The Reverse Mortgage Blog - by Dennis Haber Esq.

Senior Homeowners Facing the Bermuda Triangle of Economic Uncertainty Can Rely On Reverse Mortgages for Their Bailout

The rubric coming out of Washington D.C. and out of the media paints with an ultra broad brush. I suppose when the paint dries and some of the layers are peeled away, the fine print will astound us all.  And it will not matter which side of the bailout debate you are on.

This much I know-The bailout must achieve 3 things:
1. Take bad assets off the banks’ books. Banks need to get back into the lending business.
2. Inject liquidity into the system.  Lending will help reverse declining real estate markets.
3. Minimize the effect this bailout will have on taxpayers and on seniors. This will not be the last economic crisis they will face.

It seems to me that each of these points is interrelated and each must happen. While the “mortgage crisis”, along with its concomitant drag on the economy is the focal point, there are other areas that can also implode.

Companies in the automobile industry are already first in line for their bailout. Then there is the credit card folks (writing an inane bankruptcy laws was not enough); and the student loan folks; and those lenders that provide personal and commercial loans.  Wait…..aren’t these loans usually given by banks? Banks are behaving like the spendthrift child that keeps coming back to the wealthy parent (government) for help.  The government had to intercede in the savings and loan debacle in the ‘80s and also helped saved Citibank (now Citigroup) from ruin as well. Will the parent ever learn to say "No"?

Even the venerable reverse mortgage industry has been affected by this fallout. While interest rates on the HECM loans (FHA –insured reverse mortgage program) are still relatively low, they were even lower before the lending crisis. However, the proprietary programs have been decimated. Yet it is a good thing that the HECM program remains strong. Looming is the second part of the Bermuda Triangle of Economic Uncertainty- the oil crisis. To understand why this will happen, it is important to know the following:
1. In the 70’s, the Nixon Administration, agreed militarily to protect the Persian Gulf countries in return for OPEC requiring that oil be purchased in dollars. These countries also agreed to purchase our treasuries and to keep the price of oil relatively low.
2. The invasion of Iraq changed the stakes as it was believed that the US was after Iraqi oil and wanted to break OPEC’s hold on this country
3. OPEC is not happy that it is accepting a declining currency as payment. This means less profits and higher inflation rates.
4. OPEC sees Asia as the future.
5. With the economic development of India & China, supply will not be able to keep up with demand.

This means that there will most likely be continued high oil prices and eventual shortages. Thank goodness that our seniors are a hardy group. If it seems that their funds just don’t have the purchasing power of yesterday, it is because of the baneful fiscal policies of the government.

The government has a vested interest in keeping the Consumer Price Index low. This represents the third part of the Bermuda Triangle of Economic Uncertainty. Therefore, wages that are pegged to increases in the CPI purposely do not increase as fast. Social Security benefits are also kept lower than they should be. Instead of using a fixed basket of goods with prevailing prices, the government uses a flexible basket of goods. Consequently items that are going up receive less weight, while goods that are decreasing in prices receive greater weight. This sleight of hand is a way the government keeps Social Security benefits and inflation reporting artificially low.

The upshot of all this is that the home remains the castle in every sense of the word for our seniors. A  home covered with a reverse mortgage will protect our seniors from future financial storms that are definitely on the horizon.

Reverse Mortgages: The New Humpty Dumpty

I’m reminded of a story between a Zen Master and his student.  As the student is talking, the Zen Master is filling up a cup of tea for the student.  When the cup is full, the student exclaims, “Master stop pouring. The cup is already full”. The Zen Master stops pouring and remarks to the student, “See the cup is a lot like you. You think you know it all so there is no room for anything else to go in.”

Each of us have to stop thinking that we have all the answers. Working together has never been more important. Yet the reverse mortgage industry continues as if everything is fine. We need to learn from the recent lesson from Wall Street. This week Wall St. imploded.  Merrill Lynch – saved by the bell. Lehman Brothers – KO’d. AIG – gets up at the count of 9, Unabashed greed and feckless oversight has caused Americans to question the integrity of this country’s financial system.  Our financial system is creating a prison without walls. So many Americans feel punished. And yet they are innocent.  Financial wealth has become as fragile and evanescent as personal health. 401 Ks have shrunk into 201Ks. The mattress may soon become the bank vault for many.

