The Reverse Review April 2012

a p r i l 2 0 1 2

PreParing for CfPB SCrutiny PG. 17

an inSide look at fHa-ComPliant Home rePairS PG. 32

+ Carl rojaS SitS down in our Hot Seat!

The

Riseof

Ginnie Mae

How MoRTGaGe-backed secuRiTies cHanGed THe invesTMenT landscape and wHaT’s in sToRe foR

THe HecM pRoGRaM

HaPPy

anniveRsaRy

TRR

222

tHe rev

erSe

re

vie

w t

He

re

ver

Se r

eview tHe reverSe review tHe reverSe review

tHe

re

ve

rS

e r

eview

tHe reverSe review

the reverse review celebrates 3

years!

INSIDEthis issue

by

Theodore w. Tozerpresident of Ginnie Mae

The ReveRse Review april 2012

The software that ...... won’t leave you

in the rain

Rev

erse

Vis

ion

Sui

te

ReverseVision

www.reversevision.com (919) 834 0070 [email protected] Inc. 3310 Pollock Place Raleigh, NC 27607-7006

ReverseVision is supported by more reverse mortgage lenders than any other software.

In these uncertain times, Freedom of Action can determine a company’s survival.

Strategically thinking companies choose ReverseVision because ReverseVision combines the highest independence with maximum compatibility.

ReverseVision protects its customers by giving them the maximum freedom of action.

At our core, each of us finds what truly matters. At Urban Financial Group, our path

to success boils down to six unwavering principles: Client Focus, Integrity, Teamwork,

Respect for Each Individual, Innovation and Responsible Citizenship. These values are

woven into the DNA of our entire staff and embedded in our culture. These six principles

guide our behavior and set the bar higher for each of us every day.

So in a world where people and businesses are faced with and tempted by shortcuts,

we at Urban resolve to take the right path – every time. It’s this determination to do the

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Find out how we can partner with you. Email us today.

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* According to RMI measuring number of endorsed wholesale units January – December 2011

CLIENT FOCUS INTEGRITY TEAMWORK INNOVATION

RESPECT FOR EACH INDIVIDUAL RESPONSIBLE CITIZENSHIP

| TRR4


l

Meet the TeamSenior PublisherReza JahangiRi

PublishereRik RichaRd

Editor-in-ChiefJessica Linn

Creative DirectorTRaci knighT

Copy EditorkeRsTen Wehde

Advertising Sales Rep.BRianna conLon

PublisherReveRse RevieW puBLishing

Printer The Ovid Bell Press

Advertising Informationphone : 949.269.1600

email : [email protected]

Subscriptions email : [email protected]

Editorial Contentemail : [email protected]

© 2012 Reverse Review Publishing, llC all rights reserved. reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article

and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein,

Reverse Review Publishing, llC is not responsible for any errors, misprints, or misinformation. any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only.

Postmaster : Please send address changes to The Reverse Review, 3800 West Chapman Ave.,

Orange, CA 92868

From the Publisher

This issue of The Reverse Review is our fourth since we took over the magazine late last year. it has been rewarding to relaunch this unique publication. every month, our team gets to work closely with a diverse cross section of industry participants who create the content you and i get to read each issue. The collaboration is refreshing and makes it feel as though we are less like competitors and more like partners in a small niche industry, working together to shed light on a product we are proud of.

i strongly believe we need to continue to be proactive as an industry and work hand in hand to further educate the market on this important financial tool

for seniors. My commitment to you is that we will continue to work hard to make The Reverse Review a forum for useful and relevant information to help grow your business and assist in pushing our market forward.

We are fortunate to have Ted Tozer of ginnie Mae supporting our efforts as an industry. The fact that more investors have realized the benefits of this new liquidity source and have taken an interest in the product has been pivotal. ginnie Mae’s rollout of the hMBs program has proved to be a big evolutionary step for the reverse mortgage. We should continue to welcome improvements and changes to the program, as it will only allow more seniors access in the long run. i hope you enjoy reading his prospective on ginnie Mae’s involvement with the hecM program.

Senior Publisher{ Re z a Ja h a n g i R i }

The Reverse Review would like to correct an error printed in the March issue. The author of our cover story, Pete Engelken, was listed as Genworth CEO. His correct title is CEO, Genworth Financial Home Equity Access, Inc. TRR apologizes to Pete and his team at Genworth for this oversight.

Correction sign up for the newsletter at reversereview.com

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connected

FIND US ON:FACEBOOK, TWITTER,

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get the latest issue delivered directly to your inbox!

A note fromrezA JAhAngiri

Want to talk to Reza?reach him at [email protected].

reversereview.com 8 TRR | 5

TRR 04.12

Essentials07, 09 | StatS The industry’s latest stats and rankings Brought to you By reverse Market InsIght

10 | induStry uPdateThe industry’s headlining stories of the past monthBrought to you By reverse Mortgage DaIly

14 | tHe Hot SeatFeaturing carl RojasCFO OF GeneRATiOn MORTGAGe

42 | tHe laSt wordWhat do we have to fear?erIk rIcharD

A look at the government agency past and present

april 2012

coveR

A P R I L 2 0 1 2

PREPARING FOR CFPB SCRUTINY PG. 17

AN INSIDE LOOK AT FHA-COMPLIANT HOME REPAIRS PG. 32

+ CARL ROJAS SITS DOWN IN OUR HOT SEAT!

The

Riseof

Ginnie Mae

by

Theodore W. Tozer

president of Ginnie Mae

HOW MORTGAGE-BACKED SECURITIES CHANGED THE INVESTMENT LANDSCAPE AND WHAT’S IN STORE FOR

THE HECM PROGRAM

HAPPY

ANNIVERSARY

TRR

222

THE REV

ERSE

RE

VIE

W T

HE

RE

VER

SE R

EVIEW THE REVERSE REVIEW THE REVERSE REVIEW

THE

RE

VE

RS

E R

EVIEW

THE REVERSE REVIEW

THE REVERSE REVIEW celebrates 3

years!

INSIDEthis issue

g legislative

26 | uPdate from CaPitol HillThe house and the senate hold key hearings on the housing issue.

h. West rIcharDs

g Servicing

29 | wHat HaPPenS after a reverSe mortgage CloSeS? – Part ian in-depth look at the proces

ryan larose

g appraising

30 | aPPealing an aPPraiSalhow to contest an objectionable estimate BrIan ForBes

g Spotlight article

32 | oPeration renovationa look at the home-repair side of the industry from two key players in the market

MarIa schulZe, Baystate InDepenDence housIng group

FIDelIty hoMe assocIates

g year in review

13 | tHiS aPril markS trr’S tHree-year anniverSary. here’s a recap of our favorite stories from the past.

g legal

17 | PreParing for CfPB SCrutiny proactive steps you can take to prep for cFpB examination

hayDn j. rIcharDs, jr.

g originating 19 | a State of rePairnavigating home improvement set-asides

alaIn valles, crMp

g underwriting

23 | underStanding SeaSoning and oCCuPanCy a look at how these essential factors affect the underwriting process

ralph rosynek

g Secondary market

25 | HmBS trading tigHter ginne Mae mortgage-backed securities perform well.

Darren stuMBerger

“The secondary market for reverse mortgages has been unpredictable in recent years, but trends show investor demand is increasing and execution continues to improve, largely due to Ginnie Mae’s guarantee of full faith and credit of the U.S. government.”

FEATURE

36 | tHe riSe ofginnie mae

how mortgage-backed securities changed the investment landscape and what’s in

store for the hecM program.

theoDore W. toZer

Table of Contents

Want the online version?Check out reversereview.com/magazine.

@

| TRR6


John K. Lunde 07, 09 | tHe induStry StatS and rankingS g John K. lunde is president and founder of reverse Market insight, inc., a performance data analysis and consulting firm specializing in the reverse mortgage industry. rMi clients include eight of the top 10 reverse mortgage lenders, plus investors, servicers and vendors to the industry.rminsight.net | 949.429.0452

CArL roJAs 14 | Hot Seat g Carl Rojas is the chief financial officer at Generation Mortgage. He is a graduate of the University of Texas at austin, where he earned a B.a. in philosophy, and Texas Tech, where he earned a degree in accounting and a master’s in information systems. rojas has more than 20 years of experience in leading teams, delivering results and providing financial and accounting leadership. Prior to joining GMC, rojas served as the controller and chief accounting officer for Barzel industries.

hAydn J. riChArds, Jr.17 | PreParing for CfPB SCrutiny g Haydn J. richards, Jr. is senior counsel in Dykema’s Financial Services regulatory and Compliance practice. richards advises members of the financial services industry on state and federal regulatory matters. richards has extensive experience with the S.a.F.E. act, has been deeply involved with the development and testing of the Nationwide Mortgage licensing System (NMlS), and is a member of the NMlS industry Development Working Group.

