The Reverse Mortgage Blog - by Dennis Haber Esq.

The Survival of the Reverse Mortgage Industry

Not long ago, I received a compelling comment to a recent blog post- (Reverse Mortgage Fraud: The Next Frontier) from Jim Veale., a Senior Vice President at Security One Lending. Should his discerning comments be ignored, the answer to his proffered question will clearly be yes- The industry will self-immolate and cause its own demise.  I think that this salient question needs to be addressed head on.

Today, the term “mortgage” is a pejorative.  Its cousin, “reverse mortgage” is not far behind. The negativism behind these two terms springs from different roots. The mortgage debacle this country is experiencing aptly explains why the first term has become a “dirty” word. Ignorance and unfamiliarity on the part of professionals (attorneys, accountant, financial planners, etc) as well as the incessant repetition of incorrect information by the media and others, makes “reverse mortgages” equally “dirty”. And what people believe to be true is more important than what really is true.

The FHA Modernization Act is a quintessential two-fold example of what happens when an industry and its members leave openings for government to say “we can do better in protecting the public (seniors)” It matters little that the industry has accomplished so much over the years. (For example, some key achievements in our industry have been: The expanded reach of counseling and establishment of counseling protocols; Principal Limit Lock Disclosure; The industry led (NRMLA) conflation of important concepts into the above noted law like co-ops, purchases, and new soon to be determined lending limits; Creation of a code of ethics; The implementation of the LIBOR index, etc.)  In hindsight, the industry would be in deep trouble if this additional index was not implemented.

The “partnership” between the industry (NRMLA) and HUD means little when those legislative claws attach themselves to that “opening”. Sometimes government is compelled to act, when industry ignores the big things. Like the squeaky door that gets the attention, the sale of unnecessary annuities, got the attention of the government quickly.  However, the unvarnished truth is that in limited circumstances, an annuity could be a beneficial financial planning tool.

Government regulation does not have to attend to the most important issues. It can legislate on even relatively minor issues as well. For example, although counseling has been carefully considered over the years by HUD (see Mortgagee Letters 2000-10, 2004-25, 2004-48, 2007-08 and 2008-12), the Congress nevertheless, ignored this compilation, and substituted their will as to how counseling is to be paid for.  As you can see, the perceived “we can do better” legislative “insight” is always lurking.  This is especially true on the state level.

However, as long as miscreants are allowed to enter our industry, government regulation will not be far behind. As long as short cuts are taken and expediency becomes king, as in the elimination of any face to face meeting, government regulation will not be far behind. As long as all in the industry are not subject to disciplinary action for ethical violations, government regulation cannot be far behind.
The industry must do more if we want the government to do less. The industry must do more to insure its survival.

The initial reverse mortgage decision can be painful

You can see it on the face of many of my clients. The years have taken their toll: Arthritis in the knee;. Glaucoma (in the eye); The insidious assault of diabetes. The unyielding march toward decrepitude continues. The melancholy over the physical condition is not necessarily what keeps them up at night. Sometimes it is the sea of unpaid bills that causes the most pain.   

While a reverse mortgage could eliminate this pain, the process can inflict additional pain, when the senior makes a poor first decision. It is this decision that will determine whether the pain will stop. Too often our elders become afraid of the wrong thing. They worry about the things they shouldn’t worry about and summarily skip over the things they should be concerned about. 

Many seniors throughout the country are totally unafraid when the time comes to choosing a loan officer/company to work with. While this is the most important decision that one can make, it is often done in an incautious manner. The thinking, I suppose, is that one company is as good as another.  A loan officer is just like any other loan officer. The reverse mortgage programs are treated as a commodity.  The skills of a loan officer are treated as fungible. The mistake is that the HECM and proprietary programs are treated as a mere product that could be purchased here or there. It really doesn’t matter where.  BUT IT REALLY DOES MATTER.

Our elders, on the other hand often worry about a $30 servicing fee, or the fact that the loan is adjustable, or about the service set aside fee, or the settlement costs, or the fact that they have to have counseling, or that the interest is compounded, and on and on it goes. These things often become make or break items. A loan officer that knows his/her stuff can often get the senior to re-focus.  After discussing the program, along with available alternatives, such a person can put things into proper perspective.

HECM, FHA, NRMLA and other musings

Recently interesting thoughts were voiced, as I was ruminating with colleagues about the state of the reverse mortgage industry. The opinions proffered ranged from things are not good to things are great. Now you have to admit that this is a wide disparity. Or is it?  Perhaps it just depends upon the focus of the individual.

On the one hand, one could look at the gross number of loans and say wow, the industry has grown significantly in the past few years. Over 91% of all loans ever closed have settled since 2000.  Even more astonishing is this statistic: Over 40% of these loans have closed just in the past 19 months. In the early years, the aggregate amount of closed loans grew at a rather anemic pace. During the first 10 years of the program only about 36,000 loans were closed. However, in the next 8.5 years over ten times that amount were actually closed.

