The Reverse Mortgage Blog - by Dennis Haber Esq.

How Will New York's New Power Of Attorney Law Affect The HECM And The Reverse Mortgage Industry?

On September 1, 2009  sweeping changes in New York’s power of attorney statute will become effective.  Some sections were repealed outright; many sections were amended and quite a few new sections were added. The statutory short form has transmuted from a relatively simple 3 page form into a rather inscrutable nine page form.   This form/law is now so complex that executing it without the direction of a lawyer, could cause the form to be null and void and/or totally ineffective.

Reverse mortgage loan originators and underwriters will be required to become familiar with the new form/law. Some of the changes are noted below. While the thrust of the law is to protect the principal, I believe that this law will have some unintended consequences. Where internecine warfare exists in the family unit, law suits as provided by the statute, will be plentiful.

To some, this law may look good on paper. However, I fear that it will create a nightmare in practice. Below we will look at some of the more salient changes and issues.

Agents, along with the principal, are now required to sign the form. Agents are also held to an even higher standard of care. The principal can also appoint a monitor to watch over the agent. The monitor could also bring an action or special proceeding, on 15 days notice, compelling the production of books, records, of receipts and expenditures.  Such a proceeding can also be brought by a co or successor agent.  Watch the family fights begin.  Many believe that this higher standard of care will preclude many from serving as agents. The feeling being that it is just not worth it. Time will tell whether this fear will be realized.

Since the power does not become effective until the power is signed by both the principal and the agent(s), valuable time could be wasted when out of town children are appointed as c0-agents. Additionally, a child  acting as a co-agent that does not want the parent to obtain a reverse mortgage can effectively prevent the power from taking effect. Therfore, it may be appropriate to choose just one agent rather than co agents.

Gift giving is severely limited by the new power.  Gifts cannot be made unless the power is initialed by the principal and a statutory gift giving rider is executed with the formality of a will.  This new form will require foresight and planning, especially when the children (agents) do not live close by.

Under this law, banks and brokerage firms must accept the power of attorney form. It is possible, due to its complexity, we may be seeing a sharp rise in revocable trusts.  Also more guardianship proceedings may be brought because children may be counseled not to become an agent particularly when animosity exits in the family unit.

Any powers of attorney executed prior to 9/1/2009 will remain valid. Some of the new law provisions will spill over to these old prior executed powers:  HIPPA rights-agent for purposes of bill paying can request medical billing information; agent standard of care and the right to bring a special proceeding are the more important and salient carry over features.

On the surface, the change in the General Obligations Law will make the execution of a power of attorney much more than a perfunctory exercise. It will become a solemn process that will require a lot of thought.  Ostensibly, the new law attempts to prevent an agent from taking advantage of the principal. But the question remains: Can any legislative body legislate away greed and over reaching by another?

 

Will HUD & Fannie Mae Continue To Turn A Deaf Ear And A Blind Eye To The Fnancial Hopes Of Reverse Mortgage Borrowers?

I have been told that there is power in words. I do not quite know where this power comes from. I must admit that I’m feeling like the proverbial 98 pound weakling. I want to find the right words that will convey the urgency of this message.

Power, for those that have it, is a wonderful thing. The powerful can take sanctuary behind their elected or appointed office: They can pretend a problem does not exist; or create a problem when there was none; or conveniently convince themselves that they have “solved” another problem, when they have just confused a situation; and they can even become invisible at any time- hiding behind inscrutable laws, policies or regulations.

The powerless also have an indelible feeling of ghostliness.  The difference is that they can shout at the top of their lungs about the unfairness, unreasonableness and unjust affect of this unbridled use of power, yet forever remain unheard and ignored. I have just described older Americans who own their own homes and are in danger of being effectively shut out from the reverse mortgage program.

The goal here is to get the attention of two Leviathan governmental agencies. I know that this will be difficult. Our elders are being wronged and it is time to call attention to this pending disaster.

The governmental agencies are Fannie Mae and the Department of Housing and Urban Development (HUD).  They are the equivalent of a Goliath. I am just a David.  But, today the weapons of choice are words.   That is a good thing.  Words when spoken plainly and from the heart retain a magical quality that sometimes can pierce any defense. If I can find the right words that convey the plaintive misery that is about to befall our elder homeowners, then perhaps these words will be heard.

