The Theory of Reversitivity: What Einstein Would Say About The HECM Reverse Mortgage

The Theory of Relativity is a rather pithy statement that among other things, states that  two events that appear simultaneously to one observer will not appear to be simultaneous to another observer who is in a state of motion. The focus is in the observing.  There are no absolutes.

Einstein’s E=MC² formula described the above noted relationship. The key is in the observing. However, in reverse mortgage parlance, this formula takes on a different meaning.  It means that Evil results  when misconceptions and misreporting (by the media,  regulators, politicians and  senior organizations) are constant and incessant. Although many view media reporting as biased and often one sided, these same people look to the media for viewpoints on unfamiliar topics.

Marty Bell of NRMLA recently wrote a  cogent and extremely well reasoned rebuttal to the current (September)issue of Consumer Reports.  He debunks the articles’ many misstatements that are presented as indisputable and immutable fact.

Inaccurate reporting is only one of the many challenges this industry faces. There are other challenges as well.   I believe that the balance of 2009 will prove to be  pivotal  for the reverse mortgage industry.  It contains the confluence of forces  that could result in the denouement  of a brilliant concept.  Whether the forces of good (the reverse mortgage industry) will triumph apocalyptic ally over the forces of evil  (biased media reporting, political demagoguery,  poor GSE policy decisions,  Congressional indifference toward seniors, poor state legislative initiatives, inappropriate FHA policy decisions) will soon be determined. If  an attitudinal change is not in the offing, then I fear that the program could morph into something vastly different.

The number of reverse mortgage originators as grown exponentially, yet there has not been a similar growth in the program. Considering the potential market, the penetration of same has only shown a slight increase. While many older Americans could never imagine the US economy suffering from depression-like symptoms again, the current recession, has been particularly injurious to their pocket-books and wallets. Likewise, the government’s pocketbook, while resembling a bottomless pit, is facing many major challenges as well.

A parallax view of these challenges  posits , on the one hand, an overwhelming need for  the program while the latter challenge  suggests that political hegemony and political expediency will decide the viability of the HECM program. 

Recently (9/4/09), a front page article in the Wall Street Journal title Loan Losses Spark Concern Over FHA, discusses the rising losses at FHA. In 2 years, FHA’s market share has increased from 2.7% to 23%. Rising defaults have eaten away at FHA’s cash cushion. In 2007 FHA has had a cash cushion of just over 6%. Last year the percentage was down to 3 percent. The question must be asked. How will the overall FHA picture affect the HECM reverse mortgage program? Then of course , FHA is projecting a loss of close to 800 million dollars for the next fiscal year. The House of Representatives already told FHA to drop dead. The Senate said we’ll help a little. Maintaining a subsidy neutral position means that  senior homeowner HECM borrowers will see substantially less money.

Recently there have also been suggestions out of Washington that the GSE’s will need to be revamped. The Housing and Economic Recovery Act (HERA) mandates that Fannie reduce its portfolio. Accordingly, the HECM program has taken it on the chin. Rising margins have definitely hurt.  Eliminating the use of the CMT could turn out to be a bad decision if the worldwide banking community loses confidence- particularly over the geo-political situations in eastern Europe.

The various states need to dispense with the histrionics that reverse mortgage bills are designed to save seniors from unscrupulous individuals and companies serving this market. Often the bills make little sense and serve to drive lenders out of the state. What we need are bills that make sense. There is one main thing that states can do. If they do this 99% of their fears will be assuages. Require separate licensing for reverse mortgage originators and companies. 

 Over the past 20 years HUD has done quite a remarkable job overseeing a  nascent and burgeoning  industry.  An example of this ongoing effort is evidenced by HUD ’s  attempt to standardize counseling and to create a counseling roster(24 CFR Part 206). I would urge HUD to require separate licensing for individual originators as well. States, likewise should create separate licenses for those that participate in this industry. Make it so that only those that care about seniors and about serving their needs are able to serve.