Contributors

ALAin vALLes, Crmp19 | a State of rePair g alain Valles, CrMp is president of Direct Finance Corp., Hanover, Ma, one of the leading reverse mortgage brokers in the country. Valles received a master’s in real estate from M.i.T., an MBa from The Wharton School, and graduated summa cum laude from the Univ. of Massachusetts. Valles’ mission is to improve the quality of life through responsible financing. 781.878.5626 [email protected]

rALph rosyneK 23 | underStanding SeaSoning and oCCuPanCy g ralph rosynek has been The Reverse Review Underwriting columnist for more than two years. rosynek is the vice president for National Correspondent production at reverse Mortgage Solutions, inc. rMS is a premier provider of reverse mortgage servicing, a Ginnie Mae seller/servicer and offers complete mortgage banking support and services to the reverse mortgage industry. He is currently seated as a member of the NrMla Board, co-chair of the professional Development Committee and holds HUD HECM Direct Endorsement credentials. [email protected] 708.774.1092

dArren stumberger25 | HmBS trading tigHter g Darren Stumberger, managing director at Knight Capital Group, heads agency MBS trading and is responsible for HMBS/HrEMiC trading, distribution and risk management. prior to Knight, Stumberger held mortgage trading and finance positions at Goldman Sachs, Morgan Stanley, Merrill lynch, Standard & poor’s and KBC Group NV. [email protected]

h. west riChArds26 | uPdate from CaPitol Hill g H. West richards, executive director of the Coalition for independent Seniors, served in the U.S. House of representatives and held the distinction of serving as the youngest chief of staff in Congress. richards worked in association with the law firm of Troutman Sanders, llp and later headed up Business Development for arthur andersen Business Consulting in atlanta.

dennis gAssowAy27 | tax tiP g as the national sales executive for ICG Inc., the nation’s most diverse and customizable real estate tax service, Gassoway is responsible for business development at all levels of the loan servicing field. Prior to joining ICG Inc. in 2007, Gassoway held business development positions at Transamerica, lereta and landamerica. in addition to being the recipient of many achievement awards, Gassoway is an honors graduate with a B.A. in marketing and finance.

ryAn LArose29 | wHat HaPPenS after a reverSe mortgage CloSeS? - Part i g ryan larose is the executive vice president of Celink, an independent reverse mortgage subservicer. larose has more than 12 years of servicing experience and has worked exclusively in reverse mortgage servicing since 2005. in addition, he is an active member of the NrMla servicing and technology committees. celink.com | 517.321.5491

Alain VallesCRMP

Carl Rojas

John K. Lunde

Dennis Gassoway

Haydn J.Richards, Jr.

Ralph Rosynek

Want to write for this magazine?Email [email protected] for more information.

2

H. West Richards

Ryan LaRose

Darren Stumberger


March 2012 Top lenders Report

1 2 3 4 5Metlife bank, n.a.

Endorsement 1132

Genworth financialEndorsement 643

one Reverse Mortgage Endorsement 417

urban financial GroupEndorsement 350

Generation Mortgage co.Endorsement 267

Lender Endorsements Lender Endorsements

Report

TRailinG Twelve - MonTH endoRseMenTs

10,000

8,000

6,000

4,000

2,000

08 10 11 12 12 3 4 5 6 7

*Numbers Represent Monthsretail Wholesale

9

SECURITY ONE LENDING 241

AMERICAN ADVISORS GROUP 186

SUN WEST MORTGAGE CO INC 159

THE FIRST NATIONAL BANK 147

REVERSE MORTGAGE USA INC 111

NEW DAY FINANCIAL LLC 65

CHERRY CREEK MORTGAGE CO INC 59

M & T BANK 56

NATIONWIDE EQUITIES 55

ROYAL UNITED MORTGAGE LLC 47

ATLANTIC BAY MORTGAGE GROUP 43

SENIOR MORTGAGE BANKERS INC 41

MONEY HOUSE INC 36

NET EQUITY FINANCIAL INC 34

ASSOCIATED MORTGAGE BANKERS 33

GREENLIGHT FINANCIAL SERVICES 33

ASPIRE FINANCIAL INC 29

PLAZA HOME MORTGAGE INC 25

CHRISTENSEN FINANCIAL INC 24

GMFS LLC 24

GATEWAY FUNDING DIVERSIFIED 24

CONTOUR MORTGAGE CORPORATION 23

GREAT OAK LENDING 21

OPEN MORTGAGE LLC 21

UNITED NORTHERN MORTGAGE 19

STERLING SAVINGS BANK 19

HARVARD HOME MORTGAGE INC 19

WEST TOWN SAVINGS BANK 18

UNIVERSAL LENDING CORPORATION 17

TOWNEBANK 17

MAVERICK FUNDING CORP 17

MAS ASSOCIATES LLC 17

NETWORK FUNDING 15

FIRSTBANK 15

PRIMELENDING A PLAINSCAPITAL 14

RESIDENTIAL HOME FUNDING 13

1

2

3

4

5

6

7

8

9

10

11

12

tot

unitS CHg% unitS CHg% unitS CHg%

4,075

4,515

3,704

3,106

3,535

3,352

3,705

3,612

3,032

2,675

2,676

2,949

0.64%

10.8%

-17.96%

-16.14%

13.81%

-5.18%

10.53%

-2.51%

-16.06%

-11.77%

0.04%

10.2%

2,805

2,785

2,415

2,079

2,322

2,159

2,099

1,972

1,612

1,978

1,891

2,212

16.25%

-0.71%

-13.29%

-13.91%

11.69%

-7.02%

-2.78%

-6.05%

-18.26%

22.7%

-4.4%

16.98%

6,880

7,300

6,119

5,185

5,857

5,511

5,804

5,584

4,644

4,653

4,567

5,161

ReTail wHolesale ToTal

40,936 26,329 67,265

6.47%

6.1%

-16.18%

-15.26%

12.96%

-5.91%

5.32%

-3.79%

-16.83%

0.19%

-1.85%

13.01%

indusTRy suMMaRy

*Figures Above Reflect Change from Prior Month

retail endorsement growth

10.2%wholesale

endorsement growth

16.98%total endorsement

growth

13.01%

| TRR8


14%number

Contributors

theodore w. tozer36 | tHe riSe of ginnie mae g Theodore W. Tozer is the president of Ginnie Mae. He has more than 30 years of experience in the mortgage, banking and securities industries. among various other postions, Tozer has served as senior Vp at National City Mortgage Company, Vp at the BancOhio National Bank, chairman of the Capital Markets committee of the Mortgage Bankers association of america, and member of Fannie Mae Midwest Secondary advisory Group. Tozer received his degree in accounting and finance from indiana University. He is a certified public accountant and a certified management accountant.

eriK riChArd 42 | tHe laSt word g Erik richard is the CEO of landmark Network, an appraisal management and compliance company serving the reverse mortgage industry. richard is also co-publisher of The Reverse Review. prior to founding landmark, richard accumulated more than 10 years of industry experience within the lender services and real estate valuation sectors. richard most recently served as CFO for One reverse Mortgage.

Maria Schulze

Brian Forbes

briAn forbes30 | aPPealing an aPPraiSal g Brian Forbes has spent more than 12 years working in the reverse mortgage lending industry as a loan officer, sales and marketing director, and branch manager. Forbes has worked with landmark Network, inc. since its inception in 2007 and is currently a QC analyst for the company. Forbes received his degree in marketing with an emphasis in direct marketing from the University of Southern California. Forbes has been responsible for many of the direct mail and internet marketing campaigns used by reverse companies such as Seattle Mortgage and Financial Freedom.

mAriA sChuLze32 | oPeration renovation g Maria Schulze is the director of marketing for Baystate Independence Housing Group, a national contracting company that specializes in financing FHa repairs prior to closing. Schulze oversees business development by combining general contracting, project management and bridge funding to facilitate noncompliant loans. Schulze has a strong passion for helping others and volunteers with several charity organizations. [email protected] 410.404.3664

fideLity homesteAd AssoCiAtes32 | oPeration renovation g Fidelity Homestead associates provides a contractor membership registry to expedite professional home improvement and repair estimates.Our team consists of experienced personnel from the mortgage lending, home remodeling and renovation contractor industries.Loan officers often need to assist their clients by helping them to obtain an estimate from licensed and insured contractors to meet FHa standards. Our team is dedicated to facilitating this process.

Erik Richard

Theodore W. Tozer

Fidelity Homestead Associates

U.S. workers who are certain they will have enough to live on comfortably in retirement

Want to write for this magazine?Email [email protected] for more information.

2Employee Benefit Research Institute, 2012 Retirement Confidence Survey, ebri.org


Report

80%

75%

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Brought to you by:

looking for more StatiStiCS? go to rminSigHt.net for all of tHe induStry’S lateSt StatS and

rankingS.

% % % % %

Reverse Market Insight - LogoOctober 9, 2009 3005C Process

Blk CPANTONE COLORS

R E V E R S E M A R K E TI N S I G H T

$ in

th

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| TRR10


april edition

newS direCt to you: The industry’s headlining stories at your fingertips

want even more uP-to-tHe-minute newS? Visit reversemortgagedaily.com.

