HMBS

as “Holy Grail”offixed-income securities

A ConversAtion with new view Advisors’ Joe Kelly.

AtAre e. AgbAmu

THE

REVERSEreview

F E B R U A R Y 2 0 1 1

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11,000 People in the U.S. are reaching retirement age

every day for the next 20 years.What are youdoing now to capture your shareof this prime Reverse MortgageMarket?

Get Reverse Mortgage mailers effectively proven to fill yourrooms with qualified prospects for as low as 28.9¢* each! Our mailers include:

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type of invitation.

“Just did the seminar that your company hadarranged the marketing. This was the first

time I ever had a marketing campaign behindthe seminar. It went very well. People werelaughing and having fun. Lots of questions. Lotsof concerns. 26 people showed up. Three ofthem wanted to fill out applications on the spot.Seven appointments total with 4 other couplesasking me to call them in a couple of days. Totalof eleven sales. Thanks!”

— Jerry Lopez, Oxford Lending Group

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The Report 7, 9

Ask the Underwriter 10

The Perspective 12

The Advisor 14

The Conversation 16

The Industry Roundup 18

human Interest 19

The Resources 41

The last word 42

M o v i n g F o r w a r d i n R e v e r s eTRR 02.11

hMBS as “holy Grail” of Fixed-Income Securities 24A conversation with New View Advisors’ Joe Kelly.AtAre e. AgbAmu

Reverse lenders have Reasons for Optimism, But Must Change as Their Customers do 30To increase market penetration, lenders must improve how they communicate the benefits ofreverse mortgages.robert D. YeArY

The Poor-Taste Police 34It is difficult to enforce good taste, but if we all do our part, we can avoid the public display of poor judgment in the reverse space.SArAh hulbert

| TRR 4

emailcomputersavvy

24 30 34 19

l

the Essentials

l

the Core

© 2011 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, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127

letter from the Editorl

Printer The Ovid Bell Press

Advertising Informationphone : 858.832.8320e-mail : advertising@reversereview.com

Subscriptions and Editorial Contentphone : 858.217.5332e-mail : information@reversereview.comwebsite : reversereview.com

Meet the Team

Publisher AmAn mAkkAr

Your greatest strength is knowing your greatest weakness.

Editor-in-ChiefEmily VAnnucci

“You’re trying too hard... try less.”

Copy EditorkErstEn WEhdE

I can’t read a menu, text or wedding invitation without proofreading it.

Creative DirectortrAy-sEA knight

I don’t even know how to spell my own name. Sorry, Kersten.

National Accounts ManagerdAVid PEck

Changing the industry... one ad at a time.

News EditorBrEtt VArnEr

“He who spends too much time looking over their shoulder, walks into walls.”

e

It’s the start of a new year (boy, that came quickly!) and while we have many changes coming down the pipeline, it seems as if we are in a holding pattern for the time being. In Brett Varner and Ralph Rosynek’s columns this issue, they touch upon the changes to come in April and where our industry may go from there. While things are quiet on the front for now, I am interested to watch it all unfold over the next couple of months and bring you all the latest news, both in the publication and on the website (reversereview.com). Be sure to log on for daily updates and all of the breaking reverse mortgage-related news.

This month we have switched things up a bit and are bringing you a new human interest piece. It’s always good to step back and see the bigger picture: what our efforts are going toward. We bring you four heartfelt stories from people in the industry

and ways they have helped seniors in dire need. Each story conveys a life-changing moment in a senior’s life and what exactly a reverse mortgage did for them. It’s stories like this that truly remind us why we are in this industry, and how much our hard work is helping those who need it.

We have a great lineup for you this issue, with articles from RMS Chairman and CEO Robert Yeary and Seattle Mortgage SVP Sarah Hulbert, as well as a compelling interview with Joe Kelly from New View Advisors as our feature article.

Please sit back and enjoy all of our hard work that went into the February issue!

Until next time,

Editor-in-Chief{ e m i l y v a n n u c c i }

| TRR 6

l

the Contributors

l

AtAre e. AgbAmuHMBS as “Holy Grail”

of Fixed-Income Securities, pg 24

Atare Agbamu is author of

Think Reverse and more than 140 articles on reverse mortgages.

Since 2002, he writes the column, “Forward

on Reverse,” the first regular column on reverse mortgages

in America’s mortgage media. thinkreverse.com

FeatureArticle

l

DAve bAncroft The Conversation, pg 16

Dave Bancroft, Founder and former President of Omni Reverse Financing Inc., is an industry expert in the origination of reverse mortgages, FHA and VA government loans. Dave founded Omni Home Financing in 2002 in order to specialize in government lending and is now one of the largest originators of HECM reverse mortgages in the country. 949.355.4653| davebancroft@cox.net

l

Sue hAvilAnD, crmPThe Advisor, pg 14

Sue Haviland is Co-Founder of ReverseMortgageSuccces.com. She has been in the mortgage industry more than 25 years. Unlike many others Sue originates reverse mortgages each and every day and has earned her Certified Reverse Mortgage Professional designation. If you would like to profit from the largest niche to ever hit the mortgage industry, grab the free course and profit-producing tips at reversemortgagesuccess.com.

l

SArAh hulbert The Poor-Taste Police, pg 34

Sarah Hulbert is SVP at Seattle Mortgage Company, an affiliate of Seattle Bank, for which she oversees all reverse mortgage activities within the company. With 19 years of industry experience covering most aspects of the reverse mortgage business, Hulbert served four terms as Co-Chair of NRMLA’s Board of Directors. She is a current board member (ex-officio) and Co-Chair of NRMLA’s Standards and Ethics Committee. 425.765.4856 | shulbert@seattlemortgage.com

l

John lAroSe The Last Word, pg 42

John LaRose is the Chief Executive Officer of Celink, the nation’s largest reverse mortgage subservicer. John also serves on the Board of Directors of the National Reverse Mortgage Lender’s Association and is the Co-Chair of its Compliance Subcommittee.

l

John K. lunDe The Report, pg 7, 9

John K. Lunde is President and Founder of Reverse Market Insight, Inc., a performance data analysis and consulting firm specializing in the reverse mortgage industry. RMI clients include eight of the top 10 reverse mortgage lenders plus investors, servicers and vendors to the industry. 949.429.0452 | rminsight.net

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TRR | 7

GENERATION MORTGAGE COMPANY 114

FINANCIAL FREEDOM ACQUISITION 95

M AND T BANK 90

PNC REVERSE MORTGAGE LLC 68

SUNTRUST MORTGAGE INC 56

AMERICAN ADVISORS GROUP 52

GREAT OAK LENDING 49

SECURITY ONE LENDING 48

MIDCONTINENT FINANCIAL CENTER 47

MORTGAGESHOP LLC 39

CHERRY CREEK MORTGAGE CO INC 38

NET EQUITY FINANCIAL INC 33

SENIOR MORTGAGE BANKERS INC 32

FIRST MARINER BANK 31

MONEY HOUSE INC 27

MASTER MORTGAGE CORPORATION 27

SENIOR AMERICAN FUNDING INC 26

IREVERSE HOME LOANS LLC 26

NEW DAY FINANCIAL LLC 25

STAY IN HOME MORTGAGE INC 25

PRIORITY MORTGAGE CORPORATION 22

SENIORS REVERSE MORTGAGE 21

UNITED SOUTHWEST MORTGAGE CORP 20

GUARDIAN FIRST FUNDING GROUP 20

FIRST NATIONAL BANK 19

URBAN FINANCIAL GROUP 19

UPSTATE CAPITAL INC 18

TRADITIONAL HOME MORTGAGE INC 17

MCGOWIN KING MORTGAGE LLC 17

M AND I MARSHALL AND ILSLEY 16

OPEN MORTGAGE LLC 16

PRIMELENDING A PLAINSCAPITAL CO 15

MAS ASSOCIATES 15

EQUIPOINT FINANCIAL NETWORK 15

HARVARD HOME MORTGAGE INC 15

BRIAN A COLE & ASSOCIATES LTD 15

AMTEC FUNDING GROUP LLC 15

ASPIRE FINANCIAL INC 14

GENWORTH FINANCIAL HM EQUITY 14

PROSPERITY MORTGAGE COMPANY 14

WILMINGTON SAVINGS FD SOCIETY 14

METAMERICA MORTGAGE BANKERS 13

GERSHMAN INVESTMENT CORP 13

APPROVAL FIRST HOME LOANS INC 12

the reverSe review February 2011

the Report

december 2010 Top lenders Report

1 2 3 4 5wells FargoBank, N.A. Endorsement

1820

Bank of America, N.A.

ChARlOTTE

Endorsement 864

Metlife Bank, N.A.

Endorsement 638

One Reverse Mortgage llC

Endorsement 368

1st AAA Reverse MortgageEndorsement 129

lender Endorsements lender Endorsements

| TRR 8

l

the Contributors

l

rAlPh roSYneK Ask the Underwriter, pg 10

Ralph Rosynek has been The Reverse Review “Ask the Underwriter” columnist for more than two years. He is an industry HECM consultant and trainer, leveraging many years of executive and owner skills and knowledge in the reverse mortgage space including HECM Direct Endorsement credentials. Ralph is currently a seated Director for NRMLA and co-chairs the Professional Development Committee. 708.774.1092 | rrosynek@yahoo.com

l

briAn SAcKS The Advisor, pg 14

Brian Sacks is Co-Founder of reversemortgagesuccces.com. He has been in the mortgage industry for over 25 years. Unlike many others, Brian orginates reverse mortgages each and every day! If you would like to profit from the largest niche to ever hit the mortgage industry, grab the free course and profit-producing tips at reversemortgagesuccess.com.

l

AlAin vAlleS, crmP The Advisor, pg 15

Alain Valles, CRMP, is President of Direct Finance Corp, Hanover, MA. He has obtained the CSA designation, a master’s in real estate from MIT, an MBA from the Wharton School, and graduated summa cum laude from the University of Massachusetts. Alain’s mission is to improve the quality of life through responsible financing. 781.878.5626 | avalles@dfcmortgage.com

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brett g. vArner The Perspective, pg 12

Brett G. Varner is the newly appointed News Editor for reversereview.com. He has served the mortgage industry for 10 years in leadership capacities in sales, marketing and operations. His unique and knowledgeable perspective is focused on developing useful content and strategies in a forum of open and lively debate. brett.varner@reversereview.com

l

robert D. YeArY Reverse Lenders Have Reasons

for Optimism..., pg 30

Robert D. Yeary is Chairman and Chief executive officer of Reverse Mortgage Solutions Inc. (RMS) in Spring, Texas. The company is a premier provider of hosted reverse mortgage loan servicing software as well as the nation’s leading authority on all aspects of reverse mortgages, specializing in reverse mortgage servicing and sub-servicing. He serves as a Director of the National Reverse Mortgage Lenders Association (NRMLA). byeary@rmsnav.com

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6

Holidays seem to come faster each year (Christmas music will start in July this year!), and then they’re gone just as fast. Our first Wholesale Leaders report of the new year shows a similar disappearance, as the broker/wholesale side of the industry saw the beginning of a positive trend from September to October vanish in November.