If the reverse mortgage industry continues on its merry way, we will also be counted out. We better start paying attention before we hear the lamenting cries of “We should have done this or we should have done that”. Perhaps we need to coalesce around and consider other views. My recent blog post evoked strident comments from those that care, really care about this industry. I want to summarize these comments as they can be very instructive. I have noted some of these items before. Yet they are certainly worth repeating:

While some criticize NRMLA, I think it is important to differentiate between a trade association and a governing body. NRMLA is a trade association and as such they have done an outstanding job. However, they cannot compel companies to join the association and they cannot effectively act as a governing entity.

Wholesalers need to stop summarily taking on any company that requests to place loans through them. There needs to be serious vetting. The failing here lies in the classic behavioral science model of human behavior- the prisoner’s dilemma. The wholesalers will not trust each other to coordinate an outcome that would make them and the industry better off. Therefore, they believe that if we do not take this company, another wholesaler will. This is specious thinking at best; I would implore all wholesalers to develop a joint standard that makes sense.

A real certification program is needed. Independent certifications are a smoke screen, no matter how well meaning; NRMLA has been working on this issue for years. A real certification program takes time to create. It is something that can not be rushed.

Counseling will become a real choke point within the reverse mortgage process. Today many of these agencies are no longer accepting checks. Too many have bounced. Some are requiring money orders. Others will no longer permit payment at closing. Too many companies have forgotten to make sure the agency gets paid out of the closing costs. (HUD1)  Nobody knows what a hardship case looks like. Seniors will probably be asked to provide financial records to provide proof of such hardship. This is crazy in a real insane way. Counseling has already taken 10 giant steps back.

Many are screaming: “Closing costs will not go down. In fact these costs will rise under FHA Mod”.  The public will react with a vengeance when they realize this. The industry promoted only one side of the equation.

Let me leave you with an actual example I recently experienced several times.  I’m sure many have had similar experiences. There is a company out west that has solicited my customers and have attempted to entice them with the new higher FHA limits. The only problem is that these numbers have not been announced. Clients believe that they are being taken advantage of. They get mad. First they get mad at me for not telling them about the higher (non existing) numbers. Then they feel violated when they learn the truth.

I like to think that there is  a ray hope.  This is a great country made up of industrious people who can and will bounce back from adversity. I believe that resiliency is part of the American fabric. However, many of our elders have become “lifers” in our above mentioned “prison system”.  Their meager savings will not allow them to think about hope. Their Social Security benefit will not permit them to think about that ray of hope. Their ever decreasing investment portfolio will not allow them to bathe in that ray of hope.  However, they do have one thing. That is a home.

It is that home that permits our elders to use a very important tool- A reverse mortgage. I am fond of speaking about this tool as a “weapon of choice” . Sadly, the home has become a target of choice for those that seek to prey upon our elders.

Only the generation that founded this country shaped America more than the generation that fought in the 40’s, 50’s and 60’s. Therefore, the way I see it, we owe them everything. It is our industry that has the key to free them from their financial prison. I see a time when the key can be taken away from us. If we don’t get this industry on the right path, the tea cup will remain overflowing and the powers that be(NRMLA) will even lose their hegemony over this industry. And when this Humpty Dumpty falls, it will not be able to be put back together again. Should this happen, the cancer that wiped out the Alt -a and sub prime mortgage market will have over taken this industry as well. When sound and proven safeguards are eviscerated by political will, the industry will become unrecognizable.

Why Is The Reverse Mortgage Industry Cruising in Neutral?

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Dante (Dante Alighieri) the Italian author and poet once wrote, “The hottest places in hell are reserved for those who in time of great moral crisis, maintain their neutrality” Well, our seniors are in grave danger, unless we move from a vista of maintaining the status quo to making things happen. Doing nothing is no longer an option. Remaining in a perpetual state of neutrality is also no longer an option.

The reverse mortgage industry remains silent when it comes to promulgating a set of enforceable principles of behavior. A code of conduct is a wonderful thing to have. The problem is that it is unenforceable against many companies (in the industry). The industry, as a whole, is too timid when it comes to using evocative examples that showcase the nature of loan officer character and competence  and the services that must be performed.

Maybe the industry needs to start a dialogue in terms of “good and evil”. The good guys are those that care and have the requisite character and competence. And the bad guys are those who view our elders as prey and look at the senior market as one to be vanquished.

“Non- action” can no longer be tolerated. We can already see that doing nothing  is the quickest way to allow others (like the media, Washington and state legislators) to re-brand this burgeoning industry.

