The Reverse Mortgage Blog - by Dennis Haber Esq.

Newsday Act 2 cover story 10-24-2009

This cover story on reverse mortgages, written by Ron Roel, is fair and balanced. 2 of my clients, Bill and Marilyn Devlin and Walter Reed are quintessential borrowers who relate their experiences. The article mentions how the Devlins were almost taken advantage of by unscrupulous players in the industry.

I am also photographed and quoted, along with Meg Burns (FHA), Peter Bell (NRMLA), Richard Jurgens (National Consumer Law Center) and George Lopez (James B. Nutter & Co.).

Click here to view the article in full screen.

 

The HUD HECM Reverse Mortgage: Policy Reigns Over Reason

The Reverse Mortgage Industry is facing an immediate sea of troubles. It is like a canoe on a river that is trying to steer an erratic path in an effort to stay afloat. The question remains, as the dark of night conflates into the dawn of a new day, whether the battles with these implacable untamed currents, will cause the canoe to finally capsize, break-up and plunge to its final precarious destination.

The above paragraph is an ample metaphor for the direction of this industry. The “implacable untamed currents” refer directly to the reverse mortgage edicts that are coming out of Washington. As long as this  industry remains relatively silent, and accepts things as they are, these currents will capsize the industry.

Just as HUD has effectively ignored the provision in  HERA (Housing & Economic Recovery Act 2008) that permits HECM’s to be used for  co-op units, it has also assaulted the sacred territory of condominiums as well. Their draconian guidelines (Mortgagee Letter 2009-19) makes it expensive and troublesome for a lender to due spot condo approvals. The result: As of November 2, 2009 condos will be effectively excluded from the reverse mortgage program or the time to the appropriate vetting will be indeterminately long.

The Reverse Mortgage industry is “people directed”.  Those in it are not suppose to be working “operating room” style-sterile. Yet this is what we are forced to do. There are legitimate, warm and friendly commitments that are made with families by originating individuals. In many instances the family depends on these individuals. Many originators  have acted altruistically accomplishing chores, etc. for the family  at the originator’s expense; there are professional relationships between appraisers and Banks, mortgage bankers and mortgage brokers that have existed in the mortgage industry for 30 and 40 years; there are counselors that would call originators with questions. And originators that would call counselors with questions.  Everyone wanted to be better at their craft. Yet each of these relationships are now considered dirty, corrupt and lethal.

While the mortgage industry does have its share of miscreants, as does every industry, rules and laws that take the human interaction out will also suck the life out of that industry. There are plenty of laws on the books that permit regulators to eliminate the bad apples. Sadly they are conveniently ignored. Politicians and regulators get more political mileage if they can point at new laws, and new regulations that “we are using to protect you now”.

If one were to take current and prospective regulations into account the following  is a composite of  what  Reverse Mortgage industry would  look like:  The originator, will not be able to help seniors who are otherwise eligible, that live in co-ops or condominiums; An originator is not permitted to answer a “where should I go to get the counseling done”  question or other reverse mortgage questions.  An appraiser will do an appraisal in an area that they are not familiar with, thereby causing values to come in below market value and not at market value. An individual who obtains counseling will soon be tested and can be denied  access to the program. Underwriters will be the ultimate deciding factor as to whether the principal was of sound mind when a power of attorney was executed. The result will be totally nonsensical. To wit: A  power of attorney will be appropriately accepted by others, for all things EXCEPT for getting a reverse mortgage.

I hope I am wrong about the long view. However, I firmly believe that there is a way to affect the right kind of changes that will demonstratively protect seniors . At the same time it is important that Washington and the states  see that a framework is in place that preclude malevolent forces from taking  advantage of this cohort.

The Bane of The HECM Reverse Mortgage: More Onerous Regulations

The collapse of the U.S. Economy has left an indelible lesson for regulators to ponder. The fact that the financial industry and the mortgage industry cannot be trusted to police themselves should  not be forgotten any time soon. 

 For years the Federal Reserve, under Chairman Greenspan, championed  the broader  approach that markets are self correcting entities and do not need governmental interference. This approach was built upon the notion that unbridled  greed can be tamed and directed toward the greater good of  ever expanding markets. When this model collapsed, the mirage of self correcting markets revealed  the stark delusional sophistry  of an institution that was suppose to know better.

Many believe that Congress will not be fooled again. I beg to differ. The plutocracy that is endemic in Washington will make sure that certain laws get passed; regulations get promulgated. But by Washington standards, it will be business as usual.   The reform will  not affect any vested interest.  It  will only affect the "little guy".

In this case the “little guy” means the  HECM reverse mortgage industry.  In comparison to the mortgage industry as a whole, the HECM reverse mortgage industry volume represents but a pin head of closed loans. Therefore the frustration of the big boys (Fannie, HUD, Federal Trade Commission, Comptroller of the Currency, etc) will come down hard on our burgeoning industry.

