The Reverse Review - October 2010

THE

REVERSEreview

O C T O B E R 2 0 1 0

Embracing changE:How brokers can successfully market the

HECM Saver in their businessesJason Levy

Count on MetLife Bank for what you need to succeed. Proprietary technology to

streamline the application process, so you can close more loans. Extensive training to help you attract

more customers and grow your business. Ongoing support throughout the reverse mortgage process,

including people who are there when you need them. It’s the complete package that helps our

reverse mortgage wholesale brokers and correspondent lenders get real results. Find out how we

can help you succeed as a reverse mortgage provider.

If you’re an FHA-approved lender, call 1-866-359-3817 to start the conversation.

Happiness is getting everything you need, all from one reverse mortgage company.

MetLife Bank

All loans are subject to property approval. Certain conditions and fees apply. Mortgage financing provided by MetLife Bank, N.A., Equal Housing Lender. © 2010 METLIFE, INC. L0310092581[exp0311][All States][DC] © UFS

Technology. Training. Support. All from one reverse mortgage company.

61308 Snoopy with laptop.ai

October 2010 TRR | 3

05 Editor’s note

08 industry Stats July 2010

06 ask the Underwriter Putting the pieces together.

28 Directory 29 The Last Word Just what the doctor ordered.

| TRR October 20104

“ M o v i n g F o r w a r d i n R e v e r s e .”TRR10.10

12 Taxation on Foreclosure - Part 1

Tax consequences that come with a rise in foreclosures.

James E. Veale

20 Take a reverse approach to Forward missteps

Accepting growth in technology and automating now, can help in the future.

Trevor Gauthier

24 recession-Proof Your business

Learn how to climb the ladder of success by practicing the basics.

Sam Collins

FEATURE

16 Embracing change How brokers can successfully

market the HECM Saver in their businesses.

Jason Levy

26 The Financial regulatory reform bill and how it Will impact reverse mortgages

Can we expect negative effects on reverse mortgages?

John A. Smaldone

“Modifications to products, regulations and policies

have seen a slow but steady progression over time. But now a tidal wave of change

is happening.” page 16

| TRR July / August 20105

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Subscriptions andEditorial Content

phone : 858.217.5332e-mail : [email protected]

website : www.reversereview.com

Advertising Informationphone : 858.832.8320

e-mail : [email protected]

Publisher aman makkar

Editor-in-ChiefEmily Vannucci

Copy EditorKaitlin Dershaw

Creative DirectorTraci Knight

National Accounts ManagerDavid Peck

Printer The Ovid bell Press

© 2010 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

As we enter the last quarter of this calendar year, it begs me to reflect on our growth and development up to this point. The Reverse Review has come a long way over the last two and a half years. For most of that time, our leadership has come from Erica English, a great person that many of you have come to know well. As we continue our journey into 2011, I would like to introduce our new Editor-in-Chief, Emily Vannucci. While change is sometimes difficult, we must learn to embrace it. Our greatest success at the The Reverse Review has been our ability to continue to publish this magazine every month, something that would not have been possible without our leadership and your support. As Emily takes the reigns of leadership, I hope you all have the opportunity to meet her this fall season. Thank you, as always, for your continued support.

Emily VannucciEditor-in-chief

THE

reviewREVERSE

The Reigns of Leadership

aman makkarPublisher

As I close my first issue as Editor-in-Chief, I would like to thank all of our contributors this month who have been a pleasure to work alongside, as well as everyone in the industry for the warm welcome. The Reverse Review has been in great hands the past two and a half years and I look forward to continuing the success of this publication. For those who I have not yet met, I hope I will have the opportunity of meeting you at the 2010 NRMLA Annual Meeting & Expo in November. Until then, we hope you enjoy our October issue!

A

| TRR October 2010 6

Are you already saying where did the fall season go? Octoberfest is in the air but there are already holiday decorations in the stores! Let’s clean up a few questions from last month as we sit on the edge of our seats for more news on the HECM Saver.

What is the expiration date of an appraisal completed on August 17, 2010?

A. The answer to this question is actually two-fold:

s An initial appraisal is good for 120 days, so in simple terms this appraisal is good until approximately December 17, 2010.

s However, the underwriter may utilize an additional 30 day extension which is permissible under HUD guidelines, though this practice may vary from lender to lender.

s With an acceptable update, the initial appraisal is valid for an additional 120 days or, in the case of our August 17th appraisal, it would be valid until approximately February 17, 2011. Once again, the actual practice may vary from lender to lender.

What are the requisite “data” elements you must have in order to proceed with a reverse mortgage loan application?

A. Generally, nine data elements and borrower intent to proceed must be given before a HECM transaction is deemed an application. The information and intent can be either verbal or in writing. After all the data is provided/obtained, only then can a GFE be provided.

s Names Date of Birth s Gross Monthly Income (if applicable)s Social Security Numbers Property Addresss Estimate of Property Values Principal Limits Interest Rates Product / Margin

Where is the data plate located on a manufactured home?

A. If you are thinking of the “red tag” (aka HUD Certification Label) attached to the rear tail light section of each transportable section of the

manufactured home, you will need to check further to satisfy this information need. The data plate is generally located in an HVAC closet or in the kitchen area of many manufactured homes. This paper document contains both the serial number and HUD Certification Label Number in addition to other information including the geographic zones in which the manufactured home was designed for.

When does the name of the lender have to be changed on the appraisal report?

A. Generally, the lender name does not have to be changed when the appraisal is valid and utilized for a current transaction which has been transferred from one lender to another.

What is the new guideline for the maximum annuity amount you can sell to your borrower?

A. Cross selling of annuities in a simultaneous HECM transaction is a prohibited practice controlled through legislation, regulation and disclosure regardless of the contemplated amount.

Putting the Pieces TogetherSome common questions are answered as we prepare for fall changes.Ralph Rosynek


If the comparable were better than the subject, would the appraiser line item amount be added or subtracted?

A. Often confusing for those who do not actively work with appraisals, the best way to remember the answer to this question is by committing two simple acronyms to memory: CBS – (not the TV network!) if the Comparable amenity or item is Better than the Subject, the appraiser would Subtract value SBA – (not the Small Business Administration!) if the Subject amenity or item is Better than the Comparable, the appraiser would Add value

Can a manufactured home foundation inspection report be used more than once?

A. A HUD Compliant inspection report of a manufactured home foundation can be used for a subsequent FHA transaction providing the information contained therein meets HUD requirements and there have been no physical or structural changes to the existing manufactured home or its foundation.

Which item does FHA not automatically require? An inspection for wells, septic, termites, or flat and unobservable roofs?

A. Unless mandated by state, local jurisdiction or codes, or lender requirement, HUD does not automatically require inspection for any of the above noted items. The underwriter is responsible for determining that the property site and conditions meet HUD guidelines, and based upon the information provided in the appraisal, may determine further professional inspection is required prior to making a final underwriting decision.

With regard to the previous question, as an underwriter, which of the available responses would be your primary concern?