After two consecutive months of outpacing retail/direct endorsement growth, wholesale fell way behind retail in the upswing. Gaining 10.4% would be a strong performance in most months, but it pales in comparison to the 34.5% surge in retail. For the past six months, wholesale has grown slower when the industry grows but also shrinks less when the industry declines.

That might be a recipe for “slow and steady wins the race,” but it’s only been enough to slow the advance of retail’s market share from 47.8% in December 2009 to 61.1% in November 2010.

Among top 10 lenders, three of the nine with wholesale business grew their volumes, while just two of the 10 grew retail. That may not sound like a dominant performance, but it’s easier to understand why the top 10 gained share if we look at how many grew OR declined less than the industry overall.

• Retail channel outperformed industry decline for eight of the top 10 lenders.

• Wholesale channel outperformed for seven of the nine top 10 lenders with wholesale business.

In this context, the clearest trend of all is that small lenders are losing ground to their larger competitors. Retail vs. wholesale/broker will remain an interesting perspective, but it is just a visible effect of the underlying cause: small lender erosion. g

INDUSTRY SUMMARY

retail endorsement Growth

-34.54%wholesale endorsement Growth

-10.4%total endorsement Growth

-24.0%

TRAIlINg Twelve - MONTH eNDORSeMeNTS

10,000

8,000

6,000

4,000

2,000

08 10 1112 1 2 3 4 5 6 7

*Numbers Represent MonthsRetail Wholesale

* Figures Above Reflect Change from Prior Month

10

11

12

1

2

3

4

5

6

7

8

9

tot

Units ChG% Units ChG% Units ChG%

3,954

3,171

3,124

2,783

2,692

2,465

2,900

3,358

3,969

3,405

2,976

4,004

3.08%

-19.8%

-1.48%

-10.92%

-3.27%

-8.43%

17.65%

15.79%

18.2%

-14.21%

-12.6%

34.54%

4,326

4,450

3,890

3,038

2,813

2,086

2,404

2,521

2,672

2,558

2,307

2,547

10.89%

2.87%

-12.58%

-21.9%

-7.41%

-25.84%

15.24%

4.87%

5.99%

-4.27%

-9.81%

10.4%

8,280

7,621

7,014

5,821

5,505

4,551

5,304

5,879

6,641

5,963

5,283

6,551

7.02%

-7.96%

-7.96%

-17.01%

-5.43%

-17.33%

16.55%

10.84%

12.96%

-10.21%

-11.4%

24.0%

ReTAIl wHOleSAle TOTAl

November EndorsementsRetail and wholesale Volumes - ReveRse MaRket InsIght

38,801 35,612 74,413

the reverSe review February 2011

the Report

TRR | 9

9

| TRR 10

the reverSe review February 2011

ask the Underwriter

Reform Brings Consequences for OriginatorsrAlPh roSYneK

I was somewhat taken aback by a comment made by a mortgage professional during a recent holiday gathering. In essence, they said, “… Besides, now that we are all TPOs, it is all the lenders’

responsibility and problem – they will tell us what to do, we just originate and process…”

My reaction was a nervous thought: How many other mortgage professionals feel similarly?

Have we gotten to a point where our ability to participate and perform in an industry has been so conflicted by change that – somewhat in desperation – the production force has embraced a mindless approach to doing business?

Contrary to the opinion that day, I believe there remains a much-focused approach to doing business, which we must all be aware of and participate in. The implementation of regulatory and legislative reform that will unfold over the months to come has some very serious consequences for originators. One key area of focus that will be evolving is that of quality control.

Clearly the information contained in ML 2011-02, Quality Control Requirements for Direct Endorsement Lenders, reconfirms a quality control perspective that directly places compliance and diligence on the third-party originator (TPO).

My underwriting experience with TPO-originated files has been a mixed bag. Most, if not all, lenders require a copy of the TPO company quality control policy and procedures at the time of approval. In many cases, some shops have relied upon purchased plans, lender-provided “sample outlines” or “copy and paste” documents.

As time goes by and production builds, each party seems to assume that procedures are in place and the TPO policy and procedure originally provided is being implemented as detailed. Generally, there is no further lender check or “worry” if the files being submitted are of quality and there are no repercussions resulting from either the lender’s subsequent sale/execution or internal QC diligence procedures.

Many lenders take comfort in the fact that quality control is outsourced by their TPOs. Many TPOs take comfort in the fact that they have outsourced their quality control responsibilities. For the most part, the reports come back with few issues. Problem solved?

Have we gotten to a point where our ability to participate and perform in an indus-try has been so conflicted by change that – some-what in des-peration – the production force has embraced a mindless approach to doing business?

TRR | 11

A past situation comes to mind when reviewing a fraud loan repurchase on a TPO file wherein they outsourced their quality control responsibility after closing. The lender showed no issues resulting from their QC procedure of the file. However, the fraud in this case occurred internally by the originator, who produced a series of borrower-signed documents and disclosures that, when reviewed in final file format, appeared to be consistent with the same quality of loan file submissions the lender had come to know and expect from the TPO.

Further investigation revealed the TPO company had reduced internal staff to manage expenses. Take a guess as to what time and expense was considered dispensable. You are correct if your answer indicates all of those pre-underwriting/pre-funding policies and procedures in the detailed TPO policy and procedure submitted to the lender at the time of relationship approval.

Oh, by the way, policies and procedures were never really fully implemented from the onset, as the owner indicated his experienced processor of 15 years was “very detail-oriented and could catch anything.” He further stated this was confirmed by their excellent (10 percent of loans submitted and funded) post-closing quality control results the lender reported to him.

ML 2011-02 re-emphasizes the lender’s responsibility to establish a documented quality control program for TPO originations. “Consequently, all FHA-approved mortgagees will be responsible for performing quality control reviews of their Sponsored Third Party Originators. The procedures used to review and monitor

Sponsored Third Party Originators must be included in a mortgagee’s FHA-approved Quality Control Plan. At a minimum, these procedures must include the requirements outlined in Paragraph 7-6 of HUD Handbook 4060.1, REV-2.”

You as an originator sHould be prepared for Your lenders to re-establisH tHeir QC reQuirements and begin effeCtive moni-toring of Your files. tHis monitoring will also determine tHe effeCtiveness of tHe pre-submission QC proCedures You Have in plaCe.

ML 2011-02 further states: “All FHA-approved mortgagees, including those in sponsored relationships must have a Quality Control Plan that requires the review of loans that are originated or underwritten. For those mortgagees that

have Sponsored Third Party Originators, the Quality Control Plan must require the review of loans originated and sold to the mortgagee by each of its Sponsored Third Party Originators. Mortgagees must determine the appropriate sample amount of each Sponsored Third Party Originator’s loans to review based on volume, past experience and other factors specified by the Department in Paragraph 7-6(C) of HUD Handbook 4060.1, REV-2. In addition, Sponsors must document the methodology used to review Sponsored Third Party Originators, the results of each review, and any corrective actions taken as a result of their review findings. A report of the Quality Control review and follow-up that includes the review findings and actions taken, and the procedural information (such as the percentage of loans reviewed, basis for selecting loans, and who performed the review), must be retained by the mortgagee for a period of two years. Quality Control review records must be made available to HUD upon request.”

In a time when our industry is the focal point for many concerns and criticisms (most of which have resulted from the actions of a slight few), it is important that we continue to work together for quality loan transactions that stand the test of investment quality. “They tell us what to do – we just originate and process” is not going to be the effort and spirit that will maintain an industry statement of professionalism for the borrower and for the lender. g

| TRR 12

the reverSe review February 2011

the Perspective

Industry waits while Compensation Rules Approachbrett g. vArner

It goes without saying that

the reverse mortgage industry (and the mortgage industry as a whole) has been, and will continue to be, going through a period of rapid regulatory change. As the Consumer Financial Protection Bureau takes shape, one can only expect this to ramp up even further. In many cases, new rules are dropped on the industry without much time to allow participants to prepare and adjust. Whether anticipated or not, there is usually a period of unrest as organizations revise practices to meet new rules.

Rarely is the industry given a significant amount of time to prepare and revise new business practices as it has with new rules from the Federal Reserve System (the Fed) regarding loan originator compensation. The 113-page Fed commentary on the Final Rule, released on August 13, 2010, highlighted and discussed the new rules to take effect April 1, 2011. This has afforded the mortgage industry more than seven months to prepare for these very significant changes.

Yet four months later, there is still very little information being revealed within the industry as to how organizations are preparing for this looming deadline. Concerned about the sweeping changes and lack of clarity for an industry that is ill-prepared to adjust, the Mortgage Bankers Association sent a letter to the Federal Reserve on December 16, seeking guidance for implementation on the new rules. As of the writing of this article, the Fed has not provided a public response to the lengthy and detailed request.

The Reverse Review reached out to a number of reverse mortgage participants, seeking

comment on the impact of the new rules and how they were preparing to comply with them. None of the organizations were prepared to respond at this time, but we’ll continue to seek comment as the deadline nears.

So as time runs down, there are still a number of questions regarding a fundamental change in loan originator compensation, which includes loan originators within lender organizations, as well as lender-to-broker compensation. From the tone of the MBA letter, it appears that they are counting on the Fed to delay implementation until the requirements can be revised and clarified.

The overriding goal of the Final Rule is to provide enhanced protections for consumers against being steered toward mortgage products and/or pricing that offers the originator the highest compensation and is not in the best interest of the consumer. The key provisions prohibit the originator from receiving compensation from both the consumer (i.e., origination fee) and the lender or third party (i.e., rebate). Additionally, an originator’s compensation cannot be tied to any variable term or condition of a loan, as in interest rate, other than the loan amount extended to the borrower.

It is safe to say that in the vast majority of businesses that involve sales, the compensation of the salespeople is either directly or indirectly tied to the amount of revenue their sales generate for the organization. Since in most businesses, just as in secondary loan sales, prices fluctuate based upon supply and demand in the markets, revenue per unit also varies. Hence, the same product, or loan, may

TRR | 13

not bring a company the same amount of revenue in January as it does in March. This opens the door to wide-ranging profitability on the same loan volume if compensation stays static based upon loan volume instead of revenue.

In addition, variability in pricing structure actually provides more options for borrowers and increases compensation, rather than opening the door to abuse. The utilization of both origination and rebate allows an originator to structure a loan more specifically to a borrower’s needs. Unfortunately, abusive practices in

loan origination occur when a consumer fails to compare options of more than one lender. The potential for pricing abuses by predators in the mortgage industry would be virtually eliminated if they knew borrowers were very likely to receive multiple quotes.