Governmental policy is usually heartless and soulless.  The vast emptiness lies in its organizational structure, not with its people. Yet people, who have a heart and a soul work at these agencies. It is too them that I speak.

While many in this country are suffering financially, seniors are probably suffering the most. Seniors have the least amount of time to recover from financial mistakes; have increasing health issues along with concomitant costs; and no longer can find sustainable work in an economy gone awry. They are walking around with bags full of unpaid bills and with only a pocketful of money. They dreamed that their lives in retirement would mirror those “happily ever after” endings, that characterized Hollywood movies of their day.

There is a program that is making a difference, a huge difference in the lives of those who are 62 and older and who are homeowners. This program is called the Home Equity Conversion Mortgage. Today this program provides a bountiful amount of money.(Largely due to the American Recovery and Reinvestment Act signed into law of February of this year) Tomorrow the amount of funds realized will become diminished. Could these funds become as scarce as water in a desert?  Probably not.  However the minimized funds will no longer offer our elders protection from the financial storms of life.

Both of these giants decree that this is how it should be. Each is taking action to make it happen. They each point to certain facts which bolster their conclusions.  Each remains blind to the financial crisis that will ensue.

Since coming under receivership, Fannie Mae appears to be determined to scuttle the reverse mortgage program. Since the reverse mortgage program represents a very small fraction of their loan portfolio, just let it alone.  By purposely increasing the margins, which for most of the program’s 20 years has been virtually unchangeable, it is their goal to get other investors to purchase this paper. So at a time when conventional mortgage rates have spiraled downward (and now have recently edged upward), reverse mortgage rates have only soared.

Let’s go behind these bare facts:
1. Investors do not like uncertainty. Investors do not like the fact that homes are still depreciating in value. That being said, it is my understanding that some investors at least or taking a look at this industry. That certainly is good news.

2. These higher margins mean that eligible seniors will receive less money. Think of the sea-saw. When one side goes up, the other side goes down. When the margins go up, the benefit amounts go down. In a matter of a few months the margins have more than doubled. And there is no end in sight. 

3.   Then add to this the specter of higher bond yields along with higher indices when (if) inflation takes   hold.  (There are differing opinions when and how bad the inflation will be. On the one hand, spending is down, capacity utilization is at only 65% and there is no wage inflation. On the other hand, there is pressure on the dollar as oil prices increase and investors are looking for higher returns. Pundits are all over the place on the inflation issue).

Fannie has just announced that as of September 1, 2009, they will no longer purchase reverse mortgages w/ a CMT index.  The remaining index, LIBOR will be stable as long as geopolitical issues do not flair up and world banking stabilizes. Two very big ifs. If things do not go according to plan, this move could have the twofold effect of “exponentially” raising the expected rate and the note rate. Again this will mean a substantially less benefit amount, while the equity decreases at an accelerated pace.

HUD, over the years has made a “fortune” on reverse mortgage insurance premiums that is charged on each reverse mortgage loan. Recently, however declining market values have taken its toll on the MIP. HUD’s MIP fund is now in the red. To combat this predicament HUD is considering raising the MIP in conjunction with lowering the Principal Limit factor.  Although the current HUD secretary seemed to discount raising the MIP, I could see other draconian actions occurring. I won’t be terribly surprised if the program ultimately becomes means tested. (This would contrvene 12 USC §1715z-20(a) of the National Housing Act).

Again let’s go behind these bare facts:
1. HUD has recently requested 800 million from the government to cover existing loses. While the current administration has primarily used funds to assist business, many believe that some of these funds should go toward keeping the reverse mortgage program functional. The end result would be that our seniors would benefit.

2.  However, it is not unheard of for government to tighten its belt on the backs of seniors. For example, some counties in New York are no longer allowing reconsideration of a Medicaid application denial. County budget constraints are forcing a different kind of attitude to be taken. Similarly, for the reasons noted herein, it appears that Fannie & HUD are complicit in their shared disregard for the welfare of  senior reverse mortgage borrowers.

It is folly to lower the benefits to an incommensurate amount. It is the reverse mortgage program that is keeping seniors off the government dole. That is also why it makes an inordinate amount of sense to keep the maximum claim amount at its current level and to keep the benefit amounts as high as possible.