A. Some may say that depending upon where the property is geographically located, certain items have a greater or lesser degree of concern to an underwriter. Yes, a snow covered roof in Miami would be an interesting subject property picture!! The significance of the question is relative to safety and soundness. With respect your borrower’s ability to occupy the property, it is important that each of these (and more) items be given appropriate primary caution and treatment in assessing the overall quality, safety and soundness of the property by the underwriter.

What do the acronyms HRAP and DELRAP stand for?

A. Condominium projects must be approved before applications for FHA mortgage insurance can be processed for individual units. Mortgagee letter 2009-19 established two methods for approving condominium units:HRAP – the HUD Review and Approval

ProcessDELRAP – the Direct Endorsement

Lender Review and Approval Process

B. It is important to understand the condominium project approval status early in the transaction as the acceptance of the individual unit by the lender may be subject to the review and approval process indicated, which adds an additional time constraint to the initial timeline provided to the borrower.

LASTLY, ON A PERSONAL

NOTE, I LOOk FORWARD

TO MEETING MANY OF

YOU FACE-TO-FACE IN NEW

ORLEANS NExT MONTH

AT THE NRMLA ANNUAL

MEETING (NOVEMBER 3-5).

AS YOU kNOW, MY COLUMN

MESSAGE HAS ALWAYS

STRONGLY ADVOCATED

SEEkING ADDITIONAL

kNOWLEDGE AND SkILLS ON A

CONTINUOUS BASIS TO ASSIST

SENIORS. THIS YEAR I WILL BE

CO-CHAIRING THE NRMLA

PROFESSIONAL DEVELOPMENT

COMMITTEE WITH TORREY

LARSEN, PRESIDENT AND

CEO OF SECURITY 1 LENDING.

BOTH TORREY AND I HAVE

A PARTICULAR GOAL TO

INCREASE THE EDUCATIONAL

INITIATIVES OF NRMLA

AND PROVIDE GREATER

ACCESS TO kNOWLEDGE

AND SkILLS TOOLS FOR

NRMLA MEMBERS. IF YOU ARE

INTERESTED IN SUPPORTING

THE INDUSTRY, WE WELCOME

THE OPPORTUNITY TO SPEAk

WITH YOU AND TO JOIN OUR

COMMITTEE TO FURTHER

THESE GOALS. HAVE A SAFE

TRIP AND “LAISSEz LES BON

TEMPS ROULEz!”.


As we wind down the summer with Labor Day in the rear-view mirror, it’s perhaps only fitting that the rest of the year is coming into view. If July’s numbers are any indication of what’s to come, the long rumored shift in business momentum toward large institutional shops and away from small brokers appears to be well under way.

Both Retail and Broker/Wholesale volumes were up in July (albeit off the pace of a furious bounce back in June), but the contrast couldn’t be clearer: Retail growth was more than 3x as fast as Broker/Wholesale, further widening the lead Retail only recently gained in total volume.

Among lenders, there’s a very interesting divergence happening as well. From a combined Retail/Wholesale perspective, many of the top 10 lenders are under-performing the industry’s growth rate since the May low point, but 3 lenders are striking exceptions:

s Genworth is up 228% to 581 units, with much of the growth coming from Wholesale

s Metlife is up 85% to 1,062 units

s Wells Fargo is up 37% to 1,460 units

Doing some quick math, it’s clear that these three lenders alone accounted for 97% of the increase in units from May to June for the entire industry. That’s perhaps the best example we’ve ever seen of a very narrow recovery in volume, which begs the question why these three are succeeding so much more than the rest of the industry together.

These are large institutions, but there are other large institutions here that did not see similar growth, and 1 of the 3 isn’t an HMBS issuer so that argument has holes too. We don’t have an answer to this riddle for you this month, for now we’re content to simply live in interesting times and hope someone does a case study someday.

inDUSTrY SUmmarY

Retail endorsement Growth

15.79%Wholesale endorsement Growth

4.87%Total endorsement Growth

10.84%

TraiLing TWELVE mOnTh EnDOrSEmEnTS

10,000

8,000

6,000

4,000

2,000

08 9 10 11 12 1 2 3 4 5 6 7

*Numbers Represent MonthsRetail Wholesale

* Figures Above Reflect Change from Prior Month

8

9

10

11

12

1

2

3

4

5

6

7

ToT

UnITs ChG% UnITs ChG% UnITs ChG%

3,681

3,903

4,081

3,836

3,954

3,171

3,124

2,783

2,692

2,465

2,900

3,358

-17.02%

6.03%

4.56%

-6.0%

3.08%

-19.8%

-1.48%

-10.92%

-3.27%

-843%

17.65%

15.79%

5,246

5,567

4,692

3,901

4,326

4,450

3,890

3,038

2,813

2,086

2,404

2,521

-2.71%

6.12%

-15.72%

-16.86%

10.89%

2.87%

-12.58%

-21.9%

-7.41%

-25.84%

15.24%

4.87%

8,927

9,470

8,773

7,737

8,280

7,621

7,014

5,821

5,505

4,551

5,304

5,879

-9.17%

6.08%

-7.36%

-11.81%

7.02%

-7.96%

-7.96%

-17.01%

-5.43%

-17.33%

16.55%

10.84%

rETaiL WhOLESaLE TOTaL

July EndorsementsInteresting times.eaGeRly lookInG foRWaRd To ClaRITy

39,948 44,934 84,882

September 2010 TRR | 9

National Reverse Mortgage Lenders Association

2010 Annual Meetingand Expo

November 3-5, 2010New Orleans, LA

The Roosevelt New Orleans Hotel

The largest single gathering of reverse mortgage professionals all year.

N R M L A G O E S T O N O L A

for more information, visit www.nrmlaonline.org


ralph rosynekRalph Rosynek has been The Reverse Review “Ask the Underwriter” for over two years. He is a recognized 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. Mr. Rosynek is currently a seated Director for the industry trade association NRMLA and Co-Chairs the Professional Development Committee. 708.774.1092 | [email protected].

Jason LevyJason Levy is the CEO of Guardian First Funding Group based in New York, NY. Guardian First Funding Group is one of the largest privately owned Reverse Mortgage originators. Having offices in Manhattan, NY; Melville, NY; and Philadelphia, PA, Jason and his team of experienced Reverse Mortgage professionals are assisting and educating thousands of clients a month. www.guardianfirst.com.

John K. LundeJohn 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 8 of the top 10 reverse mortgage lenders plus investors, servicers and vendors to the industry. Find out more at 949.429.0452 | www.rminsight.net.

contributors

James E. VealeJames E. Veale is a Senior Vice President at Security One Lending, Inc. James is also a California CPA and real estate broker with a master’s degree in business taxation from the University of Southern California. He has been a speaker for NRMLA and has authored several articles on tax matters and reverse mortgages.


Trevor gauthierTrevor Gauthier is the VP of Sales and Marketing at Mortgage Cadence. As a seasoned business-to-business sales and marketing professional his responsibilities include: development and execution of marketing and communication strategies, branding, content creation, market identification and segmentation, and recommending strategic approaches and executable plans to maximize sales activity and returns on investment. 303.991.8337 | [email protected].

