitely more complex. In reality, servicers must be diligent and remain in regular written and telephone contact with the borrower. This communication ensures that borrowers and contractors are on target to complete all repairs by the required deadline. Construction projects are notorious for not meeting projected completion dates. Everyone is familiar with the unforeseen events that can delay any construction project: weather, cost overruns, and most unfortunately, not-so-honest contractors who are happy to accept deposit checks to begin work – and then subsequently never find the time to actually do the work! Repair department personnel must juggle these challenges by remaining in constant communication with the borrower and, if necessary, the contractor to ensure a successful project completion. Most importantly, repair administrators have to be on ever constant watch for fraud. Fraud is always painful for its victims, and the sad reality is that fraud attempts can and do threaten borrowers in the repair process. Repair administration department personnel must be trained to monitor the process and spot the following “red flags”: • • • •
The final contractor invoice is significantly higher than bids provided up-front, with no justification for the increase. Additional repairs, outside of those required and listed on the Repair Rider, are included on invoices. Higher than normal line-item costs without proper justification. For example, a roof repair bid is significantly higher than comparable costs in the area. Excessive up-front deposit requests to purchase materials. Most repair departments have specific policies on how much they will allow to be disbursed as an up-front deposit to a contractor.
On a final note, repairs can range from the simple to the complex. Housing standards for soundness and safety have increased over the years, and bringing some older properties “up to code” can be costly. For borrowers who see absolutely nothing wrong with their property, the repair administration process may seem intrusive and unwarranted. The personal outreach, understanding, and patience that a servicer’s repair administration department exhibits in this process can greatly impact the quality of the borrower’s reverse mortgage experience. I look forward to receiving any questions you may have regarding servicing at: email@example.com. Please remember: there is no such thing as a stupid question! No doubt, the question you ask will have been in the minds of other readers as well. If you wish to remain anonymous for my response, just let me know.
FOR IMMEDIATE RELEASE: Contact: Heather Moulden 800-542-4113 firstname.lastname@example.org
Premier Reverse Closings Helps to Save Borrower from Foreclosure in a Record Seven Days ROCKLIN, California (July 8, 2009) - Premier Reverse Closings (PRC), a division of National Closing Solutions and Placer Title, along with Lend America and Generation Mortgage, recently saved a borrower from the brink of foreclosure with a reverse mortgage that closed in a record seven days from the opening of the title and settlement order. PRC worked closely with the broker, Lend America, and the lender, Generation Mortgage, to fund the reverse mortgage just one day prior to James Atkins’ June 25th sale date. In order to close the loan in such a short time, PRC spent extra time addressing his existing liens and clearing his title report, verifying insurance and hiring an experienced notary to verify and witness Atkins’ signing of his loan documents. Since the terms of Home Equity Conversion Mortgages (HECM) mandate a three-day right of rescission period, PRC had to obtain and review all proper documentation in just three days, leaving one day to fund the loan after the rescission period expired. Atkins, a pastor at a church in Missouri, was thrilled with the entire process from beginning to end. “I did all I could, but I couldn’t do anything more. I prayed with all of my heart that things would work out for the best,” Atkins said. “Lend America and [PRC] worked so hard to close my reverse mortgage, and I am so grateful they saved my home.” Atkins’ loan officer, Ed Sanchez with Lend America, knew that this could be done in a short amount of time, but is still so grateful for how quickly it could come together. “The teamwork between my processing team, the lender and PRC was absolutely outstanding,” said Sanchez. “It was truly a team effort for this hour-by-hour deadline that we faced.” PRC’s Senior Vice President of Operations, Tina Meilinger, acknowledged this closing was an anomaly. “Our PRC team has experience in closing more than 115,000 reverse mortgage loans, but none in just seven days,” said Meilinger. “This is definitely a first, and has raised the bar, with hopefully more transactions to follow.” Meilinger knows that PRC plays an integral role within the reverse mortgage process, saving many borrowers from financial hardships daily. “PRC is proud to have helped in the process of saving Mr. Atkins from foreclosure,” said Meilinger. “There is nothing better than knowing Mr. Atkins can have his family over to his home after church on Sunday, or that he will never have to worry about making monthly mortgage payments.” Premier Reverse Closings is a leading provider of reverse mortgage title and settlement services nationwide. PRC’s experience stems from knowing how to clear liens, review trusts, powers of attorney and other pertinent documents in regards to reverse mortgages transactions. To find out more about PRC, please visit www.prclosings.com. Contact: Heather Moulden 800-542-4113 email@example.com
http://www.mortgagebankers.org/ rml09.htm FINANCIAL SERVICES, LLC 800.793.6222, ext 3 A Subsidiary of Wilmington Savings Fund Society, FSB 877.574.1000 800.516.0545 1streverse.com monterose.biz
SUBSIDIARY OF WILMINGTON SAVINGS FUND SOCIETY, FSB
The Industry Standard is not just a slogan. Six of the top 10 reverse mortgage originators use Ibis Software for their websites, retail and wholesale businesses. Those lenders are using:
PremiumReverse.com 800-854-8673 517.321.9002 www.celink.com
THE INDUSTRY STANDARD SINCE 1995
Loan origination modules include CRM, Quick Quote, Proposal, Application, Underwriting, Documents, Closing, Pipeline Reports, and Cost Templates. Plus Broker and Correspondent Management. Full state speciﬁc application and closing packages can be stored, printed, and emailed.