Industry Update

an uPdate of tHiS PaSt montH’S Breaking newS

have a news story for this section?Email your story to [email protected].

headlining news

1. fha lowers premiums for certain refi customers starting in June, reverse mortgages not affectedThe Fha has announced details on its quest to lower the cost of refinancing for its borrowers. The agency said it plans to lower upfront mortgage insurance premiums to 0.01 percent and reduce its annual premium to 0.55 percent for certain Fha borrowers starting June 11, 2012.

// March 6, 2012

2. hud cautions reverse mortgage counseling agencies against marKeting violationshud sent a notice to counseling agencies warning them of common marketing violations. The letter specified that marketing their services directly to lenders and requesting that their name be placed on the top of the lender’s list of recommended agencies is prohibited.

// March 5, 2012

3. bill that reQuires in-person reverse mortgage counseling introduceda bill in california would require reverse mortgage borrowers to obtain counseling in person if it is passed. The bill comes two years after Massachusetts instituted a similar law requiring borrowers to meet with a counselor face to face. The

state has since run into problems due to a lack of counselors able to work with borrowers in person; the backers of the california bill said they do not expect this to be an issue.

// March 5, 2012

4. oregon’s new tax deferral law applies to reverse mortgage lenders, borrowersan oregon bill will ensure that reverse mortgage borrowers can continue to benefit from the state’s tax deferral program, which will allow many to stay in their homes. Last month, reverse mortgage borrowers benefiting from the tax deferral program were suddenly dropped; most reported that as a result they would lose their homes. Most states do not allow for property tax deferral beneficiaries to have reverse mortgages.

// March 8, 2012

5. former metlife exec to run s1l reverse mortgage wholesalesecurity one Lending has announced that former MetLife wholesale reverse mortgage director peter sciandra will run its wholesale and correspondent lending departments as senior vice president. The company also announced that Rhiannon Behnke will be promoted to director of business development.

// March 8, 2012

6. reverse mortgage volume up 4.9% in februaryReverse mortgage volume was up 4.9 percent last month, according to hud’s latest data. in February, 5,268 hecM loans were endorsed, making for the highest influx in the last five months. according to Reverse Market insight, the high volume is unlikely to

last as technical predictions indicate an inevitable decline.

// March 4, 2012

7. nrmla outlines concerns regarding cfpb changesThe cFpB has yet to introduce major changes to the reverse mortgage industry, but nRMLa representatives said that they already have serious concerns about the extent of the agency’s power and how this will impact the industry. nRMLa legal counsel Jim Milano said to expect changes to financial services laws, and that so far, the bureau has indicated that it will defer to state regulators on nonbank mortgage companies. Milano said that significant change is unlikely to come until 2013 or beyond.

// Feb 29, 2012

8. nearly one-Quarter of lenders now originating reverse mortgagesof the companies licensed under the nationwide Mortgage Licensing system (nMLs) & Registry, 23 percent are now originating reverse mortgages, according to the latest data from nMLs. The total number of companies in the registry working in the reverse sector is 3,515, compared with 13,298 companies licensed to do first mortgage loan brokering and 1,376 Fha direct endorsement mortgages.

// Feb 29, 2012

9. finra and ncoa launch new website for reverse mortgage educationFunded by the Financial industry Regulatory authority (FinRa), the national council on aging (ncoa)

Brought to you by:


has launched a new consumer website focused on using home equity to aid retirement. The site, homeequityadvisor.org, discusses home equity options for seniors and is designed to help middle- and low-income homeowners make

informed financial decisions to plan for their future.

// Feb 28, 2012

10. fha raises premiums to bolster mortgage insurance fundThe Fha will implement higher mortgage insurance premiums to help boost the agency’s capital reserves. The changes will not impact hecMs, borrowers who already have an Fha-insured mortgage or special loan programs. The increase will apply to forward loans only and will take effect april 1.

// Feb 27, 2012

11. health care costs for seniors sKyrocKet, but housing still no. 1 expensehome-related costs are the largest expenditure for people ages 50 and over, according to the Employee Benefit Research institute. The spending category ranks even higher than health care, which came in second. on average, individuals over 50 spend around 40 to 45 percent of their budget on home and home-related items.

// March 5, 2012

12. aarp: reverse mortgage attracting younger crowdaaRp said that nearly half of the seniors applying for reverse mortgages are now under the age of 70. in a recent bulletin, the association said that Tv ads touting celebrity endorsements could be a contributing factor to this increase and that a substantial number of these loans were in default.

// March 7, 2012

13. maJority of seniors have less than $10,000 when they pass awayThe majority of seniors have less than $10,000 in financial assets at life’s end, according to a recent Boston college report. The study also said that more than half of the senior population does not have any home equity at the end of their lives. While these seniors may have been deemed “prepared” for retirement, they would have little capacity to pay for unanticipated needs such as health care, or for entertainment or other leisure activities.

// March 2, 2012

Industry Update

877.906.3946 | www.independencehousing.com

Repairs done … Ready to close!THE LENDER’S RESOURCE FOR GETTING REVERSE MORTGAGES TO CLOSE

3 We specialize in repairs needed prior to closing

3 No repairs too large or too small

3 We finance our work and are paid at closing

3 BIHG works on a national level

BayState Independence Housing Group, LLCRepairs Done...Ready to Close

| TRR12


Three years of Client Surveys and

Those are major league stats.

Servicing that Honors a Lifet imeTM

REVERSE MORTGAGE SERVICER - CELINK.COM(Full Borrower and Client Survey results can be viewed at celink.com)


Reviewyear in

3/2012P. engelken

Reverse Mortgage Myths: Refuting the

Fiction

2/2012H.w.

riCHardSAnother Historic

Moment in Regulatory History

1/2012e. vannuCCiThe Changing Public

Policy Landscape of 2011 and the Year Ahead

11-12/2011a. valleS

Who is Your Biggest Competitor?

10/2011k. SCHarfFamily Influence

9/2011d. di martino

We are CIS

7-8/2011j. levoniCkDodd-Frank: Putting

Reverse Lending on the Road Map

6/2011j. mitCHell

The Industry’s Message to Washington, D.C.

5/2011S.B. aPanay

Taking Care of Seniors in Need

4/2012t.w. tozerThe Rise of Ginnie

Mae

ThankYou

i would like to thank our valued community

of readers, writers and advertisers for helping to make the magazine the

leading publication for reverse mortgage

professionals. Our dedicated staff

works hard every day to bring you valuable content,

insight and news to keep you informed of the numerous

issues that continue to affect this ever changing industry. Without feedback and contributions

from people like you, we would not be

able to successfully accomplish this goal. Thanks for supporting

us along the way!

HaPPy

anniveRsaRy

to the reverse review

222

a big THaNK-YoU

To oUR LoYaL ReaDeRS, WRiTeRS aND aDveRTiSeRS!

Jessica Linn

Editor-in-Chief of the Reverse

Review

7

Have you noticed a change in our look? The Reverse Review continues to evolve its format and design to better serve our growing readership.

3TRR celebrates three years of coverage on the

reverse mortgage industry.

| TRR14


thehotseat20 things you need to know or may have been wonderingapril 2012

the hot seat

From what his parents taught him to what he believes to be the reverse mortgage industry’s

biggest challenge, we get the personal and professional facts from Carl Rojas, CFO of Generation

Mortgage, in our monthly edition of The Hot Seat.


carl > you can’t always be everywhere; that’s why it’s important to

be surrounded by great people.> ten years from now, Generation Mortgage will be

synonymous with reverse mortgage.> my favorite magazine is Art in America. My wonderful fiancée worked there for 19 years. > the best job i’ve ever had is this one, CFO of Generation Mortgage. It’s extremely gratifying to be a

part of something so entrepreneurial. i love the idea that our decisions are shaping this industry.> my parents taught me how to be polite. You’re never too old to be courteous.> right now i’m listening to the Black Keys. i’ve never lost my love for alt rock.> i always say, “We (Generation Mortgage) only do one thing: reverse mortgages. And we do it better

than anyone else.”> the most memorable moment in my life was when my son was born. i’ll never forget cutting the

cord and then holding him.> every morning i drink coffee.> i can’t go without my iphone.

> the biggest challenge in the reverse mortgage industry is changing the public’s perception of the product as one of last resort.

> the future of reverse mortgages is brighter than ever. We’re still a few years from the tipping point, but the boomers will, in fact, turn out to be fervent users of the reverse mortgage.

> the greatest setback for our industry was when the bubble in home values burst.> ten years from now the reverse mortgage industry will include many of the large players that

recently departed.> the most fascinating thing about the reverse mortgage industry is the hyper pace of annual

change. Each year the industry seemingly makes itself over.> reverse mortgage professionals can best support the public image of reverse mortgages by

continuing to be ethically motivated and doing what’s best for our seniors.> The most important thing financial advisors can learn about reverse mortgages is the nuances

of all of the product offerings.> the biggest impact reverse mortgages offer to seniors is financial flexibility.> the most important thing seniors should understand about reverse mortgages is that it is a

mortgage collateralized by their home, so they will still have to pay taxes and insurance.> i would encourage a family member to consider a reverse mortgage because for many people it’s a

wise financial decision.