Sam collinsSam Collins is the President of Sam Collins Reverse Marketing, LLC and Founder of REMALO, the Reverse Mortgage Association for Loan Officers. REMALO is a web based national sales, marketing, training, and full service center, created exclusively for Reverse Mortgage loan officers, correspondents, branch managers, key executives, and brokers. 877.262.7656 www.remalo.org.

David bancroftDavid Bancroft is the Executive Vice President of Sales for Security1Lending and former founder and President of Omni Reverse Financing Inc. Mr. Bancroft is a leading industry expert in the origination of Reverse Mortgages, FHA & VA Government Loans and uses his extensive experience to promote the Reverse Mortgage industry. Mr. Bancroft and his partners founded OmniHome 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. 800.628.5093 | www.omnireverse.com.

John a. SmaldoneJohn Smaldone is former Senior Vice President of AAxA Discount Mortgage’s Reverse Mortgage Divisions and now owner of Hanover Financial Services through which he consultants for Spiriter Financial LLC in areas of growth and marketing for their reverse mortgage operations. With 42 years of mortgage banking experience and 10 specific to Reverse Mortgages, John intends to remain in the reverse mortgage area of the business and continues to look at long term consulting assignments. [email protected]

W


With foreclosures at all time highs and with the recent discovery of far more HECMs in “technical default” than previously estimated, an airing of the income tax consequences arising from foreclosure seems timely. Unless home appreciation rates begin to rise in the near term, a higher percentage of reverse mortgage terminations will result in foreclosure (and its subsets).

While parts of this article are by necessity technical, examples are provided to help make it more understandable.

Preliminary Information

As described in the section titled “Disclaimer,” this article has limited application. Its purpose is to provide general income tax information about the discharge (i.e., cancellation and forgiveness) of indebtedness related to reverse mortgages. It is assumed throughout the article that the property securing the reverse mortgage has only been used by the borrower as a principal residence (unless otherwise noted) and nothing else.

For purposes of this article, “foreclosure” includes not only foreclosure but also short sale, trustee sale, deed in lieu of foreclosure, and any other disposition of the property securing a reverse mortgage where:

The balance due is greater than the proceeds received from the disposition of the property securing the reverse mortgage.

The balance due is greater than the fair market value of such property at the time when the property is transferred to the lender. Since there is little expectation that discharge of indebtedness will occur with reverse mortgages outside of foreclosure type transactions, this article focuses solely on those transactions.

Overview

As to foreclosure, the tax rules are no different for HECMs than they are for proprietary reverse mortgages. The amount of debt forgiven will generally either increase, gain, or decrease loss since the amount forgiven must be treated as additional proceeds received in the taxable

disposition. To the extent that accrued interest is “forgiven,” it is treated as paid and can produce favorable tax results.The exclusion rules which normally apply to the cancellation of debt do not apply to the amount of non-recourse debt forgiven at termination where the property securing the debt is transferred to the lender or otherwise disposed of. Thus, in some cases, tax rules applying to recourse debt may be more favorable than to those applying to non-recourse when debt is forgiven as part of a taxable disposition of the property securing the debt.

When the forgiveness simply decreases a loss on the sale of a principal residence, it has no practical tax detriment since a loss from the taxable disposition of a principal residence is personal and cannot offset gains or any type of other income anyway. Even when the forgiveness increases gain, such gain may be entirely or partially excludible under the limited exclusion rules pertaining to the sale of a principle residence.

With estates, trusts, and heirs, other rules apply depending on the date of death of the decedent. As to homeowners who no longer live in the home as their principal

Taxation on Foreclosure – Part iTax consequences that come with a rise in foreclosures.james e. veale

1

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residence (such as divorced or legally separated spouses and remainder persons in a life estate), generally no exclusions apply; however, loss may be eligible to offset other gains and in some cases limited amounts of ordinary income.

All Reverse Mortgages Including HECMs are Non-recourse

By federal law, all reverse mortgages are non-recourse. Section 1602(bb) of Title 15 of the United States Code states in part:

The term ‘reverse mortgage transaction’ means a non-recourse transaction….

As to HECMs, HUD Mortgagee Letter 2008-38 states in part: “Specifically, HUD Handbook 4235.1 REV-1, Home Equity Conversion Mortgages, provides in Paragraph 1-3C, that:

The HECM is a ‘non-recourse loan’. This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt.

Paragraph 1-13B. of HECM Handbook 4235.1 REV-1 also states:

Since a HECM is a non-recourse loan, the lender’s recovery from the borrower will be limited to the value of the home. There will be no deficiency judgment taken against the borrower or the estate because there is no personal liability for payment of the loan balance.

Specific Tax Rules

While the Internal Revenue Code (IRC) never declares that loan proceeds are not taxable, it does declare, however, in Sections (§§) 61(a) and (a)(12):

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: … Income from discharge of indebtedness….

IRC Regulation (Reg.) § 1.61(a)-12 states in part:

The discharge of indebtedness, in whole or in part, may result in the realization of income.

However, IRC Reg. § 1.1001-2(a)(1) states:

…the amount realized from a sale or other disposition of property includes the amount of liabilities from which the transferor is discharged as a result of the sale or disposition.

IRC Reg § 1.1001-2(a)(b) then goes on to exclude recourse debt generally from this rule since it is taxable as ordinary income under IRC §61(a)(2) to the extent not otherwise excludible under IRC § 108.

Thus non-recourse debt which is forgiven at foreclosure or other taxable disposition is treated as additional proceeds. It increases gain or decreases loss.

Oversimplified Tax Law Example

A proprietary reverse mortgage borrower sells his home in an approved short sale for $1,000,000. The amount of non-recourse debt forgiven was $500,000. If he purchased his home for $650,000 and put $125,000 in improvements into the home, the gain without considering the discharge would only be $225,000. Assuming he meets all rules for the limited exclusion of gain on the sale of a principal residence under IRC § 121 and is married, all of the gain will be excluded since the gain was less than $500,000.

Now, bringing in the discharge of indebtedness, the gain goes from $225,000 to $725,000. Since only $500,000 of the gain can be excluded, $225,000 of the gain now must be recognized as long-term capital gain. (By qualifying for the exclusion under IRC § 121 there is little doubt that all of the gain qualifies as long-term capital gain). Of course net capital losses from other sources can reduce the impact of this gain as well other losses and available deductions.

Does FHA Insurance Shield HECMs?

HECMs have special rules because of FHA “insurance.” One of the special features about HECMs is the limited loss reimbursement feature promised to lenders. As long as the home is not being retained by the borrower or heirs and all other conditions are met, upon termination (prior to assignment to HUD) FHA will reimburse a lender to the extent that the market value of the home is less than balance due on the HECM.