Assuming these rules do take effect without change or delay, the market will adapt and survive. Innovation is the nature of successful businesses. There must be many deliberations taking place across the country behind closed doors in board and management meetings. It is just surprising that there has not been more open discussion and debate about these significant changes, their impact, and how the industry as a whole can implement them. g

so as time runs down, there are still a number of questions regarding a fundamental change in loan originator compensation, which includes loan originators within lender organizations, as well as lender-to-broker compensation.

| TRR 14

the reverSe review February 2011

the Advisor

I want to work with Fewer Referral Sources … Really!Sue hAvilAnD, crmP AnD briAn SAcKS

The title of this piece might

sound crazy, but follow me for a minute and see if you agree with me in the end. For a long time, I was the networking queen. I went to every senior-oriented industry event, and even some that were not senior-focused. I wanted to meet anyone and everyone that could possibly send me a reverse mortgage referral. I was going to keep in touch with them by phone and newsletter and whatever other method I could, because I was going to be darn sure I was the one who got these referrals. One day the light bulb went on (sometimes you just gotta hit me over the head): The way I was approaching this was simply unsustainable. I took a good look at what I was doing with my networking activities

and I started to cut. And even more importantly, I looked long and hard at the referral sources I was cultivating and made some tough decisions.

First, I made a list of the things that were important to me. Try this exercise – your list will be different from mine. I did not need to work with every financial planner within 75 miles. I did not need to be connected with the largest insurance agency in town. It was neither possible nor very smart to operate this way. Instead, I focused on the referral sources that needed me. Who among these professionals could I help the most? Basically, who would see the reverse mortgage as a tool to help their clients and build their business? And whose values and business practices most closely mirrored my own? This was perhaps the most important question.

The exercise took quite a bit of time but was well worth it. I now have a loyal roster of attorneys, financial planners, insurance representatives, home health care agencies, Realtors, etc. They were hand-selected and they know it. They are neither the biggest in the area nor the most well known. That’s just fine. We are all focused on making sure each one benefits from the relationship. They will continue to grow their business and so will I. Can you say the same for your referral partners?

Sometimes less really is more. After seeing the success I had implementing this idea, I began to incorporate it into my training programs. As you might imagine, some loan officers were skeptical at first, but then came to embrace it when they saw the results. Let me know if you think this strategy could help you. Send me a note at sue@reversemortgagesuccess.com. g

one day the light bulb went on (sometimes you just gotta hit me over the head): the way i was approaching this was simply unsustainable. i took a good look at what i was doing with my networking activities and i started to cut.

TRR | 15

The Secret to ReferralsAlAin vAlleS, crmP

The most cost-effective reverse mortgage lead is a referral from a trusted advisor. A referral is a “warm” lead that comes with a head start: an endorsement from a third party who trusts you.

Many of us claim to “work by referral.” In reality we “wait for referral,” convinced that our borrowers and referral sources are all busy finding prospects for us. But 99 percent of our contact list is thinking about something else. They need to be converted into a lead-generation stream through a three-step process. The process is simple, but requires discipline, patience and persistence.

Let people know what you do. Handing out a business card is not enough. Communicate with the people on your list at least twice per month with helpful and interesting information about reverse mortgages. It could be reverse mortgage statistics or a story of how you helped a client. Keep at it, month after month. You need to be on the radar screen when

the time comes for the source to make a referral. Going for three months or more without communicating is like disappearing. You’ll be forced to start building rapport and awareness all over again.

Here’s a test: If I randomly called your referral sources and asked if they know a reverse mortgage specialist, would they give out your name? If not, you need to focus on building stronger relationships.

Ask for business. Every communication with your network must include a

clear “ask” for the referral. Make it obvious what you want and how to get in touch with you, and why you

are the best one for the job. Most of us don’t want to be perceived as pushy, but if we wait to be invited in, we may never get the chance.

I recently presented a series of informational seminars to financial planners. One participant called and asked if I knew any reverse loan officers. I was caught a bit off guard and said I’d be happy to help. His response was, “Oh, I didn’t know you would do that. I thought you just taught about reverses.”

Lesson learned. It’s my job to ask for the business. Practice saying, “I’m never too busy for any of your referrals” after every call or

contact with your database.

Call back and stay in touch. When the referral comes, jump on it immediately. Speed

is of the essence. Make the call right away to your new potential client as well as to the referring source to say thanks. My No. 1 trade secret is that I send a handwritten personal note to both the very same day! I can’t tell you how many calls I receive that start with, “Thank you so much for your note!”

Don’t focus solely on your borrower and forget to shower attention on your referral source. Have in place a system of “touches” including calls, notes, information mailers, in-person meetings, and emails to demonstrate your character and competence to your referral sources. Studies show that you’ll need between eight to 15 touches before a potential referral source starts referring. But don’t despair; the same studies show more than 90 percent of salespeople give up after making less than four contacts.

Follow this process and you’ll soon find yourself fielding as many “warm” leads from referrals as you can handle. Shoot me an email as I’d love to hear about your tips and stories. g

Need assistance from the Advisor?Send your question to advisor@reversereview.com and it may be addressed in the next issue.

?

16 | TRR

the reverSe review February 2011

the Conversation

The Rose Bowl: An Uncanny Resemblance

to the Reverse

Mortgage IndustryDAve bAncroft

Radio advertising for reverse mortgages is similar to ordering a mango smoothie at Denny’s off Alameda Street in downtown Los Angeles. Both sound so good when ordering but the final result placed in front of you will destroy your appetite and leave your mouth dry. For those that have made the mistake, I apologize for not getting the info to you sooner. For those I have saved, top shelf is appreciated.

Today I am Rose Bowl-bound and this is my adventure to the Granddaddy of them all. I am on my way to Union Station to ride a train to Pasadena – thought I was smart to avoid the $50 parking fee. Upon stepping into the train I notice six Homeland Security officers stationed throughout the car. I haven’t seen this much fuzz since stealing peeks at my dad’s old Playboys. I could not help but parallel this extreme policing to the over-the-top security going on in our own financial world, with overkill legislation weighing us down. It’s like installing cameras after the robbery, taking

echinacea to ward off a full-blown fever, or the time I once spoke to the attorney general’s office in the state of Washington about using the phrase “no payments” in a mailer … let’s stop the insanity! Can we just apply some good ole common sense?

Once inside the stadium, blimps, planes and helicopters spot the sky and the sound of music fills the air. It’s on! The mix of people is unlike anything on this earth (outside a Rob Zombie concert) and the party surrounding it is just as interesting. It reminds me of the Financial Freedom Broker Expo in Vegas so many years ago, where spirits were high and aspirations flourished. I go for my first beer and I need one … 10 bucks! This is officially the highest-priced libation served in a plastic cup on record. It reminds me of buying TV leads for marketing. It may have the best conversion but you better have the wallet and the grapes to wait out the results. But 10 bucks, really? Where is the

the mix of people is unlike anything on this earth (outside

a rob Zombie concert) and the party surrounding it is just as interesting. it reminds me of

the financial freedom broker expo in vegas so many years ago, where spirits were

high and aspirations flourished.

Los Angeles Times reporter chastising these fees and ridiculing this vendor? Only our industry gets crucified for offering products to the public with incredible consumer safety standards and gets tossed to the lions for misrepresentation of fees.

To add insulT To injury,

The baThroom lines

are ridiculous – i mean uTTerly unbearable. i Try To

bribe a gaTe guard wiTh

$20 To leT me ouT so i can use

a porTable john, To no avail;

i Think he may be on

The eThics commiTTee.

As I stand in line I am baffled as to why so many suffer when the solution is so obvious. Why can’t we give each game ticket a Case number that is only good for a certain bathroom? We can set personal times for the urinal and include Case number transfers for those stricken with stage fright. Kids will be treated like condos: some approved and on the list, others need more proof and additional paperwork. Nobody whizzes for free, not on my watch. OK, can we just step back and pause for a second? Maybe a better alternative could be offered. How about placing some portables along the fence lines of the stadium, or making it crystal-clear how brokers and their ilk will be handled in the near future? Unfortunately this will never happen because the people who make these rules are in box seats with their own

bathrooms and a smidge out of touch with their constituents.You will be happy to know I made it without incident and found my way back to the TCU student section in my red Wisconsin sweatshirt. Though thegame may not have ended the way I wanted it to, I was reminded by so many around me how important it is to stay the course. Hold tight on this bumpy road because you never know when a private school of 7K can knock off a major institution with one leap of a Horned Frog. g

For those of you who missed the game:

Ask the

Appraiser

Your very own appraiser who is willing and able to answer any question you throw his way. This spring, The Reverse Review will debut “Ask the Appraiser,” a monthly column fielding many of your unanswered appraisal-related questions.

You’ve asked, we’ve delivered.

Email questions to information@reversereview.com Look for your answer in an upcoming issue.

wisconsin(11-2, 7-1 big Ten)

Final

19

Tcu(13-0, 8-0 mwc)

Final

21

TRR | 17

http://espn.go.com/college-football/bowls/_/game/rose-bowl

the reverSe review February 2011

the Industry Roundup

industryroundup 2010 -11 edition

movers k shakersjessie allen: Was promoted in November by Bank of America from national retail sales executive to the lead executive of the reverse mortgage division, succeeding Steve Boland.

genworTh: Acquired the reverse mortgage websites of Premium Reverse leads to boost their internal lead generation systems.

knighT capiTal group: Completing their acquisition of Urban Financial Group in July 2010, they further boosted their reverse mortgage services by acquiring a retail platform in Guardian First Funding Group that included the rights to Robert Wagner as spokesperson.

urban Financial group: As of November 2010 their wholesale division has grown by an impressive 82.4% during a year when many other lenders saw their wholesale numbers drop.

jim mahoney: A founding member of Financial Freedom’s predecessor and chairman from 2005-2006, Mahoney joined New View Advisors in May 2010 in an unspecified leadership role.

meTliFe: With total wholesale volume of 7,247 as of November and a 700-loan lead over Bank of America, MetLife claims the top wholesale lender spot for 2010.

jeFF Taylor: Has stepped down from his position as Chairman of Reverse Market Inisght and will become an outside consult for the company, among many others through Wendover Consulting, Inc.

up-k-comerspnc reverse morTgage, llc: PNC Mortgage is a leading lender in the forward mortgage space, but they came on the reverse scene in 2010. With a volume of 400 loans for the year, they have quietly climbed to No. 20.

senior morTgage bankers, inc: At No. 17 nationally with 561 units for 2010. It would surprise many people to know that their business is exclusively in Puerto Rico.

greaT oak lending, inc: Since merging with 1st Maryland Mortgage Corp in early in 2010 and committing to reinvesting, they’ve increased their market share by almost 300% to reach the 16th spot overall.

royal uniTed morTgage: Announcing an official expansion into reverse mortgage lending by hiring Tom Holsworth as director of the division in March 2010, Royal climbed into the top 50 at No. 38, with 200 endorsements in 2010.

whaT happened?Financial Freedom: It is hard to believe that producing more than 1,100 units in 2010 is a fall from grace, but considering that marks a 75% reduction of the 4,000-plus loans produced in 2009, it seems like Financial Freedom continues to drift in the wrong direction.

golden gaTeway: After raising $11 million in capital they failed to sustain traction gained in 2009 and announced in October 2010 they were shutting their doors.

equiTable reverse morTgage company: After climbing to a top 10 lender in 2009, Equitable surprisingly announced they were shutting down in early 2010, stating that they didn’t think they had the position or ability to raise the capital that would be required to survive a challenging market.

norThwesT/alaska: This region claimed the unfortunate position of largest percentage drop in reverse mortgage production from 2009 to 2010 (-46.6%). The Pacific/Hawaii region was a close second at -42.6%.

a roundup of this past month’s breaking news: Who moved where; Why a company closed its doors; Who is new to the industry?