P E R S O N A L

P R O F E S S I O N A L

generation mortgage

cFo

I can’t go WIthout My

iphone

| TRR16


For more information, contact Bob Beverly, National SalesDirector at: Proud member

of NRMLA

DEDICATED TO THE REVERSE MORTGAGE INDUSTRY

DIRECT 727.481.3626EMAIL [email protected] www.amrevtitle.com

AMERICA’S REVERSE TITLE. OUR NAME SAYS IT ALL.

Americas reverse title.indd 1 1/12/12 1:54 PM


he cFpB is aggressively moving forward with its examination of members

of the mortgage industry. ongoing examinations of financial institutions commenced in 2011, and the cFpB is expanding its examinations to nonbank institutions. earlier this year, the bureau released its Mortgage origination examination procedures, which is a supplement to the voluminous examination Field Manual it released during 2011. of further note, state regulatory agencies are fully committed to working with the cFpB to enhance supervision for both groups. With this in mind, it is important that all mortgage companies, whether regulated by federal or state agencies, take proactive steps to prepare for cFpB oversight. Those proactive measures will not only assist with any cFpB examination that occurs, but will also better prepare institutions for any potential examinations with their primary regulators.

To begin evaluating whether your company is prepared for a cFpB examination, an initial dialogue between executive management, operations managers and the company’s legal and compliance personnel is necessary. during this initial dialogue, all parties should discuss and evaluate the entity’s risk profile. Afterward, the company’s legal and compliance professionals should review existing policies and procedures to determine whether revisions are necessary. To the extent that revisions are necessary, personnel should consider, among other things: one | the Mortgage origination examination procedures released by the cFpB;

two | the cFpB’s Field guide for its examiners; and tHree | the Multistate Mortgage committee examination Manual. These publicly available documents set forth the criteria that the cFpB and state examiners will use to evaluate regulated institutions.

as a company prepares for future examinations, personnel must consider existing internal and industrywide best practices, as well as the historical compliance record for the company. For example, if all of an institution’s similarly situated peers have ceased using certain business practices, the company needs to re-examine its procedures, as it may be out of step with much of the industry and lead to compliance problems.

institutions should also review their past examination reports, whether those reports were received from regulatory agencies or from third parties. The findings in those reports may identify deficiencies that require correction. When evaluating how to prepare for the cFpB and potential

examination, mortgage institutions should consider their compliance success with the Real estate settlement procedures act, the Truth in Lending act, the home Mortgage disclosure act and the equal credit opportunity act. particular attention should be given to fair lending matters, as the cFpB will focus on that area. The cFpB also intends to consider whether mortgage companies may be violating unfair and deceptive acts and practices statutes.

When reviewing past audits and examinations, companies should consider whether patterns of practice exist. If an entity finds that its audits continually demonstrate problems with Truth in Lending issues, this suggests that additional resources should be focused in that area. companies should also consider the character of any violations cited in past examinations. For example, uncovering patterns of practice that reveal technical violations is certainly preferable to patterns of practice or violations that reveal issues that could result in consumer harm. after evaluating these matters, it is important for companies to take into account their past successes in correcting deficiencies. If examination reports rarely evidence repeat violations, this might suggest that an entity successfully meets necessary compliance obligations. on the other hand, if repeat violations occur, additional compliance resources may be appropriate.

once all of these matters are evaluated, compliance professionals, operations personnel and executive management should work together to establish an operations and compliance strategy. This strategy should be a roadmap for bolstering an entity’s compliance efforts. doing so will better prepare mortgage companies for examination by the cFpB and their respective primary regulatory agencies. x

Preparing for CFPB Scrutiny hAydn J. riChArds, Jr.

T

legallEarN

Want to see more stories like this?Visit reversereview.com.

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tHe rePair eStimate guidelineS are StraigHtforward and generally inClude:

3 The contractor must meet all state and local requirements.

3 The contractor must provide only one bid per repair item.

3 The bid must be specific and detailed to the repair.

3 The bid must be on company letterhead with the name of the contractor’s representative, as well as his address, phone number, license number and subject property address.

3 The bid must be signed and dated by a company representative.

always prefer to meet clients at their homes; my internal alarm

goes off when a senior is adamant about meeting at my office or elsewhere. When that happens, more often than not, i’m going to have a property issue.

required “rePair Set-aSide” guidelineS

Many seniors have lived in their homes for decades and minor deferred home repairs, such as missing chimney flashing, can turn into major expenses. The potential for home repairs should be discussed with all clients to educate them about the process. They should be aware that the exact list of required repairs is not usually known until after they have incurred the cost of counseling and appraisal.

although this list is by no means exhaustive, common repair items include ceiling water damage, which is a sign of a leaking roof, visible roof issues, water staining or standing water in the basement, cracked windows, rodent droppings, insect damage, mold, and everyone’s favorite: peeling paint. Fortunately, unlike forward mortgages,

most repairs may be completed after the loan closes. a repair set-aside is established, the funds necessary are escrowed from the proceeds of the reverse mortgage and a repair rider is added to the loan agreement.

however, at the underwriter’s discretion, certain repairs that are safety or hazard issues must be completed prior to closing. For example, my clients have been required to fix deck railings or block the door leading to the deck, install handrails and secure pool fencing. The upfront, out-of-pocket expense is challenging for some seniors, but the liability risk would be too great if the loan closed and an injury occurred before the repair was completed.

For most reverse mortgage lenders, required repairs are determined by the underwriter based on the appraisal. sometimes additional inspections are required; for example, a structural engineer may be needed if there are sagging floors or cracked foundations. The repair estimates must come from appropriately licensed contractors, with the exception of minor repairs noted by the appraiser.

A State of Repair ALAin vALLes, Crmp

i

originatingaNalYzE


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The ReveRse Review april 2012 Associated Mortgage Bankers, Inc.

Call Melissa Jedlicka or visit us online today!

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Department of Financial Servicers, license # B500812; Oregon License No ML5108; Pennsylvania – Licensed by the Department of Banking-License # 31797; Texas, Texas Dept of Banking ; Virginia Licensed by Virginia State Corporation Commission, License MC5518. Restrictions may apply. Equal Housing Lender, Associated Mortgage Bankers Inc Nationwide Mortgage Licensing System Number 24794

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originating

Most lenders prohibit do-it-yourself repair work and family-related contractors. The risk of the work not being completed is too great.

The repair set-aside is calculated as 150 percent of the total contractor and appraiser estimates. The additional amount is reserved to cover any potential repair shortfall. once the work is complete, any remaining funds are added to the reverse credit line. The maximum repair set-aside is typically 15 percent of the maximum claim amount. This has been problematic for me in cases where a senior had no mortgage but was unable to close because the repairs exceeded the limit.

seniors must be informed that the lender will also charge a repair administration fee of 1.5 percent of the total bid, usually with a minimum fee of $50. once the work is completed, a final inspection and associated fee conclude the repair set-aside process. You should discuss with your reverse lenders and appraisal management companies their particular repair guidelines.

leSSonS from tHe field

Yes, it’s critical to understand underwriting guidelines, but i’m always focused on how guidelines will impact the ability of my borrowers to close their loans. hopefully you’ll find the following examples and their solutions helpful.

g repairs exceed the 15 percent maximum claim threshold and there is no homeowner’s insurance:

We had a borrower with a “skylight” in her bedroom. The problem was, the “skylight” was literally a hole in her roof. When it rained, the water would run down the walls, resulting in major damage, including mold. she had no mortgage and no insurance. it was unlikely we were going to be below the 15 percent repair limit and gave up trying once we learned she had no property insurance and none

was available because of the house’s condition. My solution was to engage a trustworthy contractor willing to complete the entire job with no upfront money and to be paid after the loan closed.

g repairs are less than 15 percent of the maximum claim, but there are insufficient funds due to the size of the current mortgage:

i’m not surprised when this occurs because a senior with a high current mortgage is often struggling to make ends meet, let alone have funds available for home repairs. sometimes the actual repair cost or the 150 percent set-aside amount will exceed the maximum available reverse funds. i’ll encourage my client to involve other family members to fund the repairs. From a financial aspect, this may minimize future financial support from family members, protect the property’s equity, and in the event of moving, result in higher resale value.

g hoarding

i’ve had more than one client with a hoarding habit, which may cause valuation issues. one might not think of hoarding as a repair set-aside issue, but it becomes apparent when there are hundreds of cardboard boxes stacked in a wet basement acting as giant sponges that create a horrendous smell of mildew and mold. My approach is to invite the family to attempt a heart-to-heart conversation with the senior about the problem.

on a lighter note, i had a wife keep telling me she would not schedule the appraisal until her attic was cleaned out and i kept telling her that was not a requirement. This went on for months until one day she called and said her husband finally cleaned out

the attic. again, i told her that was never a requirement, at which point she said she knew that all along but had told her husband it was in order to get him to empty out all of his clutter.

oPtional Home imProvementS

not all property condition issues are negative or required. i’ve had several clients with beautiful homes who want to make upgrades. They’ve decided to remain in their home for the rest of their lives and want to redo the kitchen, a bathroom, or finally add that three-season sunroom instead of moving to Florida.

i’ve met with contractors to educate them about senior home issues. one common example is the need to make a home handicap-accessible. sometimes, seniors settle for the less intensive solutions: installing an unattractive sloping wheelchair ramp, turning the lower-level family room into a bedroom, or installing a curtain instead of a door to let a wheelchair pass into the bathroom. For seniors whose homes are in need of repair, a reverse can offer the funds necessary to make such changes. a sloping brick walkway, a stair-lift to the second floor, refitted door knobs, proper kitchen and bathroom wheelchair counter heights and other handicap-friendly features can not only help improve the quality of life, but may actually increase the value of the property when the home is sold to future seniors.