Some claim that because borrowers pay the costs related to the protection provided by FHA, the debt for tax purposes is in fact paid in full and there is no cancelled debt. Others claim there is a specific tax ruling which exempts HECM borrowers and their heirs from recognizing any income on a HECM. Still, others claim it is no different than the proceeds received from a life insurance upon the death of the insured. Unfortunately, none of these arguments have “roots” in tax law.

While there are no court cases, IRS rulings, or even private rulings on point, there is the Allan Case [Allan et al versus Commissioner, 86 T.C. 655 (1986) affirmed 856 F.2d 1169 (8th Cir. 1988)]. It is a leading case on gains from cancelled non-recourse debt and involves partners in a limited partnership. The partnership obtained g


a rental building and used a HUD insured mortgage to finance the acquisition. The partnership defaulted and HUD took over managing the property including making all payments. Eventually the partnership transferred the property to HUD in lieu of foreclosure. The partnership was required to recognize as additional gain the amount of debt which was forgiven.

The reason why a HECM is non-recourse is not because it is insured by HUD. A HECM is non-recourse because the note with the lender is non-recourse by its very terms. If the note was not non-recourse, the loan would not qualify as a HECM. Even if HUD is prevented from honoring its insurance agreement because the HECM is defective, the terms of the note and federal law still make the debt non-recourse. Thus the same rules which apply to proprietary reverse mortgages also apply to HECMs.

Disclaimer

The IRS requires that readers are informed that the information contained in this article cannot be relied upon or used to reduce any income tax penalties (or interest). It is being written to provide general information on specific topics. Readers are encouraged to consult a competent tax professional to determine how the information applies in specific situations. The article only addresses simple situations. Far more complicated situations may exist including but not limited to:

Situations where not only non-recourse but also recourse debt is forgiven.

The applicable property was fully or partially used in a trade or business of the taxpayer at the time of foreclosure or in some prior period.

It also does not address other complications such as use of funds for purposes of: Allocation of gain between passive and non-passive trades or businesses, portfolio, and personal.

Allocation of interest between such activities and home mortgage interest for deduction purposes.

Debts which work somewhat like a reverse mortgage have been classified by some as reverse mortgages but they are not necessarily so for legal purposes. This article focuses on those reverse mortgages insured by The Federal Housing Administration (FHA), known as HECMs (Home Equity Conversion Mortgages), and proprietary reverse mortgages provided by major lenders.

The tax rules described in this article are limited to federal tax rules. State and local income tax rules may be different.

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Great Oak Lending Merges with 1st Maryland Mortgage Corp.

Deal makes Great Oak direct lender with ability to fund up to $25 million per month in home loans; new company plans to

hire up to 30 employees by year-end.

Timonium, MD—September 27, 2010—Great Oak Lending Partners, a trusted mortgage company servicing the Mid-Atlantic region, today announced that it has merged with 1st Maryland Mortgage Corp. of Damascus. The merger makes Great Oak a direct lender with the ability to fund up to $25 million a month in loans.

Great Oak was ranked #1 in Maryland for reverse mortgage production and volume for the fiscal 2nd quarter of 2010 by RMInsight, the premier provider of data and analysis for the reverse mortgage industry. It has also been recognized as one of the fastest growing reverse mortgage companies nationwide. Great Oak provides traditional mortgages on new homes and investment properties, as well as refinancing and reverse mortgages.

The merger combines 1st Maryland Mortgage’s seven employees with Great Oak’s 58 full-time employees. The new company plans to hire an additional 20 to 30 people by the end of the year.

As part of the merger, Joshua Shein was promoted to president and chief executive officer of the new company. The combined company will be called 1st Maryland Mortgage but will operate under the name Great Oak Lending Partners. Financial terms of the deal were not disclosed.

“This merger will allow us to meet all of our customers’ needs in-house, from underwriting to closing to funding loans,” Shein said. “These additional services and our predicted growth over the coming months reinforce our position as a major player in the mortgage industry.”

Great Oak Lending has three offices in Maryland and operates in seven other states. The company plans to be operating in another seven states by the end of the year.

About Great Oak Lending PartnersGreat Oak Lending Partners is a trusted mortgage company servicing the Mid-Atlantic. With strong ties in the industry and community since 2001, Great Oak provides a full-range of mortgage products and services, ranging from refinance and reverse mortgages to financing new homes and investment proper-ties. Based in Timonium, Maryland, Great Oak has originated more than $1.5 Billion in loans and is currently licensed in Maryland, Wash-ington, DC, Delaware, Pennsylvania, North Carolina, Connecticut, Texas, Oregon and Virginia.

For More InForMatIon VIsIt: www.GreatoakLendInG.coM | www.GreatoakreVerse.coM

adVertIseMent

16 | TRR October 2010

TV commercials featuring celebrities hit

the airwaves.

Buying leads - what is that?

Reverse mortgages were a referral sale from the beginning of time.

Call center sales models emerge but critics speculate

whether this distribution channel had the strength to compete with the kitchen

table sale.

Multiple margins & LIBOR based products are

introduced to the marketplace. The overall sentiment was “What’s a LIBOR & why do

we need it?”

2004 2005 2006

EMBRACINg

C H A N g EHOW BROkERS CAN SuCCESSFuLLy

maRkET ThE hECm SavER in ThEiR buSinESSES

{ jaSOn LEvy }

17October 2010 TRR | 2010The launch of the new HECM Saver, MIP and PLF change, and new counseling protocols.

Multiple margins & LIBOR based products are

introduced to the marketplace. The overall sentiment was “What’s a LIBOR & why do

we need it?”

The 1st Fixed HECMs are written. The product leaves originators wondering about the

likelihood of its future – accounting for less than 1% of the overall product mix.

Secondary markets weaken but the Fixed HECM is the bright

spot. Businesses across the nation focus on the

Fixed HECM.

2007 2008 2009

E


Every October, like clockwork, I am waiting for some sort of change…loan limits, HECM Cap, PLF reduction, and now a new HECM product.

It’s time to embrace change. Since I have been originating Reverse Mortgages, the changes have been minimal each year – that is until 2010.

Modifications to products, regulations and policies have seen a slow but steady progression over time. But now a tidal wave of change is happening.

What a Difference a year Makes

Back in October of 2009, I wouldn’t have dreamed of being able to afford to write a zero origination fee product. The appetite for a reverse mortgage security has grown dramatically, driving up broker pricing. Luckily, enhanced pricing has helped to fund things like:

s A dramatic increase in loan officer training and licensing expenses

s Higher marketing costs due to rapid home price declines

s Shifts in the Principal Limit Factors and MIP change qualification criteria, so we once again have to redefine “who is our customer”

One of my favorite CEOs, Jack Welch, once said, “Change before you have to,” and “Control your own destiny or someone else will.”

Here are some tips on how to cope with the new product, policy and profitability challenges that can affect a business.

Embrace the HECM Saver

You need to embrace the HECM Saver because it can be a savior. For years the HECM has been known as the product of last resort, the desperation tool, the “needs-

based” product. I take a much different view on the Saver. This is the first FHA insured “wants-based” Reverse Mortgage. Previous attempts have been proprietary products that were self-insured and never really took off.