One could also look at the increase in the amount of lenders offering the program. It seemed that when I started in this industry over six years ago, there were only a few hundred of us at best. Today, that amount has grown exponentially.

Some say that the more lenders that offer the program the better it is for the industry and for our seniors. Others say that there are just too many of us. I say competition is a great thing. It has the potential to make us better. “Better” is a choice that you make. "Better" could be defined any way that you like.  Competition creates a zero-sum game. There are winners and losers. You lose if you give up or refuse to get better or become innovative. Economists tell us that creative destruction must occur in competitive markets.

Others say that this industry is special and different. Accordingly there should be some threshold requirement to enter this field. While there may be something here, it could certainly raise restraint of trade issues. And then it depends upon a balancing act of fairness and protection of our seniors.

Many remember the halcyon days when the type of HECM programs were few and every lender had the same rates and the same programs. The CMT was king. The concept of market differentiation was important to getting loans in the door. The industry has gone through a cataclysm of sorts as the vagaries of Wall Street have played havoc with some of the programs. Just when you think a program is here to stay, it is gone. Nobody said that change is easy. While it is certainly necessary, the reverse mortgage program could not continue to expand it its original nascent state. Investors are expecting much more from an industry and its programs that have now come of “investing age”.

This leads me to the next point. It was suggested that many loan officers hate change of any kind.  Well get use to it. Life is change. The HECM and proprietary programs have changed.....and will continue to change.  FHA has changed. (Just review the HECM mortgagee letters). NRMLA has changed through the years. The expectations of our elders have changed. They now expect more from their loan officer. And of course there will be many changes to come…….inventive programs, industry wide certifications, increasing state and federal oversight, more stringent codes of conduct, more conservative pricing, and much, much more competition….on every level of the industry.

So what is the state of the industry? I say it could be better. To say that it is good or great belies the fact that every industry could do more. “Better” is the fuel of improvement. It keeps us moving in a positive direction.  Our industry has a long way to go before it arrives at its chimeric destination. We can’t rest upon our laurels.  We still have many misconceptions to debunk. We still have much educating to do- on many levels. Indeed, “better” is a great thing.

Reverse Mortgages: The Cure for the Perfect Financial Storm?

Recently, (August 11, 2008) the Wall Street Journal ran an article whose title proclaimed, Economists Expect 2008’s Second Half to be Worst Than First. It pointed out that many people in this country are grappling with what I call the Perfect Financial  Storm: Layoffs, stagnant wages, falling home values and tighter credit.  The stimulus package checks  that were sent out did not do the job as the succor coincided with the increase in gas prices.  Whatever amount did not pay for fuel, the balance went into  savings and debt service.

Those of us that work with seniors on a regular basis know the value that untapped equity can play in the life of our elders. This is not to suggest that every senior should obtain a reverse mortgage. To the contrary, only an exploration of needs, options and wants will determine the appropriate path. However, the perfect financial storm precludes our elders from seeing things as they really are. Their thoughts are imbued with fear. Fear prevents action.

Costs of a bad economy cannot and should not be measured in dollars and cents. It must be measured in human terms. And as we approach the first political convention, there is a sense of perturbation as the major parties get ready to sling the mud. Most of us are neither economists nor accountants. A cipher with many zeros is meaningless to most of us. Sadly the campaigns will seek to gain our attention with the fact that this program will cost billions and that program will cost billions.

  Seniors know three things. When they can no longer pay their bills the country is in bad shape.  When every one of their friends complains that they cannot pay their bills the country is in a recession. When even their adult children are losing jobs and cannot make ends meet, the country is heading for a depression. It makes no difference that we are not close to experiencing 1929 all over again. However, what people believe to be true is more important than what really is true.  So when people feel helplessness brought on by the perfect financial storm, even the elixir of a reverse mortgage cannot ameliorate what our seniors believe to be true.

If Reverse Mortgages Help Government Then Government Should Help Reverse Mortgages

Many of us in the reverse mortgage industry are hoping that the FHA limits are increased to the maximum. The results of intensive vetting of the language of FHA Mod will come shortly.

As I was reading the newspaper this morning, I came across an article about the New York assembly pushing for a bill to aid with home heating oil. One assemblyman is quoted as saying.”Far too many New Yorkers will have to choose between heating their homes throughout the long months of ice and snow and bitter cold and feeding their families.” Well, if we just change a few words, he could have just as easily said, far too many seniors will have to choose between heating their homes throughout the long months of ice and snow and bitter cold and having enough food on the table.  Those legislators in the senate said people in the state need property tax relief.  “If taxpayers can’t afford to pay their property taxes, then you may not have to worry about having a home to heat”. Let’s change “taxpayers” to “seniors”.