Find it here

18 | TRR

TRR | 19

l

bruce bArneS EquiPoint Financial

Network, Inc.

Bruce Barnes, President of EquiPoint Financial Network, Inc, is a mortgage banking executive with more than 19 years of experience. He has dedicated the last five years of his experience to the reverse mortgage industry. His focus is creating an innovative reverse mortgage lending platform that makes it easier and faster for top producing reverse mortgage advisors to originate and close reverse mortgage production.

l

mArK DrAPer

MetLife Bank, N.A.

Mark has originated dozens of reverse mortgages nationwide. His experience encompasses all areas of the reverse mortgage process. He is an expert at using a reverse mortgage to help seniors out of bankruptcy and foreclosures. He enjoys working with elder law attorneys on life estates and trusts, CFP and CPAs. Mark is professional and experienced, and a trusted, knowledgeable resource.732.318.4162 mdraper@metlife.com

l

KAren KeAting Tradition Title Agency

Karen Keating is a Partner at Tradition Title Agency. To provide the lending professional clients with the highest level of advice about reverse mortgages, Karen achieved the title of Certified Reverse Mortgage Professional (CRMP) from NRMLA. She holds the distinction of being the only person affiliated with a title company to achieve this designation. 631.328.4410 | traditionta.com

l

JoShuA Shein Great Oak Lending

Partners

Joshua Shein is CEO of 1st Maryland Mortgage Corp. dba Great Oak Lending Partners in Timonium, Md. He founded the company more than nine years ago and recently led Great Oak’s merger with 1st Maryland Mortgage Corp., which made the company a FHA Full Eagle direct lender. Great Oak has been ranked No. 1 in Maryland for reverse mortgages for the last two quarters.

the human Interest Contributors

human interest

HELP It’s a simple fouR-letteR WoRd but it can mean so much, especially when it can go as far to save someone’s life. the Reverse Review spent

the past two months working with four different companies to compile a human interest piece that shows the IMpact a ReveRse MoRtgage,

as well as a lIttle help are making in the lives of seniors.

the reverSe review February 2011

human Interest

Mark Draper MetLife Bank, N.A.One of the greatest satisfactions I have had working with seniors in the reverse mortgage field was with a client from upstate New York. John C. contacted me after reading an article in the Sunday New York Times titled “Reverse Gear” in which some of my clients and I were featured. John needed help; his wife, the sole breadwinner, had taken early retirement and cashed out her 401(k), then died of cancer. John lived on the remainder of the 401(k) and tried to keep up with the bills, but he ended up in foreclosure with a first and second mortgage on his doublewide.

Desperate to save his home, John had already started the reverse mortgage process with an inexperienced mortgage broker in Long Island. He had already

Bruce Barnes EquiPointThe reverse mortgage profession is filled with wonderful success stories and professionals that are truly compassionate and caring. It’s through our daily experiences with reverse mortgage customers that we realize the work we do is more than a job, it’s a ministry of sorts. We often receive letters and positive feedback from our customers, which helps inspire and motivate us to continue our efforts to educate the public about the HECM product. Many of these letters express the customer’s gratitude for helping them achieve greater peace of mind.

One of the most memorable letters I’ve received came from an 88-year-old woman named Betty. She had been married to her husband for 59

years, had two children, and lived in the same family home for more than 50 years. Betty, like many women from this era, never managed the home finances – they were always taken care of by her husband. One day her husband became ill and

had to be admitted to a care facility, forcing Betty to take over, among many other things, the household finances. Upon reviewing the details, she discovered that her husband had been keeping their dire financial situation a secret. To her dismay, she found that they were deep in debt, their family home was in foreclosure and they had no savings to speak of. Betty explained in her letter that this discovery left her feeling hopeless and that her only source of comfort was found through prayer. She prayed for help, peace of mind and the return of her husband to their family home.

Like many seniors, Betty and her husband were house rich and cash poor. Betty became aware of the HECM product through an administrator at her husband’s care facility and decided to make a call. Alone, scared and uncertain about her future, Betty took out a HECM loan and succeeded in saving their

family home, paid off their debt and put enough money in the bank to help pay for her husband’s care facility. She wrote in her letter that her prayers had been answered and her life changed forever.

it’s tHrougH our dailY experienCes witH reverse mortgage Customers

that we realize the work we do is more than a job,

i t ’ s a m i n i s t r Y . we often reCeive letters and positive feedbaCk from our Customers,

wHiCH Helps inspire and motivate us to Continue tHe endeavor

oF educating the community about the hecm product.

Unfortunately, Betty’s story did not end there. Shortly after getting her family’s finances in order, Betty’s husband passed away. She explained that despite her sadness, she knew that she would be OK: “Even though 100% of my prayers were not answered, I will live in my family home until I die with peace of mind and now … nobody to clean up after, thank God.”

Feedback like this reminds us that our good intentions are appreciated and firmly establishes that the HECM product can be life-changing. To those of you who have dedicated your professional life to this industry, I applaud your dedication and encourage you to continue to serve your communities by educating the public on the many advantages of the HECM product. g

20 | TRR

had an appraisal done with the previous broker, but the value did not come in and they left him hanging after promising him a reverse mortgage. John was unhappy – the previous broker should have done research into the value of an upstate New York doublewide. If it seems low to make the deal work, the borrower should decide whether to continue with an appraisal. I always follow this practice with my clients.

I advised John to write a letter to the manager at the original company. He did and received a full refund of the appraisal and an apology. By now, the foreclosure letters were pouring in. Distraught over the loss of his wife and now the impending loss of his home, John was upside down by $20,000. The plan was to get all his mortgage information, start the short payoff process with both mortgage companies, split the difference and close a reverse mortgage for him.

Little did we know what we had gotten ourselves into. The frustration we both experienced over the next six months was overwhelming. John’s file was transferred to at least five different people and each time I had to resend everything that was already sent. John called every few days and the stress was building – we were both losing sleep over this. It was getting to the point where I felt blamed for the previous mortgage company’s incompetence. John’s sister and brother-in-law began calling me,

and I had to reassure everyone that I was committed to John and his plight. I had many conversations with John to keep him focused. I truly believed he would end his life if I could not get him a reverse mortgage.

In the end, the two mortgage companies agreed to take a short payoff. The reverse mortgage definitely saved John not only from foreclosure, but also more heartache. As a matter of fact, John called me about a year later. He had bumped into a high school sweetheart, started dating and ended up getting married again. John is very happy, in love, and thankful every day for the second chance that a reverse mortgage gave him. g

Karen Keating

Tradition

TitleTradition Title Agency, Inc. and Senior Security Home Advantage, a lending area of United Northern Mortgage Bankers, Ltd., work together to educate the senior community on reverse mortgages. The best part of the work we do with the seniors is learning about their

individual lives and personal concerns. Since so many of the seniors have lived such interesting lives, we feel truly blessed to become a part of their history.

For many of the seniors, their grandchildren are the most precious parts of their lives, which always reminds me of my own daughter and the special relationship she had with her paternal grandfather. They truly adored spending time together. She has many photos of him in her room, but some of her favorites are photos of them in Disney World. He was a wonderful grandfather and I will always remember what a great sport he was when my daughter kept on turning the wheel on the Tea Party ride; when they got off the ride, he was green, but smiling. My daughter treasures those memories.

Unfortunately, in these uncertain and turbulent financial times, there are many children who will not be as fortunate as my daughter. When so many seniors are having trouble paying their property taxes, they certainly can’t afford to take vacations. For many seniors, reverse mortgages are their best option for financial security. Reverse mortgages can help seniors to relax and enjoy their lives because no one should have to struggle merely to scrape by in their golden years. We have helped many seniors to have better lives with the money provided by a reverse mortgage.

We met Francisco Navarro and his daughter Marcella on August 4, 2009. When we met Francisco he was under enormous strain because his home was in foreclosure. Senior Security was able to help him save his home from foreclosure with a reverse mortgage. Marcella, his grandchild and his wife were present at the closing, where Marcella said that they are forever grateful. Francisco, an excellent guitarist, was so happy that his home had been saved he serenaded us.

We met Joseph and Mary Sanfilippo on January 22, 2009. They were a nice, elderly couple that had been married for years. They explained that they were receiving harassing phone calls because of some outstanding credit card debt. Senior Security was able to help them with a reverse mortgage. At the closing they explained how relieved they were to be debt free and to have additional money available to them in the credit line. Their plan was to enjoy themselves >>

it was getting to tHe point

wHere i felt b l a m e d for tHe previous mortgage

CompanY’s inCompetenCe.

TRR | 21

Joshua Shein Great Oak Lending PartnersLike many homeowners, Joanne Crumb and her husband were hit hard by the economic downturn.

Their story is not unusual: She is a cleaning woman and he a carpenter who lost his job when the economy slowed. As the downturn continued, they struggled to make ends meet. They fell behind on the bills. It became increasingly difficult to maintain payments on the home her mother had left to her years ago. Their credit quickly deteriorated.

Joanne and her husband were at a loss. They tried to consolidate and pay off their debt with a repayment plan through their mortgage company, but that only made the situation worse. Their $900 monthly mortgage payments went up to $1,500 in order to help them catch up. They searched for other options with a mortgage broker, but nothing worked and the couple was inching closer and closer to foreclosure.

Then, a friend and past client of 1st Maryland Mortgage Corp. dba Great Oak Lending Partners told her about a reverse mortgage. Joanne had just turned 63, so she was eligible for a reverse mortgage. She

contacted Great Oak at her friend’s suggestion and immediately began feeling better about things. For her, a reverse mortgage was a no-brainer.

“I definitely would have lost this house without it,” she recently told me.

Because Great Oak is a direct lender, we were able to move quickly and close her reverse mortgage within a few weeks. That meant no more mortgage payments for Joanne and her husband, and they were able to keep their home. Their only remaining financial obligations for the house are taxes and insurance. For someone like Joanne, this is ideal. The minute the reverse mortgage closes, everything a customer owes on his or her existing mortgage is paid off.

For Joanne and her husband, the reverse mortgage was a game-changer. A homeowner who has worked hard to pay down or pay off their traditional mortgage for 30 years should have access to that equity if they need it – it is their money. Eliminating monthly payments is a huge savings for homeowners and can significantly impact their lifestyle, and the benefits are felt immediately. There’s no other product out there that can do this and have such a significant and immediate financial impact – a welcome change for Joanne and many others like her. g

tHeY tried to Consolidate

and paY off tHeir debt

w i t H a r e paY m e n t p l a n

t h r o u g h t h e i r m o r t g a g e company, but that only made tHe situation worse. tHeir $900

montHlY mortgage paYments

w e n t u p t o $ 1 , 5 0 0

i n o r d e r t o Help tHem CatCH up.

22 | TRR

and travel to Italy. Joseph passed away before they got to take the trip, but at least Mary is financially secure because of the money in the reverse mortgage’s credit line.