For years, critics such as financial planners, attorneys, caregivers, and accountants had concerns over the product’s costs. The Saver is opening the door to new opportunities and will be discussed more openly as an option or alternative to income generating financial products for retirees.

Reverse your Thinking

The challenge and the opportunity lie with the wants-based client.

you need to ask yourself these questions:“Who is the wants-based client?” “How am I going to market to them?”

Once you define the target market, then you will see the opportunity. If your business contracted due to declining home values, then you can makeup market share by developing sales and marketing

strategies around the HECM Saver.

Re-examine your marketing campaigns. The ways that you traditionally market the Standard HECM is not the same way to market the Saver. I would recommend testing a campaign that is targeted to the wants-based, affluent client (someone with a solid home value, no mortgage or a low LTV). Here are some examples of talking points for your ads:

s Income producing financial tools Analysis of retirement plans Alternative to immediate annuity

products

Now more than ever, you need to examine different advertising tactics and campaigns; you need a fresh approach. Competition as well as the number of qualifying homeowners will require you to think outside the box.

Making the Most of Every Opportunity

Marketing the HECM Saver is not going to solve all of your problems. Your business will inevitably be affected in some capacity by the MIP and PLF changes. Since the Mortgagee Letter is hot off the press (so to speak), you really need to analyze it, see where the opportunities are and create a game plan on how to capitalize on them. I have to say that I was pleasantly surprised when I saw the floor rate change. This will positively impact my business since my core market is the 70 to 75 year old borrower, and they actually will qualify for more. The result will be a greater marketing focus on this age group (as you can see, I like to make the most of every opportunity).

On the flip side, with a decline in the floor rate, we have to anticipate broker pricing to decline as well. This means it’s time to start

?

Are Financial Professionals beginning to embrace Reverse Mortgages for their ability to provide additional income to retirees? I think so. If you don’t believe me, than read “Five Ways to Boost Retirement Income” by Jeff Benjamin, appearing in the September 19, 2010 edition of Investment News. Reverse Mortgages were listed as one of the “examples of strategies that can provide…stable income to (retirees).”


focusing on efficiency by maximizing lead conversion, reducing costs, and decreasing processing time. All of this will improve the bottom line.

Ways to Monitor your Business

s Loan fallout is a critical factor that drives up operational costs. Every loan application that hits your back office and does not close will cost you money. A great way to monitor loan fallout is by advertising source – certain sources may have higher fallout rates than others. Don’t waste time processing a

loan that may not qualify. Determine ways to alter your advertising criteria – tighten up your qualifications so you reduce the amount of non-qualified leads generated.

s Drive down your per loan marketing costs by implementing an effective referral campaign. You need to monitor what percentage of your leads are customer referrals and constantly strive to improve this percentage. A referral is like a free lead – spend time and focus on how to build more.

s Recruiting new loan officers can be an expensive proposition. Make sure you

are prepared for the costs, training, and licensing of new employees. Create a budget and a matrix for the hiring process and develop a max cost per recruit budget.

s Email your client base. It’s a quick, easy and rather inexpensive way to market to your clients. If you are not gathering email addresses, you need to. Inform your prospects of product changes, new loan criteria, and other announcements. Over 30% of our customers provide an email address; corresponding this way reduces your marketing and mailing costs substantially.

1. Join NRMLA if you have not done so already. Membership fees go towards lobbying efforts and working with government entities to ensure sustainability of the product.

2. Visit the AARP site every now and then and see what they are posting about Reverse Mortgages.

3. Create a “Google Alert” for Reverse Mortgages – this will generate an email notifying you of any story or update on the Reverse Mortgage industry.

4. There are great educational sites for Reverse Mortgage originators – check them out and listen to some of the webinars.

5. Take a peek and see what the MBA is doing.

6. NRMLA’s Monday Report – read it! It provides updates on any proposed legislation.

7. know what the counselors are doing – there are associations and blogs that can give you an insight as to what is happening on the front lines.

8. RMI’s industry trend reports and Neighborhood Watch (https://entp.hud.gov/sfnw/public/) will give you a clear idea of where the product’s adoption levels are highest and a look at what the competition is doing.

9. Read the industry blogs each and every day.

10. ThiS iS a muST: Go to the NRMLA Policy Conference in Washington DC and you will learn everything you need to know about proposed changes to the program from the stakeholders themselves. The guest speakers are right from HUD and government entities actively involved in the Reverse Mortgage program.

Here are my

top 10 tips for staying informed:

now more than ever, you need to examine different advertising tactics and campaigns; you need a fresh approach. competition as well as the number of qualifying homeowners

will require you to think outside the box.

Be Prepared and you Will Succeed

I’ve learned that if you plan for almost any outcome then you will be ahead of the curve. keeping your business nimble will prepare you for change and help you adapt quickly.

Always make sure you are “in the know.” Read everything you can and attend conferences.

T | TRR October 2010 20

There’s a common statement that talks about the futility of doing the same thing twice and expecting a different outcome. My hope in penning this article is that the reverse mortgage lending professional does not get caught up in this trap. What do I mean? Well, let’s start by looking at what has happened in the world of forward lending.

When the market crashed, what did forward lenders do? Did they innovate? No. Did they think proactively about the future? No. They went into what can best be characterized as batten-down-the-hatches mode. They chose to do nothing and ride it out. That strategy was far from successful.

What happened next? The government stepped in. New regulations entered the space that literally changed how business was done. And let’s face it, new regulation is still flooding the space. These developments escalated the headaches for forward lenders to what I would call migraine status.

Take the Mortgage Disclosure Information Act (MDIA), which was instituted to protect the borrower. The law stipulated what has to be disclosed and when. After the proper disclosure happens there are time frames as to when the process can progress after disclosure. In reaction to this new piece of regulation, forward lenders adopted electronic disclosures.

With electronic disclosures, the lender knew exactly what was disclosed, when the borrower opened the disclosure, when the borrower signed that disclosure and so on. The lender had a full audit trail proving that they adhered to the new rules. Despite all of the advantages of e-disclosures, it took the MDIA for forward lenders to look at and adopt this technology. Today, e-disclosures are finally becoming mainstream, but at what cost? The technology is not new. Further, when you think back, can’t lenders benefit from a legally enforceable, quick and efficient process no matter what market conditions are? We all know the answer to that question.

The problem in all of this is the inactivity of forward lenders to look for and plan to meet the challenges of tomorrow. Ignoring problems doesn’t make those problems go away. For example, for anyone that has had a migraine, you know how painful they can be. Why bring on more pain? The goal should be to move to a pain-free place. How is this achieved? You make sure that you’re not only prepared to meet the challenges that exist right now, but also that you are prepared to meet future challenges. Fast-forward to what’s transpiring in the forward lending world today, and you’ll see almost the same scenario. It’s fine to preach about the need to be proactive, but forward lenders should have been ready for today’s record-low rates, a mini refinance boom and an increase in activity.

