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.

Comments

[Robert F. Hopkins]

Rather than get into a detailed discusion of how we got ourselves economically into our position we find ourselves, it seems most readers are more concerned with the state of the Reverse Mortgage today and all the pros and cons of the costs and affortability of the reverse mortgage as it applies to todays possible client for this product. My total approach is to identify the various types of products available and identify what would keep seniors from purchasing a RM. I think when we do that we fall back into the age-old problem of why seniors are notpurchasing the product and the reasons which keep them from doing so. It puts us back into the age-old situation of why are they not inclined to purchase the product. We need to stop right there and identify the senior citizen's economic profile and identify the choices available for a senior to retire with dignity and independence and point out ALL of the options available with help from family, outside counselors and any and all financial professionals that the senior can access. Then, and only then, if the reverse mortgage is the best choice should they continue with picking thr right company and type of product which fits them best, where they have the best chance of living out their life with the dignity and independence that they hopefully deserve.The rest is easy-doing thr right thing for your client. Next time:certifcation of the agent to eliminate issues of doubt as to whom you are dealing with.

[Robert Hopkins]

I think to understand where we are we must understand who we are, what we do and what we have done to get to this point in our history. We must begin with a micro-analysis of what we do and analize what makes this country called America. To avoid an expose of thousands of pages, I think we shall begin with the generation called t he "baby-boomers" and disect that group and find out what they basically did or failed to do to bring us to this point in our history. I look forward to that look backward which should explain how we got in the shape we find ourselves today. I truly expect the author to comment, as well as the readers, on the quality of my views nd determine my continuance on this blog. Until then, I thank you for this opportunity.

[Robert Hopkins]

I would like to start a series of posts to this area as I am quite impressed with Mr.Haber and the quality of those associated with him.

[Tom Ryall]

Kudos for John Brodey! Everyone seems to be making a big deal over the counseling issue. Although it needs to be addressed I very rarely hear anyone bring up the MIP. Every article I read mentions how the seniors are being helped by the lower origination fee.
Let's take our head's out of the sand and do the math. Even at the $417,000
value the MIP is $8,340.00.
It seems to me that closing costs are not going down and helping the senior or loan officer but putting more money in the FHA treasure chest.
Maybe NRMLA and AARP should be addressing this issue. If they are no one seems to be talking about it.

[John Brodey]

I generally agree with your 'state of the industry' comments Mr Haber. NRMLA should not feel uneasy about representing the interests of its' rank and file members. Those who are dedicated are already placing their client's best interest first, but the business left unfinished by the modernization bill is glaringly inequitable. To cap the origination fee but still allow the MIP to remain at 2% is a self defeating effort at lowering closing costs. Here in California with new limits, the MIP will now be almost double what it was, effectively raising closing costs instead of lowering them. Concentrating on this component and lobbying for change should be the priority for NRMLA and the AARP. Client concerns over closing costs are not likely to be assuaged by a loan officer saying that while costs are actually higher, it's progress because he is making less.

[James E. Veale, CPA, MBT]

Mr. Haber,

Your timely word on behalf of our industry is greatly appreciated. Even though self-policing is difficult, many professions have successfully become major players in that process.

Our industry is just starting up. The volume of our activity and the number of people working in it is still very small. We need the goodwill and respect of others to successfully expand and grow.

Self-policing is never an easy task but Congressional intervention seems far less desirable. To give up just because something is not easy seems to be an admission of our own inability to protect the interests of seniors.

I appreciate the activities of Senator McCaskill in attempting to protect seniors from the unscrupulous activities of the few in the financial products industries who have taken advantage of seniors who have suddenly found themselves with greater cash resources upon taking out a reverse mortgage. But like most Congressional actions and though well meaning, I also find the new restrictions on reverse mortgage originators too far reaching. This is exactly what happens when Congress feels an industry is not aggressively attempting to police its own activities.

NRMLA needs to be permitted to grow to not only represent the interests of lenders but also of loan officers. The National Association of Realtors, the American Institute of Certified Public Accountants, and the American Bar Association have all evolved into organizations that not only represent the interests of their industries’ employers but also of their rank and file members. Why can’t we do the same?

I appreciate your writing. Keep up the good work.

[sam collins]

Dennis,
Well said. I have expressed a similar view concerning HUD counseling payment by seniors and the "unintended consequences" this new legislation is placing on seniors. Everyone should contact HUD and their congressmen to request an amendment or technical revision be made to the HUD counseling payment portion of the HR3221.

[Michael Audley]

Asking the Industry to do more is like asking Dracula to be in charge of the blood bank.

Michael

[mortgage lenders]

will this crisis ever end? maybe after the presidential race?