The key to repair set-asides or optional home improvements is to make sure every client is fully educated about the requirements and process. Related loan processing stress is always minimized when working with a knowledgeable senior. x

ACCording to ALAin

Fortunately, unlike forward mortgages, most repairs may be completed after the loan closes. A repair set-aside is established, the funds necessary are escrowed from the proceeds of the reverse mortgage and a repair rider is added to the loan agreement.

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| TRR22


To Move Forward,Work In ReverseJoin a winning team in a growing industry

To learn more about becoming a reverse

mortgage advisor, scan the image below

or visit

www.genworth.com

© 2012 Genworth Financial Home Equity Access, Inc. 10951 White Rock Road, Suite 200, Rancho Cordova, CA 95670 • NMLS # 3313 (800) 218-1415 • For a complete list of licenses, visit: www.genworth.com/reverse/licenses W-030612


hen it comes to a reverse mortgage, the true definitions of seasoning

and occupancy continue to puzzle many. partially due to a lack of hud guidance and individual investor interpretation, conflicting ideas about these two issues have emerged and caused confusion in regard to the underwriting process. it is important to separate the two issues and understand the pathway to successfully meeting the underwriting test for both.

hud does not have a seasoning requirement. That is, there is no minimum time requirement for property ownership prior to closing. individual investors have seasoning requirements that can range from zero to 90 days, to six months to a year.

There are, however, specific benchmarks for occupancy that must be determined and verified, and must meet satisfactory risk underwriting so that lender/investor representations and warranties can be insured.

day-range parameters for lenders who have developed overlays to the basic hud no-seasoning requirement are included in the underwriter’s file

as part of the approval process by reviewing support documentation and processed verification results.

For example, a borrower who is deeded on a title 30 days prior to application would meet the seasoning test for some lenders. however, when questions about occupancy arise, the transaction could fail because there may not be enough proof that the borrower will occupy the property as their primary residence at a minimum of 183 days per calendar year.

for moSt lenderS, doCumentation needed to SuPPort SeaSoning and oCCuPanCy iSSueS inCludeS:

3 no evidence of paying off mortgages for a borrower other than the loan applicant

3 a detailed Loe from the borrower addressing recent title deeding

3 proof of residency for the period evidenced by payment of housing tax and insurance expenses

3 documentation of the date the borrower moved into the subject property and title evidence

3 a list of all other properties the borrower or spouse owns

3 The current use of any other property the borrower owns and applicable documentation, such as rental agreements and evidence of sale

3 an explanation of the status and disposition of the previous property the borrower occupied

3 explanation of any alternative addresses reported on the credit report, including details on whether the borrower owns the property or not

3 explanation of any property attached to other mortgages on the credit report

3 explanation of any address discrepancies in the file

3 Future occupancy intentions of the borrower

3 Months that the borrower spends in each home, and a note if the borrower splits his time between multiple homes

3 signed 4506T authorization to pull tax returns

3 copy of a recent social security benefits awards letter, or a copy of the monthly social security check mailed to the subject property

3 utility bill statements covering the period since they were deeded on the title with mailing address match verification

3 Bank statements covering the most recent period showing transaction history

3 an LoX if mail is routed to a post office box that is not within a reasonable distance of the subject property

3 a physical third-party occupancy inspection

3 a state-issued picture id verifying the subject property address

establishing seasoning and occupancy is a key element to mitigating fraud risk. While this is not an all-inclusive list and the underwriter may request additional documentation, it is important that files are properly processed to provide this support for successful underwriting file approval. x

Understanding Seasoning and Occupancy rALph rosyneK

underwritingaSSESS

Like what you see?Find all of our archived articles about underwriting at reversereview.com.

w

GOinG TO The sOuRCe

huD does not have a seasoning requirement. That is, there is no minimum time requirement for property ownership prior to closing.

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| TRR24


“I am extremely proud to be part of AAG - A trusted national reverse mortgage lender that is helping seniors overcome their fi nancial worries AND live the lives they’ve dreamed.”

Call today to fi nd out more or visit us online.

949.224.6091 | www.AAGreverse.com

- Fred Thompson, Former Senator and AAG Paid Spokesperson

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ver the past several weeks, ginnie Mae reverse mortgage-backed securities (gnMa MBs)

have performed well across the fixed- and floating-rate product. Generic fixed-rate spreads have tightened on the order of 45 basis points during 2012, with rates trading in a tight range (slightly lower). Directionally, floating rate hMBs initially lagged behind their fixed counterparts, but spreads have rallied by 20 basis points in the past few weeks. hecM interest only (io) demand has remained robust, with an appetite for a lot more than what is being created. There’s also been several hundred million dollars of secondary flow in the past couple of weeks as investors have gotten very strong liquidity and have taken capital gains. Most of the agency MBs universe remains between negative and 30 Libor option adjusted spread (Loas), so even with the recent tightening, there’s a case for more of the gap between forward and reverse MBs to close in the very short term.

With Yieldbook (YB) on board now (kinks are still being ironed out), we expect YB option adjusted spreads for hecMs to be close or through the nominal spread at 100 hecM

prepayment curve (hpc), although this depends on base case speed assumptions.

hecM saver production still trades behind standard production, but there’s been a notable tightening of the gap recently. For production levels to increase meaningfully, originators need to better market the saver to this class

of borrowers. given recent price performance, wholesale and correspondent pricing should increase and help create supply. non-agency hecM MBs remain at historical wides and may deteriorate further due to higher than expected losses for bondholders. These 2006 and 2007 securitized

deals experienced

substantial price depreciation throughout 2011, and this trend will likely continue, barring materially better servicing performance.

February hMBs volume ended up at roughly $760 million with the top five GNMA issuers split between MetLife at 33 percent market share, knight/urban at 28 percent, RMs at 20 percent, generation at 10 percent and sunwest at 4 percent. in regard to securitized transactions, there’s been $325 million of hecM collateralized Mortgage Obligations done in the first two months of the year; expect another three or four transactions in March.

prepayments dipped 18 percent month over month after a similar increase the month before. 2009 fixed rates came in at roughly 50 percent of hpc with floating rate coming in at roughly 35 percent. There may be some scheduled prepayments mixed into these numbers, so involuntary speeds are likely a few percentage points below the numbers quoted.

2010 fixed rates came in slower at 36 percent of hpc as a whole, with floaters at 66 percent of HPC. It’s no mystery why these bonds have been have bid well in the secondary market—speeds are much slower than originally expected and lower prices create a neat cash flow profile with the 98 percent buyouts dominating future cash flows.

2011 fixed speeds have begun to slow down after paying 70 percent to 75 percent of the ramp throughout the year.

in terms of the macro landscape, higher gas prices, Middle east tensions, greece’s economic problems, gridlock and uncertainty in d.c., and the continued decline of home prices should keep growth challenged and rates bid well in the five-year point of the curve. x

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s we approached the first week of March, both the

house and the senate held key hearings on the issue of housing. The significance of these hearings was substantial. While the senate tackled the overall state of the housing market, the house tackled the potential insolvency of the Fha Mutual Mortgage insurance (MMi) and, in particular, the MMi’s capital reserve fund.

ultimately, both hearings focused almost entirely

on the solvency of the Fha. obviously, this is an issue the reverse mortgage industry must continue to follow. here is a summary of the hearings that took place:

HouSe SuBCommittee HoldS Hearing on overSigHt of Hud

on Tuesday, February 28, the house Financial services subcommittee on insurance, housing and community opportunity held a hearing titled “oversight of the department of housing

and urban development.” Witnesses included five assistant secretaries from the department of housing and urban development and the hearing focused on the potential insolvency of the Federal housing administration’s capital reserve fund and the proposed budgets for housing assistance programs in fiscal year 2013. Both witnesses and representatives stressed that hud must learn to operate with a smaller budget.