Once upon a time the reverse mortgage program was solid enough; strong enough to grow and expand, in spite of the many frontal assaults heaped its way. HUD created a program that truly withstood the test of time. Fannie embraced the program because they saw its utility. Then things changed. A confluence of forces caused the concern for our elders to become secondary. Both Fannie & HUD turned inward, and saw things from a detached perspective. Fannie was never comfortable being the sole investor in a mortgage program. HUD likes to tinker with the program. The long awaited counseling mortgagee letter will illustrate the point that sometimes tinkering should stop.

Today things are very different.  In addition to everything else, we now have a reverse mortgage condominium policy that appears to take the burden off HUD while placing the burden on lenders. To date there has been eerie silence on this issue. I hope I am wrong and Mortgagee Letter  2009-19   does make it easier and better for lenders to deal with condominiums.

And so I urge these two giants to take a fresh  approach to the problem. Continuing the myopic approach where a bit of an issue is confronted without looking at its full effect, does not serve seniors well.  Eligible senior homeowners deserve better. It is as if Washington is suffering from its own form of dementia. They remember our elders on Election Day. Then they are conveniently forgotten the rest of the year.

Reverse Mortgage Leaders Show The Way

Last week we saw the best from an industry. When attacked one must answer in kind. When wrongly vilified, one must use the power of words.  In either case, a rapid response is essential.

 The problem started when John Duggan, the Comptroller of the Currency, compared subprime mortgages to reverse mortgages. His comments first appeared in the WSJ. It then spread like wild fire throughout the media. As reported, the comments suggested that reverse mortgages posed substantial risks that appear to mirror those already seen in the subprime arena. The  industry answered with the right degree of constraint.

 Jeffrey Lewis, Chairman of Generation Mortgage, appearing on CNBC, gave clear, concise and laser pointed answers. These answers provided even the uninitiated with solace that another mortgage meltdown was not in the offing.  In addition, Mr. Lewis stated that the industry has been around for 20 years; an arm of the government is insuring these loans; AARP in a recent study determined that 97% of seniors were satisfied with their reverse mortgage.  Wen reverse mortgage volume is compared to total mortgage volume, reverse mortgages represent half of one percent of this amount. 

The Florida elder law attorney that appeared in the same segment wants us to believe that the government will have to continuously bail out the program. Once the housing market corrects itself, the government will not have to be concerned with this.
Her comments were also inscrutable. While recognizing that seniors have lost a significant part of their nest egg, health care costs are going up and seniors are losing health care coverage, she couldn’t even acknowledge that a reverse mortgage, in the appropriate circumstances, could be a good thing.

NRMLA, through Peter Bell, crafted a response to the Wall Street Journal. I like the statement, “The only thing the two products share is the word ‘mortgage’”. The response then focuses upon the multiple layers of protection that seniors enjoy under the reverse mortgage program. To wit: mandatory counseling, FHA insurance, restrictions on cross selling and origination fee caps. In addition to this NRMLA members are required to abide by a code of ethics.

In accordance with this response, it was pointed out that the consumer complaint offices of the Federal Reserve, Office of the Comptroller of the Currency, Office of Thrift Supervision and The Federal Deposit Insurance Corp have not received complaints from seniors.

It is time that a clarion call, hailing the soundness of the reverse mortgage program be heard throughout the land.  And to elected officials and to regulators everywhere, please note that there is no symbiotic relationship between reverse mortgages and subprime loans. They should not even be mentioned in the same breadth. As Peter Bell said in his retort to the WSJ, “The only thing the two products share is the word ‘mortgage’”.

Unlike Roosevelt’s “Forgotten Man” Reverse Mortgage Borrowers Are Just Being Forgotten

One only has to survey the dismal economic landscape. The view from this vantage point is replete with the detritus from a failing economy. For example, during the experimental years of the New Deal, the focus was on the “Forgotten Man”. As the term evolved,  President Roosevelt promised to work for those at the “bottom of the economic pyramid.” The focus was placed upon those that were most apt to feel the brutal brunt force of the severe economic malaise.

Even today, government on all levels, fights back by reaching into its provincial bag of warn out tricks. In the name of belt tightening government commits the same dastardly deeds. While it appears that the belt may be temporarily tightened one notch, when no one is looking the belt is loosened again. Then while the Forgotten Man is losing pensions, homes, investments, nest eggs and self respect, the government increases its fees for just about everything and creates new taxes. Never before has “taking blood from a stone” been more evident.