We met Marian and George Wallace via a recommendation from a friend of theirs. Marian and George were very excited about doing a reverse mortgage because they wanted to purchase a new car and do some home improvements. Unfortunately, George passed away before the closing. However, Marian decided to proceed with the reverse mortgage. In fact, Marian now gives testimonials on Senior Security’s behalf, explaining that

she regrets not doing the reverse mortgage sooner so that she and George could have enjoyed the benefits of the reverse mortgage together.

We take great pride in the security we bring to the seniors that we have educated and assisted over the years and for this coming year, we look forward to continuing to help seniors realize the benefits of a reverse mortgage. g

...marian now gives

t e s t i m o n i a l s

on senior security’s behalF,

e x p l a i n i n g t H at she regrets not doing tHe reverse mortgage

s o o n e r

so tHat sHe and george

Could Have enjoYed the beneFits oF the

reverse mortgage t o g e t H e r .

23TRR |

the EssentialsThe Essentials | i’sen sh l | - your monthly source of in-depth information,

industry updates, highly opinionated views and at-your-fingertips news.

AtAre e. AgbAmu

robert D. YeArY

SArAh hulbert

E

It takes a lot to create an attention-grabbing, informative article and The Reverse Review is very fortunate to

have worked hand in hand with industry leaders over the past couple of years. We are always searching for new

writers and industry-related articles. If you are interested in contributing your views and have what it takes to

intrigue our readers, we would love to hear from you! Email emily@reversereview.com to start the conversation.

| TRR 24

HMBS

as “Holy Grail”offixed-income securities

A ConversAtion with new view Advisors’ Joe Kelly.

AtAre e. AgbAmu

=

efore the mortgage-sparked national and global financial tsunami of 2008 which swept it and others into the rubbish of financial history, Lehman Brothers’ prowess in mortgage securitization (and all things mortgages) was the envy of Wall street.

for reverse mortgages, in the days when fannie Mae was the sole buyer of whole hecM loans in the secondary market, lehman supplied capital to launch the proprietary jumbo reverse mortgage market. It did not stop there.

It dug deeper into reverse country with a number of strategic moves: the acquisition and consolidation of portfolio companies, such as financial freedom, unity Mortgage, and others into a dominant financial freedom; the buying of whole jumbo loans from a pioneer reverse jumbo lender that was leaving the business; and the deployment of critical capital market expertise to support a young and struggling proprietary market.

26 | TRR

Using the jumbo reverse loans it bought from Transamerica HomeFirst as underlying collateral, Lehman engineered the first securitization of reverse mortgages in U.S. financial history in 1999. Four similar securitizations followed between 2000 and 2007.

Among its army of structured finance talents was Joe Kelly, now a partner at New View Advisors, a Wall Street boutique specializing in reverse mortgages. A chief architect of the historic 1999 securitization, Kelly (and New View Advisors) anticipated, and advocated for, some of the critical changes that have repositioned the HECM program for success in a leaner post-2008 world of reverse mortgage lending: HUD has slashed credit limit across the board by about 18 percent,

hiked monthly insurance premiums by 150 percent, introduced a lower-cost and lower-credit-limit product (HECM Saver), and renamed the existing product as HECM Standard, among other changes.

A Wharton MBA and tireless industry speaker, Joe Kelly’s work in structured finance was nominated for the Total Securitization’s North American RMBS Deal of the Year in 2007.

Kelly has described Ginnie Mae’s HECM Mortgage-Backed Security (HMBS) as the “holy grail” of fixed-income securities. We caught up recently to explore the “holy grail” idea as well as other vital issues in reverse-land. The following is a transcript of our conversation:

aTare e. agbamu What is the fixed-income market and what are fixed-income securities?

joe kelly Any security that pays a fixed rate on a debt instrument or a predetermined margin over an adjustable rate index. We are basically talking about bonds. Fixed-income includes municipal bonds, treasury bonds, corporate bonds, and mortgage-backed bonds.

aTare And mortgage-backed bonds are where HMBSes are located, right?

joe Yes.

aTare And that is probably the newest of the fixed-income asset class, right?

jk

new view advisors

J O E K E L LY=

jjk@newviewadvisors.com

kelly has described ginnie mae’s hecm morT-gage-backed securiTy (hmbs) AS ThE “hOLY GRAIL” OF FIxEd-InCOME SECURITIES. WE CAUGhT UP RECEnTLY TO ExPLORE ThE “hOLY GRAIL” IdEA AS WELL AS OThER vITAL ISSUES In REvERSE-LAnd.

joe Yes. I would say it is one of the most important developments in the U.S. fixed-income markets in the past couple of years.

aTare Why do you say that?

joe The HMBS market has rapidly grown to the point where you now have several billion dollars of outstanding HMBS. Besides saving the HECM program and the reverse mortgage market, there are unique aspects to its performance.

aTare What’s unique about its performance?

joe It is a mortgage-backed bond that has a decent spread; but more importantly, it has much less pre-payment risk than other mortgage bonds.

aTare Why is that the case?

joe The refinancing incentives and the refinancing ability of the borrower are significantly less compared to a forward mortgage loan. A forward mortgage loan usually pays off over time, so the equity builds up as the balance of the loan goes down and, maybe even the property value goes up. So there is more equity there for the borrower to take out. Whereas with a reverse mortgage, the loan balance goes up and the equity goes down, so there is less and less money to take out. That speaks to the ability. As far as the incentive, for a forward mortgage, if you refinance your loan, you can often reduce your monthly payment. With a reverse mortgage, you don’t have a monthly payment, so the incentive is considerably less.

Consequently, if you look at the prepayment data, you can see that the

forward mortgage prepayments are generally higher and more volatile. It is interest rate- and property market- driven. By contrast, the reverse mortgage prepayment rates, especially HECM, are more range-bound. Not that they don’t change, but there is less variability in HECM prepayment rates.

aTare What else is unique about HECM?

joe Its performance is also actuarially based. Its maturity is not certain; it’s an event. And the event is more predictable if you have a pool of loans, versus one loan. If you have a pool of loans, you can predict prepayments within reasonable range if you know the borrowers’ ages and therefore what the range of actuarial events would be.

Another unique thing about the HMBS is that the underlying HECM has that put back to HUD when the loan balance reaches 98 percent of the Maximum Claim Amount (MCA). For a fixed-rate loan, you know exactly when that is going to be. So, that protects the investor from what we would call “extension risk.” Extension risk is the risk that you own the security longer than you thought. That could be, for instance, if interest rates go up and the forward mortgage that you invested in does not refinance, so your investment extends – it goes on and on and on earning what is now a low yield.

That’s not the case with a HECM. You know when it reaches 98 percent of MCA, and if the HECM loan is not in default, you can put that loan back to HUD. That’s another unique feature. The unique features are its actuarial nature, its prepayment stability, and its extension risk protection. The FHA insurance is valuable to investors. By itself, the FHA insurance doesn’t make HMBS unique, but a combina-tion of actuarial nature, prepayment stability, and extension-risk protection is pretty unique. Also, the way the market is now, there is a bit of excess spread on HMBS versus your average new-origination Ginnie Mae.

aTare When you say “excess spread,” you mean extra profit for the investor, right?

joe Not necessarily. It depends on what price the investor pays. What I mean is that the interest rate on newly originated HECM has tended to be above the interest rate on most newly originated forward mortgages. That may change in the coming year, however. >>

[ [

| TRR 28

aTare OK, how important is the fixed-income market to investors, and to consumers of credit?

joe It is vitally important. The economy couldn’t exist the way it is without a very robust fixed-income market. That’s mostly how we finance housing, the government, and private corporations in this country. The amount of debt that is raised, sold, and traded greatly exceeds comparable amounts in the equity markets. If you construct a household balance sheet, or a corporate or FHA balance sheet, you’ll see most of it is fixed-income instruments of one kind or another.

aTare You have described the HMBS as the “holy grail” of fixed-income securities. With your pedigree on Wall Street as a pioneer in reverse mortgage securitization, that is a very bullish statement. Why are HMBSes the “holy grail” of fixed-income securities?

joe There is no other fixed-income security that has all those aspects that I mentioned – actuarially based performance; relatively stable and low prepayment speed; put back to HUD when loan balance reaches 98 percent of MCA; extension-risk protection;, and a healthy spread (especially in this environment).

For example, there are fixed-income instruments which have prepayment protection, but the yield is much lower. There are fixed-income instruments that have extension protection, but not necessarily prepayment protection. You are protected from your bonds paying off longer, but not necessarily quicker. There are bonds that have high yield, but they don’t have FHA insurance, and so on and so on. I don’t know of a security that has all those things that the HMBS has. You add

all that together, it is a very valuable security.

aTare Is there a comparative security anywhere in the world’s capital markets?

joe Well, there are other countries that have reverse mortgages. Those markets are relatively small, as they are here. In Canada, they have the CHIP program, though I am not

familiar with its details. There have also been non-HMBS reverse mortgage securities issued in the U.S. That market is very small and doesn’t have FHA insurance or the automatic 98 percent put, but it has excess spread and it has a relatively stable prepayment.

aTare How deep is this awareness (HMBS as the “holy grail” of fixed-income) among fixed-income investors?

joe There are more investors getting into this market all the time. Every month we have about $800 million of these securities being issued. Since prepayments are so low that’s about how much the overall supply is growing. So every month you might have a handful of investors investing in these securities, as well as existing investors adding to their portfolio, adding to their stake in the whole program. The word is definitely out. You saw improving execution in this market steadily, beginning around May 2009. As the word spread, the demand for HMBS securities rose. It was reflected in the price of those securities. As it turned out, this happened just in the nick of time for the reverse mortgage industry because Fannie Mae was pulling back.

aTare What are some of the implications, both positive and negative, of this awareness for the primary HECM market?

joe It is positive because you’ve got great execution and that creates a virtuous circle versus the vicious circle we used to have. You have execution,

you make money; then you have more investors and more information available to the investors,

There is no oTher Fixed-income secu-riTy ThaT has all Those aspecTs ThaT i menTioned – acTuarially based perFormance; RELATIvELY STABLE And LOW PREPAYMEnT SPEEd; PUT BACK TO hUd WhEn LOAn BALAnCE REAChES 98 PERCEnT OF MCA; ExTEnSIOn-RISK PROTECTIOn;, And A hEALThY SPREAd (ESPECIALLY In ThIS EnvIROnMEnT).

TRR | 29

such as prepayment data. This sets the table for demand and supply for the next round of issuance, which generates more profits, more interest, more investors, etc. That is a virtuous circle.

Previously, it was more of a vicious circle. We had one investor [Fannie Mae] and information was limited. There were a lot of problems too in the old days where we had the CMT Index for HECM but not LIBOR, and no fixed-rate product either. So that was a vicious circle, where we had small profits, small volume, and there wasn’t much interest from new investors. It was very slow going with the exception of the boom-let in 2006 and 2007. Before, sellers relied on Fannie Mae as a whole loan buyer. There wasn’t a good securitization program for HECM. Now, there is a great securitization program.