Ibis Quick Quote:
First American Title InsuranceCompany TRUSTED Reverse Transactions 800.546.4667 www.trtreverse.com
877.882.4368 www.ecommission.com/ mortgageadvance.html
Bilingual consumer calculators, already in use at: • www.rmaarp.com • • www.wellsrm.com • and many other websites Ibis also provides:
reversemortgagedaily.com 919.834.0070 reversevision.com
Tradition Title 631.328.4410 www.traditionta.com
A complete counseling package for HUD-Approved reverse counselors. For more information, visit
Or call (800) 566-5077
the last word
by providing additional funding for extras such as a cruise or a long desired vacation. I believe strongly in reverse mortgages because I have often witnessed the benefits they provide.
Karen Keating I have had the good fortune to work in the reverse mortgage industry for the last five years and have found it extremely rewarding. I feel fortunate to be working with my clients who provide the funding for reverse mortgages. One of the greatest pleasures of my life has been watching senior citizens and others enjoy the benefits that result from reverse mortgages. Since I particularly enjoy working with seniors, I help my clients, mortgage bankers and mortgage brokers, conduct free seminars for seniors in which I explain the benefits of reverse mortgages. Thanks to these seminars, I have had the opportunity to meet and work with seniors from all walks of life, all of whom are brimming with different experiences. I have met seniors who have been married for over 50 years and I have had the privilege of listening to seniors explain what their lives were like decades ago. I think because seniors have lived so long and experienced so much they have a greater appreciation for life and all that it has to offer. Their families are their pride and joy and I have often been struck by the love and affection in their voices when they speak of their grandchildren. Their independence means a great deal to them. Reverse mortgages are the most effective way for monetarily strapped seniors to weather their economic hardships and take care of pressing financial obligations. I have closed numerous reverse mortgages and witnessed firsthand what the reverse mortgage can do for cash-strapped seniors. The benefits of these loans should not be underestimated. These instruments can give seniors the extra monthly income that saves them from foreclosure and allows them to remain in their home while also enabling them to pay medical bills and prescription costs. Reverse mortgages ease their financial burdens by giving seniors the funds necessary to pay off credit card or other outstanding debt. Reverse mortgages can give seniors greater financial independence, comfort, peace of mind, or simply help them to smile again. In many cases, the reverse mortgage is obtained specifically so the recipient can remain in their home. Staying in their home, surrounded by their own belongings is very important to seniors. They benefit enormously from the security, comfort and peace of mind that a reverse mortgage provides. Just knowing that they will be able to spend their last years in familiar surroundings can add years to the lives of seniors. Many seniors are emotionally moved by this knowledge. These instruments can also enable seniors to enjoy more fully their golden years
In one case I was able to close the reverse mortgage, deliver the funds, and stop the foreclosure the day before the couple were scheduled to forfeit their home. I will never forget their relief it was almost palpable. In another case during a storm on New Yearâ€™s Eve I closed a reverse mortgage for a dear, sweet 84-year-old woman. She had lived a full energetic life, but now tires easily and the signing took longer than usual. She appreciated my patience while she periodically rested. During these lulls we drank tea and discussed the changes she had seen during her long productive life. When the closing was complete she thanked me profusely and kissed me. I celebrated the New Year knowing that I helped this charming woman stay in her home. She is now a powerful advocate for the benefits of reverse mortgages. When she spoke at one of our seminars and explained the fear and trauma she faced and how grateful she was for the reverse mortgage there wasnâ€™t a dry eye in the place; however, her story is more typical than exceptional. Other seniors have used their reverse mortgage to pay off outstanding debts. These recipients can now enjoy their remaining years more fully because they have regained the use of money, which was formerly going to pay these debts. A reverse mortgage I closed allowed a woman with terminal cancer the dignity of remaining in her home. In other cases a reverse mortgage has given the recipients a longer life by enabling them to purchase needed medications. However, not all seniors use the reverse mortgages for necessities. Some get them just for fun. In some cases couples simply want more money with which to enjoy their retirement. After one closing the couple called their travel agent and purchased tickets for their first vacation in Hawaii, fulfilling a lifelong dream. Bill Gates and Warren Buffet advise people to do what they love. I would also suggest that they do something to benefit others. I have been fortunate enough to be able to combine both during my career in reverse mortgages.
Enterprise Lending Solutions, Document Services and Compliance Solutions In every enterprise, there is an underlying rhythm â€“ a cadence â€“ in the execution of mortgage loans. Those companies that have seamless system integration and dynamic data flow across the enterprise are in rhythm and optimize their efficiency at every step. Their business flows in absolute harmony to increase productivity, retain customers, maintain compliance and reduce costs. Now your company can catch the rhythm and reach a whole new level of performance. Mortgage Cadence is orchestrating the ultimate mortgage origination performance by providing a true Enterprise Lending Solution (ELS) that handles both forward and reverse lending, as well as multiple business channels. With the Mortgage Cadence suite of solutions you have access to full end-to-end loan origination functionality, automated underwriting, business rule management,
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