And it is quite apparent that our elders are in dire need of a source of funds. The cohort that the reverse mortgage is charged to assist are those homeowners that are 62 and older. While the Baby Boomers are just be coming of age to take advantage of the program, the focus of the article is to the previous generation, the Matures. This cohort is facing dire economic consequences.

This group is being forgotten again as a tidal wave of new industry thought is drowning out previous established thinking and standards. While the New Deal laboratory tinkered with novel concepts with mixed results, perhaps the time is ripe to experiment again so the “forgotten man” can be protected.

Before I begin this analysis, let’s go back to those prescient words contained in 12 USC §1715z-20(a) (The National Housing Act):
The purpose of the reverse mortgage program is to meet the special needs of elderly homeowners by REDUCING (emphasis is mine) the effect of the economic hardship caused by the increasing costs of meeting health, housing and subsistence needs at a time of reduced income.

At no time do those words mean more than they do today. Those who dreamed the American dream were horrified as their dream turned into a nightmare as their pensions, investments, and home values dissolved like a pill in water.

It is clear to see that reverse mortgages are needed more than ever. And everything must be done to preserve benefit amounts, protection and the original focus of the program.

From  March of 2000 through March of 2009 there have been numerous tinkering with counseling requirements. The root of the intent has always been to impart unbiased information to our elders. Now this tinkering is about to take a wrong and devious turn. Soon counselors will have the power to deny counseling certificates if seniors cannot answer a series of questions correctly. This is a dangerous deviation that will harm those that the government is trying to protect. Is this not beginning to sound like the early days of the fatuous Minnesota reverse mortgage bill-under the guise of protecting seniors the rules hurt them? (The Minnesota legislation was rightly vetoed by the governor).

Now let’s talk about a reverse mortgage experiment that could work well. The following will insure that interest rates remain low; benefit amounts stay high; and investor interest continues to grow.

I would respectfully suggest that strong governmental support become the linchpin of the program; that the CMT index remain as part of the reverse mortgage index mix and that each state institute separate testing and licensing for reverse mortgage originators.

Accordingly, I would urge that the lending limit remain at its current limit at least through 2010. I would then suggest that the margins be capped at 2.5%. Next I would reverse Fannie’s determination that the CMT index be discontinued. Personally, I believe that the 1 month LIBOR contains the seeds of destruction. It is a most volatile and unstable index. Should the economies of Eastern Europe implode, then this index will take off like a rocket. And finally and most importantly, I would TARP the reverse mortgage program. “Impossible”, you say. “Can’t be done”, you say. “What drugs are you taking”, you say.

 Let me introduce you to the Obama Administration’s MAKING HOME AFFORDABLE PROGRAM.  FANNIE & FREDDIE ARE AN INTERGRAL part of this program. Under this program the loan servicer will be paid for each successful modification. Under this program the investor will also get paid for each modification when a borrower is in imminent danger of defaulting.
Under this program a borrower who continues to make payments under the plan will have their principal reduced up to $5000.

Future features of the program:
Payments will be made to lenders and investors to offset losses from home price declines.
Payments will be made to servicers and to borrowers to facilitate short sales or deeds in lieu of foreclosure.
Additional incentives will be made to extinguish junior liens on homes w/ first liens that have been modified.
FHA & VA will establish similar modification program.

AND THE REVERSE MORTGAGE PROGRAM CAN”T MAKE SURE THAT SENIORS CONTINUE TO GET THE MOST AMOUNT OF MONEY WHILE PRESERVING AS MUCH EQUITY IN THE HOME.

Who is kidding who.

Also read Reverse Mortgage Storms Part 1 and Part2

Minnesota Governor Pawlenty does more for reverse mortgages than AARP

The indefatigable work of Beth Paterson brought to center stage how well meaning legislators, wanting to protect seniors, from certain perceived evils indigenous to the reverse mortgage industry, can still get it oh so wrong.

Her passion for helping seniors aided the governor to see the perceived evils in this legislation. At the end of the day, it is the industry’s caring professionals that made the difference. While NRMLA did what the industry would expect, it was the ubiquitous presence of people like Beth that tipped the scales. She in depth critique dissected each part of this bill. It provided the answers that will ultimately transmute a bad bill into a good bill.