On the negatives, not everyone can be an HMBS issuer because there are lots of things an HMBS issuer has to do: They have to fund all the additional amounts and then finance that somehow, they have to bear the brunt of any defaults, and so on. Those are intrinsic risks to HECM, not HMBS per se. It is just that with the HMBS program, you can’t do what you can do with a lot of mortgage loans, for which the seller can say: “Here are all the loans. We will sell them into the trust as if we were selling whole loans.” The seller then no longer retains any risk other than those created by its representations and warranties to the trust. The bondholders are bearing all the risks.

In the case of HMBS, you can sell the HMBS, but you still are going to have

residual risks you have to deal with one way or another.

aTare So, you have to be well capitalized to get into the game, right?

joe The HMBS issuer bears liquidity risk in two ways. First, it must fund future advances, such as borrower draws and MIP payments. Second, the HMBS issuer must provide the interim funding to purchase each HECM loan from the HMBS trust at the 98 percent trigger. It can then put these back to FHA, but still must reserve sufficient capital to perform this “middleman” duty on an ongoing basis. The issuer also bears default risk, for example, from tax and insurance defaults. A defaulted loan cannot be put back to FHA. Of course, HMBS issuers should have capital markets expertise and infrastructure, and that requires capital as well.

aTare There is another potentially troubling aspect I want you to address: Could this heightened awareness and interest perversely incentivize the primary HECM market to produce loans at any cost to feed Ginnie Mae’s HMBS machine?

joe Well, New View Advisors has always stressed the distinction between the performance of reverse mortgages and the rest of the mortgage sector. A securitization or any type of financing is only as good as the underlying collateral. And for all those reasons we talked about, including all the other safeguards of the HECM program, like the counseling and so on, there are lots of safeguards that exist in reverse mortgages that are superior to other sectors.

The other thing is some of those mortgage securities, like the CDOs and so on, weren’t structured as well and as conservatively as the reverse mortgage transactions were. With the reverse mortgage transactions, the rating agencies – now we are not talking about HECM anymore but about jumbo reverse mortgages – had very strict criteria, resulting in those deals having a lot of subordination.

Getting back to HECM, we are talking about Ginnie Maes and those are agency securities because it has the “full faith and credit” of the U.S. government. Investors feel much more secure. It is a whole different animal if we are talking about CDOs and subprime deals. >> cont. on pg 38

The word is deFiniTely ouT. YOU SAW IMPROvInG ExECUTIOn In ThIS

MARKET STEAdILY, BEGInnInG AROUnd MAY 2009. AS ThE WORd SPREAd, ThE dEMAnd FOR hMBS SECURITIES ROSE. IT WAS REFLECTEd In

ThE PRICE OF ThOSE SECURITIES. AS IT TURnEd OUT, ThIS hAPPEnEd JUST In ThE nICK OF TIME

FOR ThE REvERSE MORTGAGE IndUSTRY BECAUSE FAnnIE MAE WAS PULLInG BACK.

| TRR 30

he reverse mortgage industry faced some serious and significant challenges in 2010, probably led by the continued decline in home prices, which meant many senior borrowers weren’t able to extract as much equity out of their homes as they previously thought – or any at all. T

the reverSe review February 2011

the Essentials

Reverse lenders have Reasons for Optimism, But Must Change

as Their Customers doTo increase market penetration, lenders must improve how they

communicate the benefits of reverse mortgages.

emailcomputersavvy

robert D. YeArY

TRR | 31

The foreclosure epidemic continued to grow and spread. Many reverse mortgage borrowers defaulted on their loans because they couldn’t or didn’t make necessary tax and insurance (T&I) payments or required repairs on their properties.

At the same time, the FHA raised its annual insurance premium on reverse mortgages to 1.25 percent, up from 0.5 percent, to cover the costs from increasing loan defaults. In addition, the FHA lowered the amount seniors can borrow through its Home Equity Conversion Mortgage (HECM) program by as much as 5 percent, on top of the 10 percent reduction the year before.

But despite these setbacks, we believe the reverse mortgage industry is poised for a strong 2011. There is a continuing, growing need for reverse mortgages just as new products and lower pricing promise to open up the market to more seniors.

While some government changes to the FHA program make reverse mortgages less attractive for portions of the senior population, the government also made some positive course corrections that will significantly lower the cost of getting a reverse mortgage, which should broaden the appeal of the HECM program to more prospective borrowers.

The biggest change was the launch of the HECM Saver alternative program in October, which effectively eliminated the upfront mortgage insurance premium (MIP), reducing it to just 0.01 percent of a home’s value. On a $200,000 home, that works out to an upfront premium of just $20. By comparison, the upfront MIP on a HECM Standard loan remains at 2 percent of the home’s value, or $4,000 on a $200,000 home. That’s an enormous difference.

In return for the lower MIP, there is a tradeoff with the HECM Saver, namely that depending on age, the amount a senior can

borrow is between 10 and 18 percent less than on a HECM Standard. Both loans are assessed an ongoing insurance premium of 1.25 percent annually.

Different, Bigger Pool of Prospective Customers

However, we don’t believe that difference will make the HECM Saver less attractive. On the contrary, the drastically lower fees and the smaller loan sizes will appeal to a different – and bigger – pool of prospective customers who have a less costly alternative to the HECM Standard mortgage, which was previously the only government-guaranteed reverse mortgage available. The HECM Saver should appeal to seniors who only want to take out a small loan to fund a limited project or who don’t plan to stay in their home for the rest of their lives, not to mention those who were put off by the higher, upfront insurance premium.

More good news is that along with the government reducing the costs associated with a reverse mortgage, lenders have followed suit with their own lower pricing. In order to increase business, many of them have reduced or eliminated their origination fees on reverse mortgages, and some are even paying the upfront >>

...the drastically lower fees and the smaller loan sizes will appeal to a different – and bigger – pool of pro-spective custom-ers who have a less costly alternative to the HeCm standard mortgage...

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| TRR 32

mortgage insurance premium, making the loans even more affordable to seniors than ever before.

Which product – the Standard or the Saver – will garner the biggest market share going forward depends to a great extent on what happens to the performance of reverse mortgage-backed securities (RMBS) in the secondary market. If bond prices hold steady and interest rates stay low, more lenders will be able to offer a no-cost option on the HECM Standard, making it more competitive with the Saver. But if bond prices drop, as we think they eventually will, then the Saver will become more attractive. Either way, borrowers will have low-cost options going forward.

In addition, Congress recently extended the FHA’s lending limits on reverse mortgages, now ranging up to $625,500, through at least Sept. 30, 2011. That should continue to make more seniors eligible for reverse mortgages.

What these actions show is that the government is going to continue to be supportive of the reverse mortgage program and help it to grow. We’re very encouraged by that.

The long-term argument for reverse mortgages remains as compelling as ever. There are currently 34 million Americans aged 65 or older. By 2030, that number is expected to more than double to 71 million, becoming 21 percent of the population. Moreover, there are presently more than 12 million seniors in the U.S. who own their homes free and clear, with an estimated $4 trillion in equity. That is a lot of loan collateral to be tapped. By the time the last of the baby boomers reaches age 62 in 2026, it’s conceivable that three out of four home-owning seniors may have reverse mortgages, assuming we have the support of the financial markets.

While that 75 percent might look like a pie-in-the-sky figure to some people, it’s certainly not unreasonable to expect that three-quarters of the senior population of this country will need a supplement to augment their finances in their remaining years and that reverse mortgages will play a major role for many. Recent reports indicate that not only is the senior population of this country continuing to grow, but their financial needs are growing even more so.

over the next decade, the number of americans 65 to 74 years old is expected to grow by 50 percent, a growth rate not seen in half a century, according to a recently released report by the MetLife Mature Market Institute. There are now 36 mil-lion early boomers (those aged 55 to 64); their number has increased more in the past decade than in the previous 30 years and made that group the largest it has ever been.

Requiring a Financial Supplement

Moreover, according to the MetLife study, the notion of working until age 60 and then retiring is very likely over. Instead, financial obligations will force many seniors to continue working, some indefinitely.

A new study from the Brown School at Washington University in St. Louis found that 58 percent of those aged 60 to 84 will not have enough liquid assets to help them withstand an unanticipated expense or reduction in income. The study also found that nearly half of those between 60 and 90 will encounter at least one year of poverty or near poverty, a startling statistic. Clearly, many people will need additional financial resources, besides wages, retirement accounts and Social Security, to sustain themselves.

Many will turn to reverse mortgages, largely because the product is appealing. According to a recent survey conducted for the National Reverse Mortgage Lenders Association, nearly three-quarters of senior citizens who have a reverse mortgage said they were satisfied with the product, with 43 percent declaring they had a maximum level of satisfaction. In the study of 600 seniors who have had a reverse mortgage for at least two years, just 12 percent expressed the lowest level of satisfaction for the product. Seven of eight polled were content.

The survey garnered responses from 1,800 seniors, as well as their adult children, finding that nearly half worry they will not have enough money to support themselves in retirement.

We’ve even gotten some positive support from an unexpected but significant source. The AARP, after many years of being noncommittal about the product, has recently said that reverse mortgages might be a good idea for some people.

by the time the last of the baby boomers reaches age 62 in 2026, it’s reasonable to be-lieve that three out of four home-owning seniors will need a reverse mortgage, assuming we have the support of the financial markets.

33TRR |

Rethinking the Customer Base

Clearly, there is an immense and immediate need for reverse mortgages, and they resound positively with the public. So why have we barely scratched the surface penetrating the market? Perhaps the reverse mortgage customer is actually someone much different from whom we’ve thought. For example, recent studies indicate that the average reverse mortgage customer is no longer a 72-year-old widow. Rather, the more typical customers are more active senior couples in their 60s, and single men. For this reason, as reverse mortgage customers change, lenders and their marketing methods will have to adapt if we are to succeed and meet this huge customer demand.

We’ve recognized these changes at our own company. In early December, RMS went live with a new self-service website for our reverse mortgage customers. The new

myRMloan.com will enable RMS customers to go online to review monthly and past statements, submit an advance request, check loan balances and other transaction activities, manage and update their profiles, download forms associated with the account, and get answers to frequently asked questions.

Basically, the new site – a first for the industry – empowers borrowers to log into their loan files and serve themselves. We expect there will be considerable interest in the site from both our senior customers and their adult children, who often assist in managing their parents’ reverse mortgage accounts.

until recently, seniors weren’t thought to be

interested in such online services. It’s unlikely we

would have done this five years ago. But seniors are getting more computer-savvy and coming to expect online access to an array of other services in their lives, from medical needs to merchandising. More of our cus-tomers have been contacting us through email, so setting up the website seemed a natural step for us to take. About 3,500 customers asked for online access to their accounts even before we formally pro-moted it.

The reverse mortgage is a great product. But that doesn’t mean originators and servicers can’t do things to make it even better to enable more seniors to avail themselves of its many benefits. g

| TRR 34

ome marketing ideas sound pretty good in theory. But in practice, they do not always come across the way the creator intended. Many reverse mortgage marketing pieces also probably sound good in concept, but there are regular examples of “good intentions gone bad.” Unfortunately, these attempts at promoting reverse mortgages ultimately damage the image of our industry and are

counterproductive to our efforts to educate the public about this wonderful retirement planning tool.