Senate Banking Committee HoldS Hearing on State of tHe HouSing market

also on Tuesday, February 28, the senate Banking and housing committee held a hearing titled “state of the housing Market: Removing Barriers to economic Recovery, part ii.” hud secretary shaun Donovan testified about the administration’s refinancing plan, which extends eligibility to mortgage owners who have been paying their monthly mortgage and who meet other requirements to refinance. secretary donovan outlined the importance of refinancing to help americans build equity and to improve the u.s. housing market. Federal Reserve Board governor elizabeth duke and Federal housing Finance agency director ed deMarco also spoke on the importance

of refinancing options for homeowners. Both agreed that the worst thing for the housing market right now is continued foreclosures. Both stressed that avoiding foreclosures assists all homeowners by creating market stability in pricing. according to those in attendance, what originally began as an economic analysis by a university of pennsylvania professor quickly developed into an all-out inquiry into the financial solvency of the Fha. ultimately, it was a culmination of testimonies and audits that put the agency’s possible need of a taxpayer bailout at 50 percent. With the Fha growing its loan support in the marketplace from 3 percent to 33 percent in recent years, and with housing being the driver of most (if not all) economic recoveries, the idea of an unstable, potentially insolvent Fha is indeed a disturbing one.

Summary

The Fha guarantees loans to homebuyers with relatively low interest rates and down payments. The agency’s role in homebuying has never been more important in the wake of tightening credit standards at private banks and the soaring demand for FHA financing. Despite this, all of the costly boom-era, subprime loans on the agency’s books are wreaking havoc on its balance sheets, fueling

Update from Capitol Hill h. west riChArds

a

legiSlativeMONiTOr

Want to comment on this article?Comment online at reversereview.com.


legiSlative

considering the ever changing landscape of the reverse mortgage industry, a concern is gaining steam: homeowner associations and their ability to charge excessive fees for nonpayment of monthly dues. in some states, they even have the ability to eliminate first lien position with a lender and potentially force foreclosure and tax deed sales. One must now do extensive research to investigate these HOas as they change board members annually, change management companies more often than

not, and basically do not publish their data on any public real estate news source. There are new companies building platforms to support the pathway to HOa databases and this will eventually be a great resource. Until these databases are complete, be diligent in your research and take a chill pill as the HOas are not always the happy guys on the other end of the phone.

have a question for this column? Email [email protected].

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concerns that the Fha will need a Fannie Mae/Freddie Mac-style bailout from taxpayers.

hud secretary donovan testified before the house Financial services committee back in december of 2011 that although the Fha’s finances are worrisome, he remained confident about how the agency was operating. his comments instigated a wave of harsh feedback from Republicans and democrats alike, who said the agency was in denial.

The Fha has made attempts to raise its revenue. since 2010, it has raised insurance premiums three times, which are the primary revenue method for the agency. There is a definite limit, though, to how high the rates can be raised, donovan said. Raise premium rates too aggressively, and fewer prospective homebuyers will have access to Fha financing. The fewer who can access financing, the fewer homes will be sold, further driving down prices in an already delicate housing market.

a recent Fha audit predicted that upcoming losses on the agency’s $1.1 trillion balance sheet would leave just $2.6 billion in reserves for the next 30 years, which account for only 0.24 percent of the agency’s mortgages. although federal law requires reserves to be at 2 percent of mortgages, the Fha has exceeded that limit in the past two years.

The FHA has officially announced that in an effort to boost its MMi, it will raise its insurance premiums in april. acting Fha commissioner carol galante said it will raise premiums from 1 percent of the base home loan amount to 1.75 percent, regardless of the loan’s term or LTv ratio. The percentage is based on funding measures authorized by congress’ latest payroll tax-cut increase and will add an additional $1 billion to the Fha’s insurance fund, as the annual insurance premium will rise by 10 basis points for loans under $625,500 and 35 basis points for loans above. Both reverse mortgages and special loan programs will be exempt from the

changes. galante said that the premium increase was primarily instituted to meet congressionally mandated thresholds for Fha solvency.

“after careful analysis of the market and the health of the MMi fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” galante said.

The premium changes would assist the Fha in gracefully exiting the pre-eminent role it has uncomfortably played in the mortgage markets since 2008. The Fha currently has an elevated market share of 32 percent, and in 2009, it endorsed $360 billion in new mortgages. That number fell to $236 billion in 2011, and the agency intends to decrease it further to $150 billion in fiscal 2013.

Funds at the Fha had been operating under precarious circumstances. in 2008, the agency’s

MMi fund fell below the 2 percent threshold galante referred to, mostly because of a growing number of distressed properties on the Fha’s books. in 2011, it fell to 0.2 percent, a level that inspired many to warn of an impending insolvency for the firm.

Just when analysts were predicting a bailout of the agency, though, the mortgage settlement between the state attorneys general and the nation’s five largest banks arrived, and as part of the agreement, the banks injected $1 billion into the Fha’s capital reserve fund to compensate for the monetary damages due to fraud and foreclosures. although many credited the settlement for saving the agency’s books, the premium hikes suggest the Fha is not taking its return to solvency for granted.

“The Fha is not broke,” galante said to the lawmakers. ”it would take very significant declines in home prices in 2012 to create a situation where the Fha would need additional support.” x

| TRR28


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t’s no surprise that forward mortgages differ in many ways from reverse mortgages, and the

servicing responsibilities involved in both processes reinforce those differences.

With a forward mortgage, borrowers rarely interface with their servicer and several forward mortgages may be held throughout one’s lifetime. With a reverse mortgage, servicing functions for the majority of borrowers will proceed without incident for the life of the loan. For others, phone calls to a service center will initiate shortly after the loan is closed and will continue for the life of the loan. Reverse mortgages will typically be held through the remainder of the borrower’s life and through a period of life—retirement and beyond—that is being redefined every day.

a great deal has been written about the origination process of reverse mortgages, and appropriately so. Counselors, loan officers, processors, underwriters and closing/title agents are the first points of contact for

the borrower. These first points of industry contact shape the reverse mortgage experience for every borrower. it is the responsibility of these individuals to ensure that the borrower has an understanding of the product, that the origination documents are properly executed, and that everyone is working hard to ensure that borrowers have a pleasant experience.

Let’s move forward in the typical life cycle of the reverse mortgage as it is passed to the servicer. The sales and closing process of a reverse mortgage can often take up to six months, sometimes even longer. When the servicer receives a loan after closing it is being entrusted with a valuable asset that will be in its possession an average of seven years. There are multiple touch points that frontline industry professionals will have with

borrowers in the origination process, but they are far fewer than the touch points a servicer will have with the borrower over the life of the loan.

These touch points begin with the servicer’s initial contact with the new borrower. on forward loans, a call from the borrower may be as brief as 45-60 seconds. not on the reverse side! in the reverse world, borrower calls can average four to six minutes and it is not uncommon for these calls to go on for 30-plus minutes. in the aftermath of years of turbulence in the housing industry, a senior borrower requires more explanation and more patience, and those of us who service this product understand and accept this responsibility willingly.

some servicers have found it useful to provide information to new borrowers that answers frequently asked questions and provides them with an overview of their responsibilities once the loan has been closed. This booklet provides new borrowers with a wealth of information, and borrowers can save it for future reference too. in addition to welcoming borrowers to the reverse mortgage experience, servicers will answer all of the questions that arise post-closing, as well as those raised to borrowers by well-meaning relatives and friends. The importance of confidence and sensitivity on the part of the servicer as the borrower moves forward from closing cannot be underestimated and should never be undervalued.

The next installment in June’s issue will explore customer service and statement processing. stay tuned! x

have a question for our servicer?Email us at [email protected] and your question will be answered in a future issue.

What Happens After a Reverse Mortgage Closes? – Part IryAn LArose

ServiCingClariFY

i

GOinG TO The sOuRCe

With a forward mortgage, borrowers rarely interface with their servicer and several forward mortgages may be held throughout one’s lifetime. With a reverse mortgage, servicing functions for the majority of borrowers will proceed without incident for the life of the loan.

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| TRR30


ou know the situation: You have your

application ready to go to the lender. The only thing you need is the appraisal report and your file can be submitted. The appraisal report comes back, you go through it and the value isn’t even close to what you expected.

now you have to break the bad news to your borrowers. plus, you’re sure that the appraiser didn’t give this evaluation a fair shake. after all, your borrowers have done so many improvements to

their property, and you even had a real estate agent run listings and comps and found the value to be much higher. since you can’t contact the appraiser directly to question him about his valuation, you contact the aMc and tell them that you are questioning the value and want to appeal the appraisal. how does an appeal request actually work? can an appraiser change the value of an appraisal report? how can you improve your chances of getting the appraiser to seriously consider a modification?

generally speaking, the appeal process in the appraisal business is not intended for changing value simply because the borrower or broker may be dissatisfied with the outcome. The appeal process is intended to address actual errors in the reporting of data or in the selection of suitable comparables in the report, resulting in an inaccurate value opinion or major underwriting conditions. But there are occasions when an appraiser doesn’t have access to information regarding one or more usable comparables and

therefore wasn’t able to include them in the report. if these comparables would make a difference, then the appeal process allows the client the opportunity to get this vital information to the appraiser for review and perhaps even reconsideration.

in order to appeal an appraisal report, you must complete an appeal request form that can be provided by your aMc and include any comparable data that might call the appraisal into question. once the form is received by the aMc’s appeal department,

have a question about appraising?Email us at [email protected] and your question will be answered in our next issue.