I suppose that the one prominent thing that tipped the scales for the legislators was the unwavering support of the venerable AARP. And they too got it wrong.

The bottom line result of this legislation would have been to emasculate the reverse mortgage industry and drive it out of the state of Minnesota. Requiring a 10 day waiting period after closing when federal law already requires a 3 day waiting period is not workable. Increasing the waiting period is like adding more people to solve a problem. The fact that there are more people never works. A longer waiting period will not make seniors smarter or allow them to make a wiser decision.  The suitability requirements and counseling constraints were equally burdensome.

The difference between ordinary and extraordinary is a mere five letters. And the results of efforts culminating in the latter are quite significant. Clearly, Beth went the extra mile. Beth found out, as everyone who goes that extra mile does, that there is very little traffic at that point. When she found out about the proposed law, she initiated immediate action. She studied the bill and did a point by point examination. Paradoxically, she was determined to really protect seniors even though that was the job of the legislature.

Listen, I do not fault the legislature. Understanding reverse mortgages and crafting appropriate legislation is a Herculean task. Accordingly, this bill merely showed the ignorance of the legislature.  The lawmakers were also concerned with many other pieces of different legislation. Will Rogers once said, “All of us are ignorant- Just on different subjects”. 

Now that the governor has vetoed this bill, Minnesota will be able to craft a law that makes sense and really protects its seniors.

The Reverse Mortgage Storm- Hurricane HECM Part2

In part 1 we talked about both the current and impending changes to the HECM benefit amounts. In Part 2, I want to focus on the affect of such changes. I for one believe that by the end of the year all parties will know whether the reverse mortgage industry will survive as we know it.  The current limit of $625,500 is due to expire at the end of 2009, unless legislation is introduced to maintain same.  If the limits return to 417,000, for example, the industry will then be faced with a quintuple whammy that will be difficult to overcome. 

 If HUD resorts to a smaller principal limit factor, the program will become sick. (Whammy #1) If HUD also incorporates a higher MIP, the program will become very sick. (Whammy #2) If the margins continue to rise, the program will become critical. (Whammy#3) Implacable bond yield and index  increases will make the program gravely ill.(Whammy #4) Should the current lending  limit revert back to $417,000 next year, the program could die a slow death.(Whammy#5)  Each of these changes will reduce the amount that could be realized under the HECM program.  As the need for money becomes greater, the realized amounts will become smaller, much smaller.

But a lot can happen between now and the end of the year. One must take a wait and see attitude. Maybe home values will start to level off; maybe the $800 million HUD is requesting (if realized) will negate the need for an MIP increase or will make the increase smaller. Maybe the bond yields will stop rising. Maybe new investors will enter into the market; maybe the lower PL factor won’t be as steep as believed. Maybe the lending limit will stay as is. Yes, there are a lot of variables and a lot could happen.

Those that have already closed on their reverse mortgage are the lucky ones. Those that closed while the higher limits were enforced are fortunate. Those that will close before HUD tinkers with the program will also be lucky. Closing while Fannie continues its intractable margin increases, as it searches for phantom investors, should also consider themselves lucky. Your rates could have been even higher. If congress refuses to keep the higher limits in the new year (2010), get your reverse mortgage as fast as you can. I believe that it is in one's interest to make this assumption.

As I see it, no one is taking a holistic approach to the problem. It is as if Fannie & HUD are specialists. Together, each may think that they cured a specific problem; however, their efforts could kill the patient.

 Imagine two neighbors talking about their respective HECMS. One obtained a reverse mortgage after the new higher limits went into effect.  The other obtains a reverse mortgage after some of these aforementioned changes have occurred.  The results would be very different.  Getting back to our weather argot in part 1, it’s as if our first HECM borrower escaped from the financial storms of life. The second borrower was not as fortunate. The industry must urge their prospects to act now. If they continue to procrastinate, they do so at their own peril. There will be no reprieve from the next financial storm.

Reverse Mortgage Storms-Hurricane HECM Part 1

Potential reverse mortgage storms are whipping up all over the country.   To keep this in  meteorological  argot, I would suggest that there are reverse mortgage storm watches  one must keep their eye on. We don’t know which path the incipient fronts will take, or whether the storms will ever materialize. Yet the possibility remains that a lot of damage can be done.