S

the reverSe review February 2011

the Essentials

The Poor-Taste PoliceIt is difficult to enforce good taste, but if we all do our part, we can

avoid the public display of poor judgment in the reverse space.SArAh hulbert

TRR | 35

Some time ago I was browsing through my daily Google Alerts, a ritual where I read the various articles published that day mentioning reverse mortgages. I remember a time, not so long ago, when an article on reverse mortgages was a rarity, often resulting in a great deal of excitement and discussion. Multiple copies of the article, clipped from real paper newspapers (the Internet was in its infancy), would be forwarded to my attention by colleagues, friends and family members. These articles more often than not contained many inaccuracies and misperceptions.

Today, articles mentioning reverse mortgages are commonplace. When reviewing my daily alerts, the first thing I look for in an article is whether the article is positive or negative in nature. Secondly, I review the article for accuracy. Over the past several years we have certainly had our bumps and bruises as a result of articles highlighting old news or extolling the perceived nefarious traits, rather than the virtues, of reverse mortgages. In addition to reviewing these articles, I am often presented with examples of borderline reverse mortgage marketing pieces that have made their way into the public domain.

As co-chair of NRMLA’s Standards and Ethics Committee, I review questionable practices, whether in the form of advertising, business practices, or general ethics issues. The committee evaluates each complaint from an ethics standpoint as it relates to the NRMLA Code of Ethics and Professional Responsibility. We work with our regulators to address the issues in both a proactive and reactive manner.

The vast majority of reverse mortgage advertisements are done in a professional, thoughtful manner and represent reverse mortgages accurately, portraying our industry in a manner that is beneficial to all industry participants. These advertisements clearly indicate they are a solicitation for reverse mortgages; the product descriptions are accurate and are designed to generate interest from those who may truly benefit from a reverse mortgage.

Anytime you are developing a marketing plan, one of the biggest challenges is maximizing the return on your investment, or ROI. Oftentimes, particularly with print media, space is an issue. All advertisers should be mindful of federal and state

licensing and disclosure requirements, in addition to guidance issued by NRMLA in the form of Ethics Advisories.

NRMLA’s first Ethics Advisory, Ethics Advisory Opinion 2008-01: Ethical Advertising, was released in February 2008. This advisory provided guidance to NRMLA’s membership regarding acceptable advertising practices and highlighted some key examples of practices that could be considered false, misleading, deceptive or unfair. These practices were labeled collectively as “Unethical Advertising.”

Included in this advisory was a list of six specific examples of unethical advertising, which were again supplemented by last year’s supplemental advisory, NRMLA Ethics Advisory Opinion 2010-2, Additional Ethical Advertising Practice Requirements. Advisory Opinion 2010-2 includes additional guidance to NRMLA members, describing an additional six specific acts and practices that were deemed violations of the NRMLA Code of Ethics and Professional Responsibility because they can be construed as unethical advertising practices1.

1. Visit nrmlaonline.org/nrmla/ethics/conduct.aspx to download complete copies of the NRMLA Code of Ethics and Professional Responsibility, as well as the Ethics Advisories referred to in this article.

Marketing or advertising HECM loans as a “Government Benefit” or as “Government Supported”; from or offered by a “Government Loan Division” or “Official Business”; or as “Endorsed” or “Approved” by the Government, Federal Government, HUD, FHA, AARP or by NRMLA;

Stating or suggesting that failure to respond to its marketing or advertising will or may result in a loss to the consumer of any benefit to which the consumer is or may be entitled;

Making misleading, unfair or exaggerated claims of benefits to consumers; >>

In all, we have 12 examples provided by nRMla. please note that this list is not all-inclusive; rather, these are specific examples of issues deemed particularly troubling and damaging to our industry’s reputation and in direct violation of nRMla’s code of ethics and professional Responsibility.

here is a brief summaryof the 12 examples of practices that are in violation of the nRMLA Code of Ethics (please refer to the NRMLA website for additional detail):

Ex1 Ex2

Ex3

:

| TRR 36

While many argue such practices are the exception, not the rule, the fact is that there were (and still are) organizations actively involved in unethical advertising on a regular basis. The advisories, with the full support of NRMLA’s Board of Directors, were created to provide clear guidance to industry participants in an effort to curtail unethical advertising and marketing practices.

It is important to note that the vast majority of reverse mortgage advertising is done in a thoughtful manner, managing to both comply with federal and state requirements, adhering to the spirit of the NRMLA Code of Ethics and Professional Responsibility while also succeeding in generating acceptable response rates and ROI to the marketer.

One topic I have often commented on is that it is difficult to enforce good taste and

common sense. You, the reader, probably know what I am referring to – there are regular instances where organizations in our industry walk a fine line of compliance, enter gray areas and push the limits of acceptability. It is easy to enforce instances of clear violations of the law and related regulations; however, it is always difficult to address poor taste.

Some advertisements, whether they are in print media, television or on the Internet, are

Providing or arranging for a testimonial, endorsement or infomercial that fails to clearly disclose the nature of the relationship between the NRMLA member and the person or entity providing the testimonial, endorsement or infomercial;

Requiring or suggesting that a product or service other than the reverse mortgage must be purchased in order to obtain the reverse mortgage loan;

Marketing or advertising to a business partner unreasonably high compensation in a manner that is false and/or misleading;

Directly or indirectly stating or implying that reverse mortgage loans are “no cost” loans, that they “require no payments,” that seniors need not repay a reverse mortgage “during their lifetime,” that a senior “cannot lose” or that there is “no risk” to a senior’s home with a reverse mortgage loan, at a minimum, without at least explaining that reverse mortgage loans do, in fact, require seniors to make certain specified payments and meet other specified obligations;

Using a celebrity’s image or likeness without that person’s express, written and documented permission, or to provide celebrity endorsements that do not reflect the honest opinions, findings, beliefs or experiences of the endorsers;

Stating or implying that an applicant or borrower is “pre-approved” or “pre-qualified” for a reverse mortgage without also fully disclosing approval or qualification conditions or other criteria that apply;

Stating or implying that “recent” federal legislation or HUD action provides more money for seniors, if such legislation or action, if any, is not recent or if such funds have not been appropriated for seniors, particularly if the claim is made with a sense of urgency or call to action implying that if the senior does not promptly respond they may miss out on this or related “limited” opportunities;

Including simulated checks or other currency as part of an advertising or marketing piece; or

Using the names or logos of HUD, FHA or other names or logos confusingly similar in appearance except as otherwise permitted by law.

The above-referenced advisories were issued in response to claims by regulators and the media that reverse mortgage industry participants were actively engaged in unethical advertising practices.

Ex4

Ex5

Ex6

Ex7

Ex8

Ex9

Ex10

Ex11

Ex12

TRR | 37

simply a result of poor judgment. Do we want to be ranked up there with the Chia Pet ads or the various infomercials that inevitably end with a “But wait! There’s MORE!”? I, for one, do not. Every time an advertisement is designed, we must keep in mind that we are not only trying to generate the best possible ROI, but are also shouldering a certain amount of responsibility for the public’s perception of reverse mortgages, both as a product and as a viable retirement planning tool.

Although we have addressed celebrity spokespeople in our Ethics Advisories, there is absolutely nothing wrong with a celebrity promoting reverse mortgages. In fact, these campaigns have provided great benefit to the reverse mortgage industry through increasing awareness and acceptance of the product. They have also generated good business for companies who opt to go this route. They key, however, is for the scripts to be written in a manner where the “pitch” doesn’t sound so “pitchy.” Ultimately the advertiser is going to look at response and conversion rates versus content and settle on what works best for them.

I’ve seen mailers appearing to be correspondence from a government organization, referring to reverse mortgages as a government benefit or entitlement program. Others have simulated checks or vouchers attached to form letters, and yet others are modeled after the home

loan modification mailers sent out by various entities trying to take advantage of the misfortune of so many homeowners in today’s marketplace. Some are clear violations of NRMLA’s Code of Ethics and Professional Responsibility, as well as federal and state Laws. This is what led to the Ethics Committee’s decision to issue the Ethics Advisories – we need to proactively educate our industry about unacceptable advertising practices, and this is of critical importance to ensure the ongoing viability of our product. The difficulty has been reaching the group of non-NRMLA lenders and originators, and the Ethics Committee has begun considering various ideas on how we can work with wholesalers to ensure even non-members are well-versed in what may or may not be considered acceptable advertising practices.

There are examples of advertising practices that are not necessarily clear violations of any regulation or code. In my mind, these advertisements are classified in what I prefer to call “the Land of Poor Taste.” I have often thought a “Wall of Shame” could be useful – an industry participants-only Internet site where we publish examples of the dos and don’ts of reverse mortgage marketing. Perhaps we will be able to create something along these lines. Meanwhile, organizations should step back and re-evaluate their marketing initiatives from an outsider’s perspective, always asking themselves, “Is this the way we want our company and our industry perceived?”

We cannot be the poor-taste police. However, if we all do our part, we can avoid public displays of poor judgment in reverse mortgage marketing. g

do we want to be ranked up there with the Chia pet ads or the various infomercials that inevi-tably end with a “but wait! there’s more!”? i, for one, do not.

four ways

to pique the reader’s interest

while still accurately describing

o u r p r o d u c t :

1. Reduced upfront cost HECMs (instead of “no cost” HECMs)

2. Make no monthly mortgage payments (instead of “no payments”). In this case, it’s helpful to footnote the claim with an indication that borrowers are still required to make property tax and homeowner’s insurance payments)

3. No repayment required for as long as you live in the home as your primary residence and remain current on property charges (versus “during your lifetime”)

4. FHA-insured (rather than claiming the product is a “government benefit”)

These examples demonstrate the following point:

It is possible to describe reverse mortgage features and benefits accurately while

still serving the purpose of capturing the interest of the reader. Please keep in mind that these suggestions are for illustration

purposes only. Advertisers should always consult with their company’s

counsel and/or compliance specialists to ensure they are in full compliance with

applicable regulatory requirements.

| TRR 38

aTare Investors are secured. For example, over the last 12 months, we’ve seen increases of fully drawn fixed-rate HECMs. Some, including myself, have expressed concern that in a couple of years, these borrowers could run out of funds and may be unable to pay their taxes and insurance, let alone maintenance, resulting in defaults. Of course, investors may not be affected because they may have exercised their put to HUD at 98 percent of MCA. But these defaults could damage the insurance fund and HUD’s ability to support HECM origination and the primary market. What do you say to this fixed-rate trend?

joe In the summer of 2009, we published a pretty extensive blog about what we think should be done, and a lot of it was done. For the 2006-2008 vintage, we also warned that HUD could lose as much as $8 billion. And sure enough, FHA reported in its latest Annual Management Report that it expects to lose about $8 billion for those vintages.

So, you’re right. FHA is at risk from crossover loss, tax and insurance

defaults, and other types of defaults. That’s an issue, but FHA has dealt with it. They’ve lowered the principal limit, they created HECM Saver, and they raised the mortgage insurance premium (MIP). The remaining item on the agenda is to address the tax and insurance issue (T&I). There is no surefire solution, but I think you can significantly mitigate that risk if you create a tax and insurance set-aside in lieu of the servicing fee set-aside.