The real scary part is that 35 states have a severe budget crisis. To think that government will always be there with succor is a dream.  Let’s not forget it is a big election year. Pandering and posturing is what our elective leaders do best.

I see a day when the reverse mortgage will be recognized universally for the important financial tool that it is. At least for those 62 and older homeowners (who use the home as a primary residence), the reverse mortgage is the pathway to a better life.

If reverse mortgages  can help government manage its Medicaid costs, along with other entitlement and assistance programs, then government should encourage the use of and provide incentives for seniors who avail themselves of this wonderful program.

Does FHA Mod Hit or Miss its Intended Target? Part2

The discussion as in Part 1, will center around the changes concerning the HECM program.  Part 1 focused upon those bulls-eyes that FHA Mod hit. Part 2 will focus upon the misses.

The new law prohibits a lender from paying for counseling and requires the establishment of a new counseling protocol. I do think that lender paid counseling is fine provided that the funds are paid to the corporate entity which has a network of national counselors that are focused upon doing their job of counseling. The issue becomes more problematic when a lender remits to one  single agency that would then counsel a senior. 

Additionally HUD has spent a great deal of time on the counseling issue as noted in the following mortgagee letters: 2000-10, 2004-25,2004- 48,2007-08 and 2008-12. In the last mortgagee letter, HUD spells out the 3 permissible ways counseling can be paid.  FHA Mod changes this. Under no circumstances can counseling be paid by a lender. While taking away the appearance of impropriety is a good thing, it forces seniors to pay for counseling out of their own pockets. This new mortgagee letter should allow seniors to pay out of the proceeds of the reverse mortgage, or if they decide not to get one or can’t close on one, then HUD would have to pay the counseling agency.

Closing costs are a main concern to all. In fact, this issue is the main reason why seniors do not proceed with their reverse mortgage. I believe that this study regarding the effect of the mortgage insurance premium should have been sanctioned a long time ago and the results should have been factored into FHA Mod to signal to everyone that closing costs are in fact going down. It is an anomaly to cap origination fees while the MIP fee increases.  The overall result is that the total closing costs will be increasing rather than decreasing.

This gives those in the media  ammunition to renew their lopsided and misguided attacks upon the program. While government and industry often have different viewpoints and competing interests, here I would like to think that we are on the same page when it comes to fees.

Having just written the above, I am reminded of the fact that the government places the MIP fee funds into the general fund. So perhaps the interests are not the same.  Perhaps it is time for some of those proprietary programs to fill the void………if only the somnolent secondary market would wake up.

Does FHA Mod Hit or Miss its Intended Target? Part 1

This post will focus upon those areas where I feel the law hits the bulls-eye. A succeeding post will discuss where the law misses the target altogether.

It hits the bulls-eye by eliminating the HECM Advisor program. The HECM Advisor program was an ill conceived program that had nothing but good intentions. Back in 2000 only 6600 HECM loans were closed. HUD wanted to increase this amount. The thinking was to allow non FHA entities to market the program and get paid for doing so.  Through the years many questions were raised regarding how one can adhere to HUD’s policy without violating a long established rule of law. 

The inherent concept of this program contravened a long establish rule in the mortgage industry, To Wit: One  cannot get paid for a mere referral. (Section 8 of RESPA-Real Estate Settlement Procedure Act).   I invite you to read Mortgagee Letter 2008-14. It lists activities that an approved FHA entity must do  and activities that must be done by a non approved entity. It tries to take an immutable concept and mold it into something that it cannot be molded into.

Sadly, in a civilized society the majority of honest and caring professionals have to suffer for the misdeeds of a few. While the selling of annuities and other financial products have been abused by a few greedy individuals , the prohibition against the selling of same by a company selling reverse mortgages also hits the mark. This industry cannot afford negative press of the kind we saw in the New York Times (March 2, 2008) and on the Nightly News with Brian Williams (Jan 10, 2008). While I agree that annuities can serve a solid financial planning purpose, the wholesale proscription of same will help eliminate  the miscreants  in the financial sector that were preying upon our elders. The insurance companies that recently purchased reverse mortgage entities will no doubt try to modify these provisions.

The law also hits the mark for capping the origination fee at $6,000 at the high end. I  believe that this will force "bad companies" out of the industry. These companies typically came in with slick promotions and misleading marketing campaigns thinking that seniors are pushovers  and  conquering  this industry would be an easy task. Sadly, some good companies may be forced to leave as well because profit margins got razor thin.

While the loan limits, as of this writing, are in a state of uncertainty, the limits will be going up. The only question that remains is by how much? The specter of higher loan limits is wonderful news for our seniors. Also having a HECM program for the purchase of a home (until now this was limited to the more conservative Homekeeper program) and for cooperative apartments is huge.

Many of these changes took years to accomplish.  Our elders are clearly the winners.