A sea of laws, rules and regulations with their galaxy of unintended consequences will wind up hurting those who are the subject of this protection. Demagogic politicians will continue their clarion call for  “morenessness”- more rules, more laws, more regulations, more punishment. They will push this agenda until the mix of perfect laws chokes the industry into submission.  As long as those policy makers substitute their judgments for the decisions that the industry should be making, it will severely limit the amount of individuals that will be helped.

The next post will discuss the HECM reverse mortgage industry’s usurpation of the use of the power of attorney.

DISPARAGING THE REVERSE MORTGAGE PROGRAM IS NOT THE ANSWER

The reverse mortgage industry has been under siege by respected magazines and Newspapers (Consumer Reports, CPA Journal, New York Times, Wall Street Journal, etc.) and by the National Consumer Law Center. The amazing fact is that the reverse mortgage program depicted in the articles does not resemble the actual program.

 The continuing assault has become hardened, unprincipled and impertinent. It has been joined by feckless politicians who conveniently wish to ignore the real differences between a reverse mortgage and other types of loans. They want to give the impression that they are protecting those who are unable to protect themselves. The attack by such a diverse amalgam would appear to give gives credence that the program is flawed.
 
The articles, for example, tell partial stories that distort the facts and lead readers to believe that reverse mortgages are no different than sub-prime loans; the politicians are complicit and have jumped on this band wagon. No article has included the indispensible point that the program has an approval rating between 93% and 97%.

Peter Bell, President of NRMLA, has been a steady voice who has maintained that NRMLA has polled many state enforcement officials and not one could point to incidence to wide spread malfeasance specifically in reverse mortgage cases.  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”.  Mr. Duggan has stated that his comments were taken out of context and has lauded the program. Yet his original comments keep appearing in articles.
 
While the disingenuous articles and reports are indeed troublesome, I do not expect them to stop anytime soon. There is a grave danger in misrepresenting the facts. An individual, who could benefit from the program, may decide not to move forward. They may have said “good-bye” to the one thing that could make a real difference in their life.

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HUD TO IMPLEMENT RULES DENYING COUNSELING CERTIFICATES IF BORROWERS CAN’T PASS A TEST

Recently there has been much talk about HUDs impending change to the counseling protocol. It has been suggested that the new protocol will embody a testing component. While the stated reason for this shift in approach (from education to education and testing) ostensibly has the protection of seniors in mind, it seems to me that this approach will hurt much more than it will help. In fact, for the enumerated reason set forth herein, the effect will unduly discriminate between classes of borrowers seeking reverse mortgages.

In my opinion it could also make the process more complicated; it will cast the industry and the program in a negative light; and set off a flurry of further feckless and restrictive regulations at the state and federal level. This industry is discovering that rules and laws only beget more rules and laws.

The answer to HUD, Congress & to the states is simple. Limit those that get into this industry. Before the program was opened up to everyone in the mortgage industry, the industry never had the problems that now seem to be endemic.

 A snap-shot of those we serve would indicate that about 77% of senior homeowners across the country own their homes free and clear. A substantial number have at least one chronic condition. It is estimated that about thirty five percent  of those 65 and older have 3 or more chronic conditions. Dementia and Macular Degeneration are common  maladies  that tend to keep seniors in their homes.

Those wishing to get  a reverse mortgage run the intellectual & cognitive gamut. Some clients are exceptionally bright and “with it”. Others may not have the education nor the intellectual curiosity. Yet, they will be held to the same test taking standard.

Let’s take this one step further. A client suffers from dementia. How will this be handled? Now it must be pointed out that there are many kinds of dementia. While it is a degenerative neurological disease that generally interferes with normal brain activity and function, it usually interferes with memory, communication and learning abilities. It is a progressive and insidious disease that usually takes years to develop.

This means that our test takers, in the early stages of the disease may exhibit short term memory loss, whereby they may forget recent conversations. Clearly family may not even recognize these telltale signs until the disease has further progressed. At this stage, the individual can still function and is considered competent, but gets flustered in unfamiliar surroundings and circumstances. And like any other reverse mortgage applicant, they will have to take a test.

An individual with mild dementia becomes  disoriented in new surroundings, evinces poor concentration and a short attention span. Even  a person with mild dementia can usually live independently with minimal support from relatives. And like any other reverse mortgage applicant they will have to take a test.

I would posit that it is usually between early and mild dementia symptoms that families are spurred into action.  At this stage of the disease, legal documents, like a power of attorney are often executed..

I agree with all the rules that actually make the industry better and stronger and protect our elders. While independent, third-party counseling is a very important piece of the puzzle, changing the process from education to education/test taking, at a time when they are facing a plethora of health issues, is an overly broad way to use the counseling function.  I am also afraid that this new protocol will lead to very un-even results. Accordingly, constitutional issues may be lurking as to the application of the testing requirement. This industry cannot put itself in a position of being viewed as “insensitive” toward the cohort it serves.