Many months ago, I was unsettled by the first irreconcilable rate increase. The dye was cast when the margins were first increased. Today, the industry is faced with a unilateral shift in focus.  Like it or not, the reverse mortgage program is not as concerned with helping seniors as it once was. At some point, the industry shift in focus is now subsumed with secondary market concerns.

It may very well be argued that this shift is necessary to keep the program alive. However, another argument can be made that this shift could imperil the program when it is needed the most. The increase in the margins could not be happening at a worse time. Fannie, trying to entice other investors to take notice, has been increasing the margins on the HECM program. It seems to me that while housing values continue to decline, investors will not have the confidence to invest in reverse mortgage paper.  Accordingly, increasing these margins now would seem to serve little purpose.

Having said that, the Housing & Economic Recovery Act mandates that Fannie Mae’s portfolio decrease. Hoping that investors will see the merits of investing in the program is a miscalculation at best. It reminds me of the times the weatherperson states that it will be a beautiful day. As one looks out the window it is pouring rain.

Another important and symbiotic issue is the rising indices. A along with the rising margins, higher indices will mean that it is more likely than not, that little or no equity will be left in the home.  This is a significant hundred and eighty degree difference. Therefore, originators, while they can’t foretell the future, must nevertheless be reasonable in their forecasting on this point.

There is also the looming probability that the benefit amounts will be decreased as HUD wrestles with the incessant & ubiquitous declining value issue. Is there something government can do to eliminate the need to decrease the benefits realized under this program? It seems that government has a predisposition to helping businesses rather than helping individuals. So it would appear that this answer is no.

Taken together, the rising indices with higher margins, and higher MIP amounts and lower benefit limits may ignite a Katrina style disaster. Many in this industry are voicing this type of concern.  There is a palpable fear that these moves could wipe out an entire industry. I think this is a bit dramatic. Yes ,there will be challenges.

Sadly, “good people” are now considering leaving the industry. They profess to see the handwriting on the wall.  I think this kind of thinking is premature. The tug of war between providing for the needs of our elders and facilitating the program in the secondary market has begun. Currently, it looks like the secondary market folks are winning. If the words in the National Housing Act mean anything, the program will continue to provide the solace that our elders need. If the words are ignored, then Washington and the industry will have failed our elders.

Let’s not forget that 12 U.S.C. §1715z-20(a) states that the purpose of the reverse mortgage program is to meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets; 

At a time when seniors need the money the most; when media reporting has never been more favorable; HUD is considering (as it appears that it  must) increasing the MIP (Mortgage Insurance Premium) in conjunction with lowering the principal limit factor.  This means that the benefits that one can receive could be substantially less than they are today. 

While many are resigned to this eventuality, I believe that  the reduction in benefits could be modest with additional and appropriate government support. While HUD is already requesting about $800 million to cover current short falls under the HECM program, the cuts in benefits if draconian, could  violate the spirit of the National Housing Act. Therefore, modest cuts would seem appropriate. It is critical that seniors continue to have confidence in the program, while viewing it as fair.

Declining home values is a serious problem.   The resulting reduction in HECM benefits will not, in my opinion spell the demise of the industry. Rather, it will cause confusion and concern that will lower the volume of closed loans. The HECM for purchase and the eventual implementation of HECM co-op loans, may not be enough to sustain the program at current levels. However, even with (substantially) lower benefit amounts, the need to monetize equity during troubled economic times will remain.

Our politicians must dispense with high sounding political speeches and come to the aid of the HECM program in a meaningful way. One way is to cover the expected losses due to the steep decline of home prices. Another way is to continue to temporarily subsidize the program so that reasonable benefit amounts can be realized.

 We must heed the words contained in the National Housing Act. But for this program, thousands more would be counting on the government for direct assistance. Too many of our elders have been hit by the financial storms of life. The HECM program can provide protection from these storms.

 

The Reverse Mortgage: Ugly Duckling or Beautiful Princess-It Just Depends Upon Your View

Since the higher loan limits have come into play, more and more reverse mortgage articles are focusing upon the reverse mortgage as a prophylactic tool to combat foreclosure. Industry veterans saw the real efficacy of the product years ago, when the proprietary programs were yielding maximum benefits.