This should be welcome news for forward lenders, but it’s not turning out that way. Why? Because when forward lenders had an opportunity to rethink how they do business, and take a second look at their process, they chose to do little to nothing. So, what resulted from this? Forward

Take a reverse approach to Forward missteps Accepting growth in technology and automating now, can help in the future.TRevoR GaUThIeR


ReverseVision Inc.3310 Pollock Place • Raleigh, NC 27607www.reversevision.com(919) 834 0070 • [email protected]

Stricter RESPA rules, lower principal limits, a more complex FM1009 and other changes pose a serious challenge to our industry. Lenders will take on additional responsibilities and need to be meticulous while working with brokers. Brokers will lose all or most of the YSP and any mistake made in the GFE could cut into their origination fee as well.

But there is also good news around the corner...

The RESPAChallenge

lenders now have more regulations to deal with, more volume to handle and no new or more efficient ways to accomplish this.

How does this relate to the reverse mortgage world? Reverse lenders today find themselves in a similar situation that forward lenders found themselves in after the crash. How so? Volume is stagnant and new regulation is expected. The difference is that reverse lenders have an opportunity to do things a bit differently as compared to their colleagues in the forward world.

We know that new regulation is coming as well as that volume will once again increase. So, do reverse lenders copy forward lenders and do nothing, or do they take this time to innovate? If reverse lenders follow the lead of forward lenders, it’s hard to see a different result for the world of reverse mortgage lending after new regulation hits and volume increases. Proactive lenders, heck, proactive companies in all business sectors, are always looking ahead and preparing for the future. Now is the chance for the proactive reverse mortgage lenders out there to look ahead and be ready for better days to come.

To take a step back, it’s great to say that reverse lenders should take this time to be proactive, but many reverse lenders reading this right now might wonder how to execute on that principle. They may be asking themselves, “Where do I start?” As these concepts are digested, it is important to understand the importance lending solutions can play in significantly reducing risk by providing reverse lenders with advanced technology, commitment tracking, business workflow, as well as industry knowledge and expertise that provides a comprehensive and streamlined approach to mandatory live pricing and delivery. It is important to have a solution that puts reverse lenders in a position to minimize risk and optimize market opportunities, while competitively pricing reverse loans to the broker base.

Another common mistake is that when lenders look to solve problems or adjust their process, they sometimes narrow in on one problem or one fix. Now is the time to evaluate your entire business and look at it holistically.

In terms of meeting the challenge of new regulation, we have already seen HUD issue Mortgagee Letter 2010-34 on September 21, 2010, announcing a second option for the Home Equity Conversion Mortgage (HECM) Program. FHA designed HECM Saver as a second initial mortgage insurance premium (MIP) option for the purpose of lowering up front loan closing costs for mortgagors who want to borrow a smaller amount than what would be available with a HECM Standard. For all HECM case numbers assigned on or after October 4, 2010, mortgagors may select either HECM Saver or HECM Standard with a resulting UFMIP. g


This Mortgagee Letter provides policy guidance for HECM Saver and HECM Standard by describing the amount of initial and monthly MIP, the availability of all existing program features for both options, how to calculate initial MIP due on HECM refinance transactions, how to access new principal limit factor (PLF) tables, changes to FHA Connection, and how to manage pipeline loans. This Mortgagee Letter also reiterates HUD’s long-standing policy of requiring mortgagees to adapt the legal documents as necessary to ensure compliance with the program requirements.

To overcome the new requirements and lack of expertise for reverse lenders to engage in mandatory live pricing strategies, lenders are turning to true Enterprise Lending Solutions. Why? At their core, these solutions reduce risk while achieving an improved return for correctly tracking and delivering loan commitments.

How do these types of systems reduce risk? Leveraging this technology, reverse lenders can successfully meet the requirements to engage in live pricing and significantly improve their commitment tracking and delivery success rate by incorporating comprehensive technology and data analytics to address these challenges. Technologies employed include comprehensive pipeline and commitment tracking as well as effective rules-based analysis, automated workflow,

extensive real-time management tools, and comprehensive vendor experience with commitment tracking, delivery and secondary marketing activities.

Automated workflow is central to your next big decision regarding your core technology solution. The solution should ensure both data and document driven workflow. Automated messaging, document generation and distribution, task queuing with auto-resolution, real-time management monitoring, and visibility should all be standard with any enterprise solution. Fully integrated document imaging and tracking combined with industry knowledge and expertise can lead to a more streamlined approach.

The technology provider should have extensive forward and reverse expertise. As the reverse mortgage industry is transitioning itself to the secondary market model that exists in the forward business, reverse lenders can no longer rely on technology vendors whose experience is limited solely to the reverse-side of the business. Reverse lenders need to engage and interact now more than ever with a vendor that has the knowledge and experience to help guide them through this significant change in reverse lending.

As reverse lenders take this time to think big, be proactive and innovate, they will be rewarded for their efforts. How so? By finding a solution that provides superior technology on one comprehensive

platform. This is important because lenders should seek a solution that provides full end-to-end loan management functionality for both forward and reverse lending, which includes commitment tracking, pipeline management, automated decisioning, business rules management, product and pricing, data driven workflow automation, as well as electronic document management.

A system of this kind will also allow the reverse lender to be more data-driven. Too often, lenders are driven by paper. The issue is that paper brings with it its own set of problems. Was that paper altered? How do you tell? In a data-driven environment, you know everything that happened to that loan. What exactly does that mean to the lender? Having one centralized location for maintaining rules, security, products, and workflow is key to workflow automation. This eliminates problems of synchronizing multiple systems, thus reducing the time required to add products, change processes, and adapt to the competitive landscape. It also provides the ability to quickly and easily access data required by your customers. The solution should offer sophisticated data-driven workflow automation (powered by a robust Rules Engine) including auto-resolution capabilities that greatly improve efficiencies, mitigate the need for additional training, and deliver a significant increase in employee productivity and customer service.

Technology can provide a helping hand in order to transition a reverse lending operation away from paper in favor of data and have those principles continue throughout the entire workflow of a loan. Easier said than done, you might think, but with the right system, it is just that easy. Your future solution should include advanced electronic document management and imaging. You should look for a solution that can capture any

it is important to have a solution that puts reverse lenders in a position to minimize risk and optimize market opportunities, while competitively

pricing reverse loans to the broker base.


ReverseVision Inc.3310 Pollock Place • Raleigh, NC 27607www.reversevision.com(919) 834 0070 • [email protected]

ReverseVision's international team of software engineers, attorneys and mortgage specialists turn these challenges into opportunities. They build the tools that give their customers a competitive advantage. This is why over 6000 reverse mortgage specialists in over 600 companies rely on ReverseVision every day.

The RESPAOpportunity

Can you afford not to use ReverseVision?

document from anywhere, utilize Optical Character Recognition (OCR), efficiently index and store documents, automate events, actions and data analysis, retrieve specific documents for specific tasks, and view and annotate documents. This creates an electronic audit trail, eliminates re-keying of data and ensures greater data quality and consistency.