Albert Einstein was able to develop his breakthrough formula because his creativity had no sentimental attachment to the prevailing conventional wisdom. Likewise, the reverse mortgage industry needs to look at this program differently.  The goal of maintaining appropriate  funding levels for those in need is key.  Creativity, with the great minds that make up the industry , is  not in short supply.  I am confident that Washington working hand in hand with this industry can find a better way.  E=mc² represented a whole new way of regarding reality. 

Einstein became a United States citizen because he loved what this  country stood for. The United States represented the tradition of "moral strength".  Accordingly he  would urge that the incessant pressure our elders face must be assuaged with a reverse mortgage reality that continues to meet the needs of seniors across the country.  A politically expedient solution is no solution at all. Ignoring this pressing need places senior homeowners in a very precarious position.  He would never  believe that such a great country could treat elder Americans this way.

Comments

[Susan B Geffen]

I think remaining in their own home is probably the biggest concern of my geriatric clients. A reverse mortgage is a great option, especially if you don’t have long term care insurance. In fact, many of my clients are financing their Long Term Care insurance with their Reverse Mortgage funds.

* Reverse mortgage lets you cash-out the equity in your home without having to sell out.
* It’s a loan that all seniors and couples above 62 can obtain against their homes. You don’t need certain income or medical criteria to qualify for a reverse mortgage. But you do need to possess a home of your own with enough equity in it.
* This loan requires no repayment whatsoever as long as you live in your house and don’t leave it due to a sale out, death, or permanent shift.

[Beth Paterson]

I too agree with the requirement of testing and licensing for reverse mortgages separate from "forward" testing and licensing. In MN when I took the test for licensing there was a section in the training materials and a few questions about reverse mortgages but the information in the training was VERY incorrect. I was very upset about this and provided the accurate information to the licensing company. There is no renewal requirements either - the license is good for life.

During the last legislative session in MN I brought up that there should be separate testing and licensing for reverse mortgages but it was "brushed aside" with the comment that testing and licensing is required. However, as mentioned above, it is not focused on reverse mortgages.

Another problem in MN is that most people aren't even aware that the testing and licensing is a requirement (banks and credit unions were excluded but should NOT be) and there is no public way to check if the originator meets these requirements. So it is a very weak program.

I am currently working with 3 clients who originally started with another lender who is "specializing" in reverse mortgages and licensed. However these originators provided inaccurate information and I'm now cleaning up their messes. I don't believe they were intentionally doing anything wrong, just lack of knowledge and experience. It is very frustrating when originators don't know what they are doing - it's a disservice to the senior and to the industry.

I strongly believe if reverse mortgage testing and licensing is implemented it will eliminate some of these originators or at least they would have to have some knowledge about reverse mortgages.

As James states, the testing should be difficult enough and have some renewal requirements along with required continuing ed credits. Additionally, the regulations that are set should be enforced, revoking licensing and forbidding working in the reverse mortgage industry when appropriate.

Thanks for another great article, Dennis.

[Mike Gruley]

Dennis,

I especially agree with your suggestion that originators be licensed separately for forward and reverse loan origination. In the State of Michigan, a person can take classes and pass a test to be a legal loan originator. When I took the test, I answered one question about reverse mortgages...it wasn't a tough one.

I hope your suggestion of separate testing and licensing for ALL reverse mortgage originators takes hold in every state.

[James E. Veale, CPA, MBT]

Dennis,

Well said.

It is very discouraging to see the states initiating legislation that tears down rather than makes better and builds up. As a strong proponent of licensing, I agree with your proposals. Let the states institute such measures and let HUD follow through -- ensuring that state licensing is rigorously sufficient or require its own. In all cases there should be reasonably difficult testing to pass and minimum qualifying background checks made with some type of renewal requirements that include required continuing education in approved courses and a structure put into place for effective enforcement of reverse mortgage lending standards.