Now the HECM program is burnishing its reputation as more and more forward mortgage lenders deal with senior borrowers who are in foreclosure. These lenders are beginning to finally understand that a way can be crafted to keep our elders in their home. Some lenders, wanting to get some of these non performing loans off their books, are considering accepting less than the full balance due. Reverse mortgages are literally becoming a lifesaver.

When individuals find themselves in the throes of the foreclosure process, it is hard to think; let alone think outside the box. Out of the box thinking, however, is the kind of adjustment that is needed in these uncertain times. The stigma of a foreclosure has evaporated as millions of Americans of all ages and eclectic groups find themselves in the same proverbial financial abyss.

The recognition of the often maligned reverse mortgage program, while over twenty years in the making, has hit a high note as the public discovers its effectiveness in one area. Those of us in the industry see its beauty each and every day. It provides our elders with a life that they have been yearning for; money issues disappear; bills can be paid; the sun is shining once again.

Every pejorative has been aimed at the reverse mortgage program. The beautiful features have been hidden by this overwhelming bias. Recently the world, through You Tube, saw what magnificence can lie behind a rather frumpy exterior. The reverse mortgage is the Susan Boyle of the mortgage industry. They both have special qualities and they both can make beautiful music. One only has to  take proper notice.

 

Reverse Mortgages: Emotions Are Trumping The Thought Process

 When I speak with advisors, clients and/or members of the family, I am still surprised when those false bits of information come flowing out of their mouths. “Look”, I say, “the program has been around for 20 years.  It has a history. A half million seniors can’t be wrong”. Shouldn’t these misconceptions finally be exterminated? Well then, why do they survive?

Well, I have come to the following conclusion. These bits of wrong information have been repeated so often, that like a river whose course cannot be altered, these bits of information will always be an issue when one thinks about reverse mortgages. I believe that this steely thought process emanates from the primary/elementary early education experience of our borrowers.  Everything depends upon an ANSWER. Edward De Bono, the creator of the Lateral Thinking Concept believes that once we reach a conclusion- that first answer is when thinking stops. Our focus takes on the characteristics of a laser beam. We become locked into a direction, a singular point of reference.

Accordingly, there is no such thing as shades of gray. What exists is an answer. Our parents were guided by this process to a greater degree. But its impact on the Baby Boomers has nevertheless been significant. In the early grades, the learning process for parent (Matures) &  child (Baby Boomers) was similar. There could only be one answer. 

Cognitive Dissonance then plays a key role in keeping these misconceptions alive. This concept suggests that when what one already knows and believes comes into conflict with a new idea, the ingrained idea will stomp out the new idea, even when there is overwhelming evidence to the contrary. It is easy to see why the Matures (influenced by the family’s great depression experiences) and their progeny (Baby Boomers- younger than 63)) have until recently, not unconditionally embraced the reverse mortgage program. Until now, for many, it has been a CONTEMPLATIVE process. The laser focus/ingrained answer was easy to arrive at- its expensive;  or its debt and debt is bad;  or its for those that are destitute;  it’s too good to be true therefore stay away;  The media, acting like a mobius strip, has repeated these things thousands of times over the years.

Today, things are different. “big business” is failing. The “little people” are drowning financially and do not have that financial life line. Today the decision is more an EMOTIONAL one.  This is why the originators have to treat the borrowers as clients. This is the only way to ensure that the right path is being taken; that the choice to proceed is in fact the correct answer.

 

 

Reverse Mortgages: FANNIE MAE Declares War On Seniors

Silence or non action by one side when “inappropriate action” is taken by another side, if history teaches us anything, is further reason why the one being harmed needs to speak up. The reverse mortgage industry has maintained an attitude of indifference, which is just as bad as maintaining silence. The force causing the harm is Fannie Mae.

           If one were to look back at an era that many are talking about today, we could find parallels for thinking all is fine.  As the economy worsened after the stock market crash, the Hoover Administration kept on proselytizing that things were fine.  Even as evidence mounted to the contrary, president Hoover’s  inaction grew into  an opprobrium that became known  as Hoovervilles; ad hoc  shanty like encampments that grew up all around the country. During the 1932 presidential campaign, Hoover said, “It could be so much worse that these days now, distressing as they are, would look like veritable prosperity.”