Why did I bring up the example of how forward lenders dealt with similar circumstances now working their way toward reverse mortgage lending? As I said earlier, reverse lenders can’t do the same thing that forward lenders did, which is basically nothing and expect a different result. I also bring forward lending into this conversation because it is important for reverse lenders to understand that their business does not exist in a vacuum.

Reverse lenders looking to stay ahead of the curve should find a company that will partner with you for the long-term. Look for one that understands the full spectrum of industry issues in both forward and reverse, as well as offering the best mix of solutions to meet the needs of your business. The company should provide consulting, technology implementation, training, support, and in-depth industry expertise. Experience and expertise in dealing with mandatory live pricing on the forward side provides great insight, best practices and proven solutions that are ready for market now. Don’t risk working with a reverse vendor that is learning the ropes along with you; your business is too important to take that type of risk.

As reverse lenders look ahead, the best time not only to automate but also to genuinely rethink how the business of reverse lending is done is today. Now is the time. Look for and invest in a solution that can achieve all of your needs today and far into the future.

reverse lenders need to engage and interact now

more than ever with a vendor that has the knowledge and

experience to help guide them through this significant change

in reverse lending.

I


In uncertain financial times most people, especially seniors, cut back on discretionary spending. While the cycle of uncertainty persists, reverse mortgage consultants need to focus more of their attention on the “essentials.” So what are you supposed to do to withstand your reverse mortgage business and make it recession-proof? If you have the will there is a way!

First, you must have the discipline to refocus your business quickly. We need to understand what essentials our senior clients are experiencing and then base our marketing efforts around them.

It might be useful to look at the essential needs of humans and develop an idea of what motivates us to act, change, buy products and ultimately consider doing a reverse mortgage.

Psychologist Abraham Maslow suggested that we each have a “needs hierarchy” which essentially tracks our life cycle from birth to maturity.

A good analogy is to consider your needs as they relate to a ladder. To picture this ladder hierarchy, keep in mind that we’re not usually motivated by the higher needs until the basic ones have been filled. On the other hand, all of our needs are recurring in

our daily lives, so we’re up and down the ladder quite a bit. Now, you can relate the major benefits of your reverse mortgage products to one or more of these essential human needs. Refocus your marketing—your wording, your look, and your positioning statement. Revise your overall message so that it clearly indicates just how you can help your senior have his or her needs met. Next, ask yourself what psychological “button” does your message push to get the attention of those you can help?

Survival is the first basic human instinct as well as the first step of the ladder—we all have the need for food, water, clothing and shelter. Reverse mortgage originators don’t just refinance houses; we provide shelter for families and help provide the ability for our seniors to pay for the essentials such as food and clothing.

Comfort and security sit on the second rung of the needs hierarchy. After the basic requirements of survival are met, we naturally want to preserve and enhance what we have. Seniors who have been retired for awhile are now seeing some of their comfort and security leave and become more difficult to maintain; here’s where home security issues begin. How can you offer security and protection from physical and emotional harm to people

who are concerned about terrorism, job loss, and the future in general?

Think about the specific personal security issues that you can solve for your senior clients by building your marketing around their specific needs. For example, as a reverse mortgage loan consultant, your goal should be to provide peace of mind for families who might have lost a breadwinner or may just be relying on entitlements such as social security or SSI.

After people have had their survival and safety needs more or less met, they are ready to move on to the third rung of the ladder—to give and receive love, to make friends, and to belong to a group or community. Being part of the social community is especially important to seniors who gather because they have many of the same needs, wants, and issues in common.

If we’ve climbed this far up our needs ladder, we find ourselves on the fourth rung. Here is where we find ourselves wanting to be respected - we are building not only self-respect, but also our reputation and status in the family circle and within the senior community. This is very true for seniors who may sense they are giving up their self-respect and status within the family by having to resort to doing a reverse mortgage. Our job is to

recession-Proof Your businessLearn how to climb the ladder of success by practicing the basics.sam CollIns


Paul N. Lovegrove PCRepresenting lending institutions for reverse closings for over 15 years

[email protected] • www.AttorneyTrustReview.com

ATTORNEY

REVIEWTRUST

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Title companies insure that a trust owns the property but does not insurea trust meets HECM guidelines.

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reassure them this is only natural and it is Ok. Ask yourself what you can do that adds to a senior client’s “approval rating” in his or her senior community and family circle.

Moving further up the ladder to the fifth rung—once we have made it here, we are ready to “live our real lives.” The need for self-actualization and inner meaning is not always recognized until we have endured a period of discontentment. We are here for a purpose and, try as we might, we won’t achieve real self-fulfillment until we recognize and activate our purpose.

How Can Reverse Mortgage Professionals Help Seniors activate Their Purpose?

Ask yourself the following questions:

“What do I do that can help individuals picture and fulfill their dreams, and relieve their financial stress?”

“How might I refocus my reverse mortgage business to direct seniors to their own solution?”

Remember, at this level it’s not so much a factor of having gotten to the senior first, rather, our goal should be to provide information and education that will enable seniors to make wise decisions about their future financial stability.

Contact Past Clients and Leads

Go through your database, card file, address books or cancelled appointments. Next, phone or send a letter to your former clients to let them know of any new program changes. Inform your seniors of your workshops, seminars, website, blog or monthly newsletter. You never know when someone might decide they need a reverse mortgage and it’s up to you to keep your senior prospects, leads, and former or present clients updated on the ways you can help them. A disciplined marketing approach helps people in need find you when they need you, not when you need them.

Offer Outstanding Customer Service

Once you’ve started attracting senior clients, you’ll have to worry about retaining them, and in a stagnating economy, that may be even more difficult than usual. You are expected and must provide not only a high quality product, but also exceptional customer service. When money’s tight, clients expect more for their dollar. If you want to keep their business, you must keep them happy. Refine your senior client service strategy to ensure that every step from calling to closing the reverse mortgage is client-focused and effective. You may want to conduct a customer satisfaction survey in order to make sure your senior clients’ needs are being met; this will give you the opportunity to hear the real story.

Good luck to you as you climb the ladder of success in your reverse mortGaGe business.


The Financial regulatory reform bill and how it Will impact reverse mortgagesCan we expect negative effects on reverse mortgages?john a. smaldone

TThe reverse mortgage has taken a beating over the past eighteen months. This is a program that was a saving grace for seniors and still is. However, over the past eighteen months, we have seen the federal government reduce the effectiveness of the program for our senior citizens through its agencies like Fannie Mae and HUD, or by direct legislative action.

As an example, the principle limit a senior qualifies for is a gross percentage of the value of the home. This represents the gross amount of money the senior would receive before closing costs and any existing loan pay off. The calculations that go into determining the gross principle limit are determined by the age of the youngest borrower, the value of the home, and current interest rates. They are done according to actuary tables, similar to that of a life insurance policy.

Fourteen months ago, FHA/HUD reduced the principle limit percentage calculation by approximately 10% of the value of the

property. This impacted seniors all over the country. Foreclosures are occurring with seniors by the thousands nationwide. This is never reported on the news, but is in fact happening. The 10% reduction on a home valued at $200,000 could be a $20,000 reduction in the gross principle limit of what the senior would receive.