Appealing an AppraisalbriAn forbes

aPPraiSingValUE

y

GOinG TO The sOuRCe

The appeal process is intended to address actual errors in the reporting of data or in the selection of suitable comparables in the report, resulting in an inaccurate value opinion or major underwriting conditions.


aPPraiSing

the appraiser is forwarded the form and supporting documentation with a request from the aMc to address the issues outlined in the appeal and respond. Most appraisers will respond to the appeal with notes in an addendum to the original report and resubmit.

an appraiser can change the value in an appraisal under certain circumstances, but it isn’t done very often. The fact is that most appraisers do a competent job the first time around, though you may not believe it at first. You have to remember that the appraiser may go through as many as dozens of comps before they complete an inspection of the property. in most cases, when you appeal and send additional comps for consideration, the appraiser has already reviewed them but decided they were not appropriate at the time. appraisers will use comparables that give an “apples to apples” comparison of the subject property and relate to current market conditions. comps they use tend to be the closest in distance to the subject property, the closest in room count and gross living area, and the most recent in terms of dates sold.

Because the appraisal process continues to become increasingly regulated, there are changes that drastically affect appraisers’ decisions in terms of what comparables they use in their reports, as well as the adjustment formulas and percentages they will make on comparables. For example, if there are a large number of foreclosures or Reos within a subject’s market area, the appraiser must use them, even if there may be comps of higher value that are farther away in distance or a little older (please see “ask the appraiser” in The Reverse Review, March 2012, page 27).

in most appraisal complaints, a borrower claims that the reports don’t take into consideration all of the improvements made on the home, and that the assessed value is higher than the appraisal report. Borrowers and

brokers need to understand that an appraisal for lending purposes is not based on the cost approach in the same way that appraisals for assessment or insurance purposes may be.

The sole reason that a lender requires a market approach appraisal is to give him an idea of what your borrower’s property could reasonably sell for if it had to be taken back and sold on the market today. The appraisal is a snapshot of what your borrower’s house is worth in relation and response to the surrounding market.

There are several things you can do to increase your chances for a successful outcome of an appraisal appeal. The most important thing is to complete thorough research from the very beginning, even before an appraiser is assigned. if you have access to MLs data, you can easily use the database to find information on recent comps. if you don’t have this resource, you may use sites on the Web, such as zillow or Realtor.com, and focus on the recent sales information. When using these

sites, be sure to ignore any indication of actual value. Remember to look at the big picture when you do your research. When you select comps, don’t just select ones that obviously fit your goal.

also, be sure to leave your emotions out of any communication. More often

than not, appeal requests will be received with harsh language, name calling and critical comments about the appraiser and how he performed the inspection or put together his report. The old adage “You can catch more flies with honey than with vinegar” certainly applies here. a well-spoken, courteous request for review will motivate your appraiser to take a compassionate second look at the report.

By being professional in your appeal request and researching recent sales early on, you may be in a better position to set reasonable expectations for your borrower and for yourself. if you prepare properly, you will have comps ready to submit for consideration in the event that the appraisal is much lower than you expected.

Most appraisers will give careful and thoughtful consideration to additional comps and other evidence of market valuation during the appeal process. in general, the appraiser will do his absolute best to turn out a quality product the first time around and is often aware that there may be market information that he has missed. x

in MOsT APPRAisAl COMPlAinTs, A

bORROWeR ClAiMs ThAT The RePORTs

DOn’T TAke inTO COnsiDeRATiOn All OF

The iMPROveMenTs MADe On TheiR

hOMe, AnD ThAT The AssesseD vAlue is hiGheR ThAn The

APPRAisAl RePORT. bORROWeRs AnD bROkeRs neeD TO unDeRsTAnD ThAT An APPRAisAl FOR

lenDinG PuRPOses is nOT bAseD On The COsT APPROACh in The sAMe WAy ThAT

APPRAisAls FOR AssessMenT OR

insuRAnCe PuRPOses MAy be.

ACCording to briAn

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| TRR32


Homeowners can seek help from general contractors who... are familiar with the nuances of FHA-backed mortgage loans, educated in the reverse mortgage process and sensitive to the issues facing seniors as they go through the process of obtaining a reverse mortgage.

this month’s spotlight features insight from leaders in FHa-compliant home repair.

maria SCHulze BayState indePendenCe HouSing grouP

hen an individual applies for a reverse mortgage, the application must be approved

by the FHA, which requires the home to meet specific health, safety and soundness standards. This can be problematic, as most homeowners applying for reverse mortgages do so because they are short on funds and often lack the money to address essential home repairs. Furthermore, many homes may require repairs that exceed the 15 percent allowable for escrow. (if the repairs do not involve health and safety issues and are under 15 percent of the appraised value, they can be escrowed.) Many times, lenders will set aside 150 percent of the estimated repairs. But with values where they are, there is often not enough equity to make this happen.

tHe rigHt ContraCtor for fHa ComPlianCe

in these situations, homeowners can seek help from general contractors who specialize in repairs for non-compliant Fha reverse mortgage properties. such companies are familiar with the nuances of Fha-backed mortgage loans, educated in the reverse mortgage process and sensitive to the issues facing seniors as they go through the process of obtaining a reverse mortgage. They often provide general contracting, project management and bridge funding to facilitate noncompliant loans.

i have helped dozens of seniors complete the renovations their homes need in order to obtain a reverse mortgage. one loan that comes to mind involved a single woman whose home needed a large amount of work, including plumbing, wall repair, painting and deck work. her grandchildren were coming over in less than a week, and she hadn’t seen them for a couple of years. We were able to come in and take care of all her repair needs in time. she called me, crying, to thank us for making her home safe and sound for her family. My experience illuminates how important it is for seniors in need to work with a specialized contractor who is willing to go the extra mile to ensure they can age comfortably in their homes.

Bridge funding

These specialized contractors will not only renovate and repair the home, they will provide bridge funding to support the construction. This means that the

SPotligHt artiCleheRe’s a Look aT The home RepaiR side of The indusTRy

fRom Two key pLayeRs in The maRkeT.

aPril

edition

Want to see more articles like these?Go to reversereview.com.

w1first story

oPeration renovation // in order to obtain a reverse mortgage, a borrower must address any needed repairs to meet Fha standards. Here are some pointers from expert contractors fluent in this specific kind of compliant renovation.


SPotligHt artiCle

homeowner will not incur any upfront, out-of-pocket expenses as they work to achieve Fha approval, and won’t have to struggle to handle the cost of repairs. instead, the contractor will cover the expense, and the homeowner will commit to repaying the cost when the reverse mortgage loan closes.

tHe ProCeSS

Here’s a rundown on the steps to achieving FHA compliance:

A A homeowner or the loan officer contacts the contractor to discuss the home’s repair needs to qualify for FHa loan approval.

A The contractor will present a proposal for repairs, typically within 48 hours. Once that proposal is approved, the repairs should be scheduled immediately so that construction can get under way.

A at this point, essential repairs are addressed. The most common repairs for noncompliant homes are often related to the structure’s foundation, mold and lead paint remediation, leaking roof and water damage, the absence of a heat source, inadequate electrical systems, local and state code violations, and inoperable doors or windows. Other renovations include retrofitting the home to address accessibility issues, such as grab bars, hand rails, ramps and wider doorways.

A Once the repairs are finished, the borrower must sign a completion report. Final documents are then sent to the loan officer and the lender’s title company to ensure that all documentation is properly processed and ready to take to closing.

A Once the home is determined to be FHa-compliant, the loan officer can finalize the application for the reverse mortgage and, ideally, obtain approval. When the mortgage funds come through, the contractor is paid for the home’s repairs at closing.

tax aSSeSSment

in some cases, homeowners who seek reverse mortgages are also saddled with excessively high property taxes. it’s important to note that a visit to the tax assessment office might help solve this issue. a reverse mortgage holder can often register as a senior property owner with limited income and potentially receive a credit toward his taxes that would alleviate the burden of this expense.

in CloSing

i have helped many seniors through the renovation process so that they can obtain much-needed funds from a reverse mortgage. i have seen firsthand how many senior homeowners need our assistance. Each story is different; I listen to each one, find out how I can help and then—together with my crew—work to help that senior achieve his goal. i take great pride in knowing that each day i am making a difference in someone’s life. i am helping seniors all across the united states stay in their homes—their safe and comfortable homes. x

ACCording to mAriA

The MOsT COMMOn

RePAiRs FOR nOnCOMPliAnT

hOMes ARe OFTen RelATeD

TO The sTRuCTuRe’s FOunDATiOn,

MOlD AnD leAD PAinT

ReMeDiATiOn, leAkinG ROOF

AnD WATeR DAMAGe, The AbsenCe OF A heAT sOuRCe, inADequATe eleCTRiCAl

sysTeMs, lOCAl AnD sTATe CODe viOlATiOns, AnD

inOPeRAble DOORs OR WinDOWs.