With each new day that begins, we need to think about those seniors who have been lied to and ripped off by those who have no business being in this industry;

With each new day that begins we need to think about those seniors that hired a loan officer from a company whose stated policy is ONLY to use the highest interest rate programs (margins) so the company can garner the most profit per loan;

With each new day that begins, we need to think about those seniors who  “signed up” for the program, without having their needs properly evaluated;

With each new day that begins, we need to think about those seniors whose statements , “I’m not interested now” were ignored and were threatened and intimidated  by a loan officer until such person was allowed to visit the home;

With each new day that begins, we need to think about those salient questions posed by our seniors that received the non-answer of, “Trust me”, or “That’s not important” or “You know, that’s a silly (stupid) question”.

With each new day that begins, we need to think of those seniors who had their loans denied or delayed because of loan officer incompetence;

With each new day that begins, we need to think about those seniors who faced loan officers who perpetually use the “one size fits all sales pitch, instead of taking the time to discover the concerns of these seniors;

With each new day that begins, we need to think about those seniors who do not get the real benefit of meeting with the loan officer because his/her ultimate goal is to be in and out of the home as quickly as possible;

With each new day that begins, we need to think about those seniors that were exposed to a loan officer who chose to ignore “education and information giving”. Instead, these seniors received misinformation, half truths and lies. Seniors are 10 times more likely to believe this “information”;

With each new day that begins, we need to think of those seniors that are told by their loan officers not to speak to family members or to others for additional guidance;

With each new day that begins, we need to think about seniors who met with loan officers who puffed up their meager credentials and who never can say, “I don’t know that answer”. Rather, they make up any answer;

With each new passing day that begins we need to think of those seniors that have been victimized by those who have sold other unnecessary financial products just so a bottom line could be maximized.

Now it is time to make good things happen. It is time to give up our neutral stance. It is time to stop looking the other way.   Dante’s neutrality has stifled the growth of this industry.  Dante’s neutrality has caused, after all these years, the same misconceptions to flourish. Dante’s neutrality has caused the government (state and local) to pass laws that may not be in the best interest of our elders.

Thankfully, Dante’s neutrality can cause us to ask questions and rethink certain positions:  Should there not be industry-wide public service announcements? Should there not be concerted dialogues by the industry to those professionals outside the industry?  Should there not be stringent requirements met before one can enter this industry? What about reverse mortgage public education initiatives for all families in the United States?  Shouldn’t everyone know when a reverse mortgage is appropriate and when it is not? What is the best way to get the word out? What governing body would be most appropriate to guaranty that our elders are protected?

We really need to heed Dante’s warning. There are too many smart and industrious people that are part of this great industry to allow neutrality to reign. . There are just too many people who care. When cruising in neutral you get nowhere fast.
And by the way, why are we cruising in neutral when it comes to really protecting our seniors where they really need it the most….in their….. “kitchen”?

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The Politicizing of Reverse Mortgages

As the political season begins in earnest, the competing candidates and parties prefer that the American people look at the issues from a one dimensional point of view. The pundits even claim that one has to take sides. After all, one can’t be for and against gun control; for and against abortion; for and against immigration; for and against universal healthcare; for and against the war in Iraq & Afghanistan; for and against environment/climate change, etc. At first glance, it would appear that this makes great sense. In fact, this is the quintessential paradox.

The reality is that many of us feel conflicted when we talk about these issues because the truth is they are not one dimensional. They are multidimensional imbued with shades of gray, depending upon a myriad of circumstances.  In fact much of life is the same way.

It is not the purpose of this blog post to get into a political discussion about these contentious points. However, it did occur to me that critics of the reverse mortgage program, like our politicians, want their clients to believe that reverse mortgages are in fact one dimensional; To Wit: The program is either good or it is bad. These same legal and financial experts espouse such beliefs with ease notwithstanding they may be doing a huge disservice to the people who hired them.

For example, they may say that the program is not suited to a client because: The closing costs are too high; The interest rate is adjustable; The interest rate is fixed and all the money must be taken upfront; The paperwork is daunting; The service set aside unfairly takes money away from seniors;

The issue that gets lost is that a reverse mortgage may be a better option than the other options that are currently available. Or it may not.  The one dimensional approach, whether positive or negative, may lead to the wrong decision, unless all aspects are considered- those gray areas.

The one dimensional approach could wrongly cause a senior borrower to refrain from enjoying the program or cause a borrower to obtain a reverse mortgage when a different option was better.