            Back in December,  the industry was silent when the first round of margin increases took affect.  In ATARP FOR THE HECM PROGRAM and FOR THE REVERSE MORTGAGE INDUSTRY I wrote about this on January 5th, 2009. There were a number of originators who were questioning this event. But the attitude of the industry seemed to be, “It could be so much worse that these days now, distressing as they are, would look like veritable prosperity.”   So here we are and things just got much worse. Are we to sit back and wait till all the gains of the higher limits are eaten away? Fannie Mae has made it abundantly clear that it does not wish to be in this market anymore.  What are we, as an industry to do?

            Speaking about eating it……..I would respectfully suggest that the terse statement by NRMLA’s Peter Bell would have been appreciated more by the industry if it contained more amplification. Many borrowers have issues with trust. It would be important for a company/originator to point to a rather objective statement by the industry leader, that their file was not intentionally placed in a higher interest rate program.  This is what Mr. Bell said. “It's pretty draconian. We wish Fannie had given us more notice. A lender has to eat the difference for loans in the pipeline in order to honor the interest rate that it sold its borrowers. Or they have to go back to them and redo the numbers with a higher interest rate, which means the borrower will get a smaller benefit." A higher interest rate reduces the proceeds seniors receive from a reverse mortgage.

           What could have been said was something like this: The increase in the margins means that the expected interest rate will be higher. This means that the borrower will have access to less money. So if a lender said to their borrowers at the time of application, that they will receive a certain amount at the closing, that amount will now be substantially less. A lender does have the option of delivering that loan at the originally disclosed expected rate and benefit amount. However, the lender will have to pay out of their origination fee, an amount to secure that for their borrower. This means that the lender will lose money each time that this is done. Since Congress reduced fees lenders can earn under the HECM reverse mortgage, lenders cannot afford to earn even less.  The reality of the draconian move by FANNIE MAE is to create uncertainty in the reverse mortgage market place. Uncertainty for lenders as they cannot promise what they can deliver and uncertainty for borrowers because just like before 2003 and the creation of the principal limit lock disclosure, they will not know what they will be getting until the closing.

            The immediate response to the above will be that the lender must now lock in a delivery rate that must be closed by a certain date. This I may add makes little sense at a time when one part of the industry is saying “hurry up” deliver that loan at the agreed upon terms, while the other part of the industry is saying Whoa! Slow down. Take your time doing the counseling Mr. /Mrs. Borrower. In fact, we are instituting a new protocol. And if you can’t answer a random set of questions, you can’t get a counseling certificate.  Clearly, two parts of the industry are going in opposite directions. This makes delivery of a loan that much more uncertain.

            The Fannie Mae problem as it must now be called is not insoluble. It requires new and different kind of thinking. It that same article, it was mentioned that the government (with a new entity) may need to step in and rescue the reverse mortgage industry. A new entity needs to replace Fannie Mae; an entity that understands that our elders are sacred and should have the ability to access the most money at the lowest cost. In other words TARP the reverse mortgage industry. While the industry has been focusing upon HUD/FHA, it forgot that it is one thing to look at the entity that makes the rules; the umpire. It is quite another to look at the entity that supplies the bat, balls, bases and stadia. Rules without the ability to play the game are sheer folly.  

           It is time to recognize that as long as FANNIE MAE, can unilaterally raise margins as its capital markets people see fit, this financial leviathan, will continue to hurt our elders. A new focus must be brought to bear on this industry that will return this program to its original purpose: To help seniors that want access to additional funds.

            A determination needs to be made.  Some may phrase the issue this way. Is the purpose of the higher rates (margins) to make the program appealing to other investors at the expense of seniors or is the purpose of the program to help seniors get the most out of their homes at the expense of the investor? Either way leads to an unjust result.

           That is why The House of Representatives’ Financial Services Committee may wish to get involved in choosing new ground in this ongoing dilemma.

            What many do not quite grasp is that in 2007 it was fine that margins temporarily hit the nadir of 1%.  The HECM 150 has, until recently been the workhorse of the industry.  A few months ago even the 150 became an anathema. Just the other day the new temporary plateau became the HECM 350. Where will it end? Where will the rate pogo stick go next?   And will the recent gains of this industry and concomitant good press be for naught? I for one pray this is not the case.