We are finding that the reverse mortgage is the last resort for many seniors that are facing a foreclosure. However, we are also finding that because of the drop in home values around the country, the amount of the principle limit available to the senior is not enough to pay off the existing mortgage on the home. This reduction in the principle limit (referred to above), is making it much more difficult to save a senior from facing foreclosure.

To add fuel to the fire, there is a very good chance another reduction in the principle limit may occur by October 1, 2010.

Unfounded bad publicity from some of our senators and congressmen has hurt the program nationally. There are many other areas of change over the last eighteen months that have had an adverse impact on the reverse mortgage as well.

Now to get to the main point: the financial regulatory reform bill and how it appears will impact the reverse mortgage and our seniors.

Out of the financial regulatory reform bill is “The Consumer Protection Bureau” (CPB), which is a handpicked committee by our President. This committee will surely be made up of bureaucrats that will be deciding and making decisions affecting our entire financial system that we live by.

One of the areas the CPB will prevail over is lending in our country. This means lending policies, underwriting guidelines, program types, and much more will be under their control.

2


Some of the items being considered on reverse mortgages are:

Requiring seniors to qualify for a reverse mortgage from an income and credit standpoint.

Since the establishment of the reverse mortgage in 1989 by HUD in conjunction with Fannie Mae, a senior has not had to qualify for the loan program and still should not have to. The home has always been the collateral for the loan.

Looking to head off FHA insurance losses upon death of the senior.

Our federal government and the agencies are looking at the housing crash and the potential losses the FHA insurance fund may face. The losses in their opinion, is when the senior passes away and the balance of the reverse mortgage comes due, but what happens if the balance is greater than the value of the home?

This is a genuine concern, however the way the CPB, FHA/HUD, and the Federal government are discussing this openly, one would think this administration has no confidence that housing values will ever go back up.

Imposing another reduction in the principle limit.

If this occurs, very few seniors will be able to qualify for a reverse mortgage that will do them any good. Other than those who have a tremendous amount of equity in their homes, the program will be almost worthless.

These three items mentioned are only a few of what is being discussed and coming from the CPB (Financial Regulatory Reform Bill). The CPB committee spells danger for all of us. The power the CPB will have is dangerous in the hands of anyone, experienced or not, and unfortunately most of the committee members will not have the experience needed to rule over our entire financial system.

We are convinced that the senior will face the loss of the reverse mortgage program through the inadequacy of the committee. This is a profound statement, however it must be said. It is my belief that this administration has an actuary table of its own for seniors. In short, I feel the Federal government has an age in mind at which a senior serves no purpose here on earth.

This administration has demonstrated that a case can be made for the statement above through the passing of certain bills.

Just the health care reform bill, along with the financial regulatory reform bill raise many questions about the intentions this administration has regarding our seniors.

For more information, contact: Marc Helm, 281-404-7824 or Bob Yeary, 281-404-7818

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I


I am sitting at Nick’s Restaurant in Laguna Beach and I order my favorite item, a Pabst Blue Ribbon, served in a tall-boy can, wrapped in a brown paper bag. I love this. It is like sneaking on to Pebble Beach in board shorts and flip-flops, oh, the commoner takeover has begun. Soon the manager, Ron, nestles up to the table and tries to explain to me that the novelty of PBR has run its course at Nick’s. Damn it, I am as distraught as a loan officer that just had his appraisal whacked by an underwriter. Thanks, Ron; next time you drop news like this, you’d better have an order of calamari in your hand or a complimentary round of Jagerbombs.

You see, I have been looking for good news lately and a good back up to Reggie Bush in my fantasy league. The only bright light I have seen lately is the light at the end of the tunnel…and it is another train coming right at me. But now, out of the blue, there is

hope on the horizon; the FHA dropped the floor on rates. It is like a pass from Romo to Williams—it hits the ground and the “Oh yeah!” moment is upon us. I don’t care about the PBR anymore, we have loans to do. This change in benefit, specifically to the younger borrower, is just what the doctor ordered. I was beginning to feel like the best days had passed us by and that maybe McNabb looks good in red. Then, without notice, and surprisingly light-footed, the news breaks out and blind sides even the guys in the know. Sweet! I will take what I can get.

So put your refi-shoes on and let’s go for a run. We should be able to create a nice pipeline of past clients; it is time to earn them some more money and reduce their fixed rate for relatively little or no cost. Oh wait, I hear the investors screaming already and as I write this, there is no trading going on in the secondary markets. By the time you read this article, hopefully the

street will have comfortably absorbed this new rate. All I know is that we have gone through refinance booms before and I don’t remember back ends destroyed—reduced, maybe, but not decimated. I am keeping my fingers crossed that the appetite for the product in the secondary market is still ferocious. It doesn’t have to be as eager as that Siegfried and Roy tiger, but just hungry enough, like that MGM lion who took a bite out of his trainer in Vegas.

Word on the street is that the secondary market is getting worried, but “panic first” has been their M.O. for years. It’s time to take a step back and see it for what it really is. Action in any market is good and if we have to accept a little less to do more, than so be it. Spoiled rotten are the new brokers and large are the checks right now. I remember the good old days. I was running Omni and sitting in a meeting at Financial Freedom’s Corporate office in Irvine when I thought my prayers had been answered. One back was introduced to us. Imagine creating a successful company on origination only—what a concept. I know only McCartney should be the one singing “Yesterday”, but we all have to see where this is headed. Lower rates mean less return on investment and a smaller price for pools. This g

Just What the Doctor OrderedIf we can let go of yesterday, good times lie ahead. davId banCRofT

... out of the blue, there is hope on the horizon; the FHA dropped the floor on rates. It is like a

pass from romo to Williams—it hits the ground and the ‘Oh yeah!’ moment is upon us.


equates to tinier checks for all of us, but hopefully volume will rule the day. We all will have to accept the fact that huge back ends will soon be a thing of the past, but that is not to say that we can’t be as successful as before. At this juncture in the industry, it may be about compromise...PBR instead of Bastard Ale or Outback Steak House instead of Maestros, but come on, who cares about 23 herbs and spices anyways?

Good times lie ahead and hopefully this boom can not only lead to business with past clients, but also to a frenzy of many new clients. These lower rates and even lower costs should penetrate the invisible wall of ignorance that still taints this product. I am hopeful that these walls tumble down like they did in Jericho so long ago and then we can help so many others. Oh wait, here comes Ron again from the bar, this time bringing me a Stella so cold you can see ice

particles breaking away from the glass. I can hear Mick Jagger in my ear, “You can’t always get what you want, but if you try sometimes, you get what you need.” Maybe we can all enjoy the fruits of our labor, and kudos to those that have fought the good fight. You will be rewarded.

good times lie ahead and hopefully this boom can not only lead to business with past clients, but also to a

frenzy of many new clients.

September 2010 TRR | 31

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The Reverse Review - October 2010

Documents

Transcript of The Reverse Review - October 2010