The Mortgage Broker and the HECM Reverse Mortgage Program

One key reason that the reverse mortgage program has taken off is because of the tireless work of the mortgage broker. The mortgage debacle that has befallen our country, needs a scapegoat. Some entity needs to be pegged with the primum mobile moniker.  How, in the range of possible perpetrators, can one reasonably narrow the possibilities down to one?  I think that this is rather easy. Think of a long conference table. Along one side of the table sits: The US government, then next to the government sit the government sponsored agencies FANNIE & FREDDIE then the  Wall Street firms then the credit rating agencies, then AIG, then the FDIC banks, then the mortgage bankers and then the mortgage brokers. The US government points to FANNIE & FREDDIE and remarks “It wasn’t us, it was them”.  Then FANNIE & FREDDIE point to the Wall Street firms and utters the same thing. And down the line it goes, until we get to the mortgage brokers. Being at the end of the line, they have no one to point to. Also it should be pointed out that of all these groups, the mortgage brokers have the least power and smallest lobbying budget. So in the “money is power world” of Washington politics the broker takes the hit. This point is rather significant because it is the mortgage broker that has been a key player in the proliferation of the HECM program.

The government, particularly since the Clinton Administration through the Bush Administration believed in the laudable goal of home ownership for all. This aspiration comprised the “American Dream”. The more people that owned homes the better.  However, along the way one abiding principle was forgotten- One earns the right to qualify for a mortgage.  The government used its own cudgel to loosen the “ten commandments” of mortgage lending.  Fannie & Freddie and FHA had to respectively buy and insure these loans. Along the way, the mortgage broker being the last in line, took the hit. The mortgage broker was selling these heretical programs. They were selling them because the wholesale mortgage companies required that they sell them. Along the way the FDIC banks (many were also in the wholesale mortgage banking business) sold them, the mortgage bankers sold them. Wall Street made tens of billions by repackaging these loans and AIG insured the risks. The realtors (seldom mentioned as a contributing factor to the mortgage debacle) throughout the country repeated  the demotic mantra “that real estate values never go down”,  until the hubris of the realtors was proven wrong.

The HVCC will hurt the clients as appraisal management companies hire appraisers who will do the work at a fraction of the cost. Since the management company needs to get paid, appraisal costs will be going up. The appraisals will often be done by appraises who are not familiar with the area in question. Therefore homes will appraise for less. This means that the senior borrowers will receive less. This will act as a further haircut to the principal limit.

Once upon a time, the focus of the HECM program was on getting the deal done. Today the focus is on compliance—rules fostered by well meaning politicians who are not concerned about the resulting  unintended consequences. Who in Washington is standing up for the seniors? Picture the scene in Shakespeare’s Julius Caesar. Instead of the senators physically attacking Caesar, imagine they are attacking the proverbial senior with laws and administrative rulings by appropriate agencies. As the senior is overcome with this perfidy, the stentorian cry echoes off the chamber ceiling, “Et Tu,  Brute”?

 

Comments

[Robert H Irving]

ooops...the correct URL is http://massachusetts-reverse-mortgage.com

[Robert H Irving]

Hi Dennis,
Please note I have addressed the SAFE Act Test in several posts on my own blog. Most recently http://massachusetts-reverse-mortgage.com/choosing-a-lender/safe-act-national-test-update/ and a previous post at http://massachusetts-reverse-mortgage.com/choosing-a-lender/safe-act-national-test/. I, too, have noticed a large number of originators struggling over this test. And even a large number of experienced forward loan originators have had trouble. For those of us in the reverse business, the test bears almost no relationship to what we do and is poorly designed with unfair expectations of reverse brokers. Comments from your readers would be appreciated

[Kathie Adler]

Dennis, please address the 40% failure rate of the loan officers (banks excempt!)for the SAFE ACT test. Loan officers who are seasoned in the business for years are failing. Those who truly know their stuff have been pigeonholed by continuous HUD Mortgagee Letters and now the SAFE test which seems designed for failure which only hurts seniors in the end. The banks are exempt from testing and licensing! We surely need licensing, but it's a tough go when only sixty percent can pass such a test.

[Beth Paterson]

Yes, the mortgage broker is at the end of the line and now everyone is pointing to the reverse mortgage broker as the "bad guy/gal." And it's the seniors who are the ones being "punished." "Senior Advocacy" is talked about but it appears that the seniors are now being "abused" by the the legislators and HUD by setting up all the regulations and reducing the Principal Limit so many seniors can't take advantage of the program. And requiring the use of an HVCC appraiser or even just a list will hurt them even further. While it may be the intention of protecting seniors, the overzealous legislators are doing just the opposite!