But that comes at a cost too. By bringing down the principal limit, especially now that people have less home equity, there are fewer homeowners who can qualify. That doesn’t mean you shouldn’t do it, but it means that you must carefully weigh cost and benefit.

Over time, with each new cohort of loans being originated, the HECM program has a better chance to get back in the black. FHA has done all the right things. Once they address the T&I issue, I think all the major fixes are in place.

aTare So you propose setting up a T&I set-aside as a way to solve the T&I issue. Are there other ways?

joe You can have an escrow instead, and there is always the brute force method, which is to reduce principal limit even more. But I think the preferable way is just have a T&I set-aside, and say, “Look, we are going to set aside four, five, six, or nine months of tax and insurance money, and if you default on your taxes or insurance, the investor has the right to draw on that set-aside and add that amount to your loan balance.”

But that would necessitate a reduction in the initial proceeds the borrower receives. The servicing set-aside used to reduce what they receive by about 2 or 3 percent. If the tax and insurance set-aside was like 2 or 3 percent, it would be a wash, except it is not a wash because right now, for a lot of loans, the servicer is not charging a servicing fee. Nonetheless, it would be a good idea to have a T&I set-aside that creates a margin of error to mitigate these losses.

A more flexible but also more complex method would be, instead of having the same T&I set-aside for everyone, vary the amount of the T&I set-aside based on the credit score of the borrower.

aTare Why credit score? At that age and for this product, credit scores do not mean much. Why?

joe Credit score or other methods of credit underwriting can still give you significant information regarding the borrower’s ability to pay their bills, including taxes and insurance. The most credit-worthy borrower might not need a tax and insurance set-aside. But for some borrowers with poor credit, we may find that the necessary T&I set-aside is prohibitively high.

There is no easy solution, but there should be something so that the frequency and the severity of T&I losses are small enough so that issuers and investors can deal with them.

| TRR39

aTare Actually, investors are not in HMBS …

joe You’re right. I mean someone who is an HMBS issuer and holds that risk. They are, in effect, an investor in that excess spread [HECM cash flow minus HMBS cash flow, they get everything in between] and in the advances they make, the sub-servicing fees they have to pay, and the losses that they bear. And the losses they bear on the T&I side are big issues in the industry today.

aTare In light of Mortgagee Letter 2011-01, how adequate is FHA’s response to the Tax and Insurance default issue?

joe ML 2011-01 formulates a curative response to the T&I default issue; I’m talking about preventive measures when the HECM loan is originated.

aTare What are the implications of the new Ginnie Mae capital requirements for HMBS issuers? joe It was appropriate for Ginnie Mae to raise the HMBS issuer capital requirements, given all the risks we have been discussing

aTare Ginnie Mae is the only game in town for HMBS. Ginnie Mae is also a government entity. With Fannie Mae and Freddie Mac, the unthinkable has happened: They failed. What could happen to Ginnie Mae and, potentially, disrupt the reverse mortgage market?

joe If it does, we’ll have problems beyond reverse mortgage. There is a difference between GSEs (Fannie and Freddie) that had shareholders and Ginnie Mae, which is a government agency. Fannie and Freddie owned a lot of securities and a lot of loans, but Ginnie Mae doesn’t do that. As long as Ginnie Mae and FHA stick to the insurance business and get it right, then they are

OK. Ginnie Mae has a much different risk profile compared to Fannie and Freddie.

aTare What of the political risks?

joe If you have very large losses in an FHA program, they will either shut it down or they will change it. In the case of HECM, they didn’t shut it down; they took very constructive steps that enhanced the program’s long-term viability. The political risk is always going to be there.

aTare Choice is always important. Right now, Ginnie Mae is the only option. At some point, which entity on Wall Street do you see playing the role Lehman Brothers played in proprietary jumbo reverse mortgage-backed securities?

joe There isn’t right now. That’s not unique to reverse mortgages. There’s not a real non-agency market, except for a few deals being done here and there. A lot of things will have to happen for that market to be revived.

aTare What are those things?

joe The implications of Dodd-Frank and the other new regulations will have to be sorted out. There is Reg. AB. The new regime of Reg. AB will have to be sorted out. The lending limit being so high hinders development of a non-agency market for forward and reverse. Even if you did have all of those problems solved, a government-backed market is always going to have better execution. With the lending limit at $625,500, there is not a big market left for [proprietary] reverse mortgages.

aTare Is there any evidence that these hurdles will be cleared in the next 24 months?

joe No. I will believe it when I see it. If, for example, the lending limit were

lowered, then, necessity being the mother of invention, you might see some deals being done. There might be some baby steps in the next 24 months. That lays the groundwork for the market returning in earnest, and that is good, but we’ll see.

aTare I am willing to speculate that might happen. The new Republican-controlled House might say, “Hey, we are too exposed in this reverse mortgage sector; we should cut the lending limit to the Fannie Mae limit to encourage ‘free markets’ and create jobs.” What do you think?

joe If you really couldn’t securitize any loan (forward or reverse) above the $417,000, then, as I said, necessity being the mother of invention, there will be much more of an impetus to solve those hurdles, and you might see something get done.

aTare Lehman went down with a lot of mortgage expertise in every area in the capital markets. Of the survivors, is there any entity that could quickly reassemble those skills and play the Lehman role for the jumbo market?

joe Sure. I don’t think there is a shortage of experience out there. I think it is there, including New View Advisors, of course.

aTare Do you have any closing thoughts?

joe In some ways reverse mortgage lending has always been a lucky industry, whose problems get solved just in the nick of time. So, let’s hope the lucky streak continues.

aTare Thanks, Joe! g

TRR | 39

Sales are the driving force behind most

businesses and there is no difference when

it comes to the business of originating

reverse mortgages. Therefore, in order to

drive business, a company must drive sales.

Lead generation, in one form or another, is

the foundation of sales. now, at the start of

the new year, The Reverse Review sat down

with RJ Johnson, an innovative businessman

and founder of Reverse Rate Leads who is

introducing the next generation of reverse

mortgage leads. We had one question for RJ:

how can you make a better lead?

“I continually question where the best leads

come from, and how I can create more of them.

At first, I think referrals. Referrals have been the

lifeline for so many loan originators, and may

have the highest conversion because there is

an “assumed” trust. The downside with referral

building is the “double sell,” and the “I need to

eat now” issues.

There is television (too expensive), direct mail

(too inconsistent) and the Internet (too crappy).

So the question still exists: Where do the best

leads come from?

Simple. A lead that has been through

counseling and is ready for an application! If

there was only a way to find these people, sales

would be easier… life would be easier…”

Problem solved: Reverse Rate Leads is proud

to introduce the next generation of leads. They

have all the typical filters that any good lead

would have: over 62 years old, own a home,

have enough equity, etc. The difference is

that these leads come with their counseling

completed.

now, this is a one-of-a-kind lead source.

Imagine if in 2011 all you did was work leads

that have been through counseling. how could

that change your sales? how could that change

your life? not only will you work less hours, you

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It would be like having a personal assistant

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That is why, in 2011, Reverse Rate Leads will

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A LEAd GEnERATOR, On A QUEST FOR ThE BEST…LEAd!

Are you ready for success? Call today or visit us online at:

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a d v e r t o r i a l

TRR | 41

l

Celinkcelink.com

517.321.9002

direct Finance Corp.dfcmortgage.com

781.878.5626

EquiPoint Financial Network, Inc.

equipoint.com866.240.8643

Great Oak lending Partnersgreatoaklending.com

800.544.8584

iReverse home loansireverse.com/employment

800.486.8786

l

Metlife Bank, N.A.mlbreversemortgage.com/mdraper

732.318.4162

Mortgage Cadencemortgagecadence.com

888.462.2336

Reverse Market Insightreversemarketinsight.com

949.429.0452

Reverse Mortgage Crowdsreversemortgagecrowds.com

800.604.6535

Reverse Mortgage Successreversemortgagesuccess.com

410.557.0294

Reverse Rate leadsreverserateleads.com

888.399.1859

l

Reverse Visionreversevision.com

919.834.0070

RMSrmsnav.com888.918.1110

Seattle Mortgage Companyseattlemortgage.com

206.281.1500

ThinkReverse llCthinkreverse.com

612.203.9434

Tradition Titletraditionta.com

631.328.4410

l

the ResourcesInformation at your fingertips. A listing of advertisers and contributors featured in this issue.

72,748 The number of hECM endorsements for calendar year 2010.

Number

| TRR42

the reverSe review February 2011

the last word

hECM Turned 21 last Year! (did I miss the party?)John lAroSe

When I turned 21 (a long time ago!) I partied until the wee hours of the morning. I was not one to pass up the opportunity to enjoy a few “adult beverages” in the company of other adults, and besides, 21 was the passage into

adulthood and maturity. I thought I had grown up.

The years prior to 21 were arrogant, smarter-than-my-parents days. I was self-centered and hated any kind of supervision or controls. These were halcyon days of “the good life.” I was at college and I could do anything I wanted, wheneverI wanted.

This newfound freedom led to flunking out of college and getting drafted into the Army. It may sound bad, but military discipline was exactly what I needed. I learned that a lack of controls and no supervision often lead to poor-quality decisions. After a tour of duty in Vietnam, I returned to complete my college education and learned to work “within the system.” I had grown up.

What does all this have to do with the HECM turning 21 last year? Consider this: For many years prior to its 21st year, the HECM had a somewhat loosely defined set of controls and guidelines that were more than adequate; we were a very small cottage industry.

When 2006 came along and Wall Street investment bankers came into the market, it looked like our industry was going into the stratosphere. There was talk about proprietary products and how each Wall Street firm was working on their own non-HECM loan. These same firms talked about securitizing both HECMs and non-HECMs, and that is when the regulators started paying attention.

HUD and Fannie Mae began to tighten their rules and regulations, and from my standpoint as a subservicer, it was most welcome. When you serve in a supportive role to lenders and/or investors, there is nothing worse than not having everything clearly defined. My military training and

discipline was a life-changing event. In the military there is no such thing as a vague order, nor is their any such thing as a suggested order.

As HUD and Fannie Mae continued providing clearer guidance to all industry participants, the loan volume garnered the attention of even more regulators and legislators at both the state and federal levels. Senators and representatives in the U.S. Congress began asking questions, and much to our dismay, one senator held a hearing that did a lot of harm by generating unwarranted and bad publicity.

More and more state legislators have jumped on the regulation bandwagon.There are multiple states with the exact same state regulations provided at the federal level. I welcome order and controls, but there is such a thing as too much regulation. Rules and regulations cannot, and should not, attempt to completely control all aspects of the life of a 21-year-old adult – and it should be the same for our 21-year-old industry.

We have heard recent calls for civility in our country’s political rhetoric, and in keeping with that theme, I call for a return to civility and common sense when it comes to regulating our industry. Seniors warrant protection, but the vast majority of those eligible for a reverse mortgage are smart and they are comfortable making major life decisions. Let’s recognize seniors for knowing what is right for them and stop the madness of overregulation by legislators who view them as completely defenseless. Nothing could be further from the truth.

Balance and common sense was the order of the day when I returned from Vietnam, and it’s no different as our industry enters its 22nd birthday. We’re growing up too. g

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