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2second story

fidelity HomeStead aSSoCiateS

n today’s market, loan officers and mortgage

companies are often licensed to do business in several states. Because of the physical distance between the parties involved, there is rarely an opportunity for the loan officer to personally visit the property at the beginning of the process. as a result, loan officers often overlook essential repairs that are required to close the loan. The need for renovation is sometimes not discovered until they receive an appraisal, at which point a significant amount of time and money has already been invested.

This disconnect is exactly what gave rise to contractors who address the need for home repairs so that loans can be efficiently executed. The companies assist loan officers so that they can successfully close “problem” loans and provide homeowners with a trusted and qualified team to handle the required home repairs and renovations.

in need of rePair

Many seniors are turning to reverse mortgages as a much-needed source of income so they can keep their home. seniors who have not been in the financial position to upgrade and repair their homes for many years before this opportunity rarely know a trusted contractor to assist them. 8

i

| TRR34

The ReveRse Review april 2012 A COST EFFECTIVE

SOLUTION FOR YOUR POST-CLOSING

AUDIT NEEDS.

Let Landmark show you how cost effective they can be.

888.272.1214landmarknetwork.com

© 2012 Landmark Network, Inc. The Landmark Logo is a trademark of LandmarkNetwork, Inc. and its related entities. All rights reserved.

Learn about all our products including appraisal and alternative valuation.

Comprehensive loan pool quality ranking

Reporting on important metrics that matter

Customized complete audits specific to loan types

Comprehensive overview of the performance by company role


SPotligHt artiCle

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in other cases, underinsured or uninsured seniors have been displaced by hurricanes or other natural disasters. in these instances, the repairs are significant and essential because of basic health and safety issues. Required repairs can sometimes exceed the amount allowable by a repair set-aside and must be completed before closing. We’ve heard many stories from

loan officers about how helpless they felt because they were unable to get repairs done prior to closing and help restore normalcy and dignity to these people’s lives.

in any case, repairs to the property may be needed in order to close the loan. generally, the responsibility to locate, research and schedule contractors to visit the property and provide an estimate for repair will fall on the loan officer or the processor. sometimes loans are lost due to program or rate changes that occur while the loan officer is still working to obtain an estimate for repairs.

other times, loans are shelved and forgotten because the loan officer is occupied closing “easier” loans that do not require the extra steps incurred by the need for repairs. overseeing the repair of a property under consideration for a loan can be extremely time-consuming and frustrating for the loan officer and the homeowner. This valuable service enables loan officers to delegate the repair process to a renovation expert so they can concentrate their efforts on procuring and closing loans. x

tHeSe ContraCtorS are SCreened to aSCertain integrity and are required to Be liCenSed and inSured in tHeir trade. They are all part of a limited county/parish rotation designated by the service they provide and are contractually bound to give a fair and professional repair estimate.

THE

reviewREVERSE

do you have what it takes?

it takes a lot to create an attention-grabbing, informative article and we know there are people out there who can

get the job done. The Reverse Review is on the hunt for contributors to join the team and be a part of the

industry’s premier publication.

email [email protected] to start the conversation and possibly see

your name in print!

A COST EFFECTIVE SOLUTION FOR YOUR

POST-CLOSING AUDIT NEEDS.

Let Landmark show you how cost effective they can be.

888.272.1214landmarknetwork.com

© 2012 Landmark Network, Inc. The Landmark Logo is a trademark of LandmarkNetwork, Inc. and its related entities. All rights reserved.

Learn about all our products including appraisal and alternative valuation.

Comprehensive loan pool quality ranking

Reporting on important metrics that matter

Customized complete audits specific to loan types

Comprehensive overview of the performance by company role

| TRR36



The

Riseof

Ginnie Mae

How MoRTGaGe-backed secuRiTies cHanGed THe invesTMenT landscape and

wHaT’s in sToRe foR THe HecM pRoGRaM

byTheodore w. Tozer

president of Ginnie Mae

photo byjoshua roberts

| TRR38


T has been moRe Than five yeaRs since ginnie Mae entered the reverse mortgage market with its home equity conversion Mortgage mortgage-backed security (hMBs). The ginnie Mae hMBs program has had a significant impact on our industry by generating liquidity and a long-term option for secondary market execution. in addition to enhancing liquidity, our goal in creating the program was to lower interest rates for borrowers, thus helping Ginnie Mae fulfill its mission of providing affordable housing opportunities. Since october 2007, ginnie Mae has guaranteed more than $30 billion in hMBs securities, providing a safe, secure secondary market for the Federal housing administration’s hecM program.

in recent years ginnie Mae has clearly dominated the secondary market in reverse mortgage financing. Fannie Mae, at one point the only investor purchasing HECMs, has stepped away from the reverse mortgage market. Fannie Mae’s share of the total market of outstanding reverse mortgage loans was approximately 90 percent in december 2008. however, by september 2009, that had fallen to 10 percent. Fannie Mae’s change in pricing strategy in early 2009, coupled with changes in market conditions, played a significant part in its decreasing role. In addition, reverse mortgage lenders started issuing securities through ginnie Mae’s hMBs program.

The Ginnie Mae HMBS program began slowly after its announcement in 2006. The first loans were not securitized until november of the following year by goldman sachs. This delay was caused by the intensive ginnie Mae hMBs issuer approval processes and the necessity to provide issuers enough time to understand and learn our program. The program continued to move slowly, averaging less than $136 million per month in securitizations until May 2009 when issuance hit $262 million, and consistently continued to show growth. By that time the economic upheaval was well under way. The single-family and multifamily housing markets were beginning to feel the impact of the credit crunch; homes were rapidly losing value, and even credit-worthy borrowers had trouble securing loans.

similar stresses were occurring in the reverse mortgage market. Many older americans were beginning to lose much of their retirement savings in the economic collapse, and

ithe only viable vehicle to obtain funds was through the equity in their homes. hecM originations began to dramatically increase in 2009, which translated into soaring securitization volume for ginnie Mae’s program. ginnie Mae’s yearly hMBs volume increased from $1.36 billion in 2008 to $8.54 billion in 2009. For the first time in the program’s history, hMBs volume crossed the $1 billion threshold in just one month’s time, hitting a program high in december 2009 with nearly $1.6 billion in securities. The momentum continued: 2010 was a record year, with nearly $11 billion in securitized MBs. hMBs volume in 2011 was down slightly, finishing just under $10 billion for the year.

although the ginnie Mae program has existed for only a few years, it has significantly changed the dynamics of the reverse mortgage industry and has been successful in providing a viable secondary market alternative to Fannie Mae. The reasons for the success of the ginnie Mae hMBs are clear. it is an attractive investment opportunity that carries the full faith and credit guarantee of the united states government, the same as any other ginnie Mae MBs. The hMBs enjoys the superior liquidity and execution of the ginnie Mae securitization program, and the security is insulated from the risk of tax and insurance defaults—risks that are borne by the hMBs issuer.

hmbs voLume hiT a pRogRam high in decembeR 2009 wiTh

neaRLy $1.6 biLLion in secuRiTies... 2010 was a RecoRd yeaR, wiTh neaRLy $11 biLLion.

n u M b e R s


The current landscape

after years of slow but steady progress, the reverse mortgage market is beginning to experience some challenges. Two of the industry’s leading lenders, Bank of america and Wells Fargo, have withdrawn; borrower delinquencies are hitting new heights; and ginnie Mae issuers are now faced with new net worth requirements.

Bank of america and Wells Fargo were responsible for more than 40 percent of reverse mortgage originations before they left the market in 2011, according to Reverse Market insight. The two were also responsible for nearly 25 percent of ginnie Mae’s hMBs issuances. Wells Fargo, the largest provider, left after citing the inability to assess borrowers’ financial health, and Bank of America said that declining home values made fewer people eligible for reverse mortgages. although there are signs that other lenders are stepping into the void, the long-term impact of their exits is yet to be determined.

The top three issuers in november 2010 were Bank of america ($246 million), Wells Fargo ($229 million) and Reverse Mortgage solutions ($135 million). according to quarterly data reported in november 2011, the three ginnie Mae issuers with the highest original principal balance were urban Financial ($178 million), MetLife ($136 million) and Reverse Mortgage solutions ($117 million). although volume is clearly decreasing—in the wake the Bank of america and Wells Fargo exits (from $610 million to $431 million), other ginnie Mae issuers are working to fill the void. and, despite the relatively steady volume, it is clear that reverse mortgage loans have become increasingly risky propositions for lenders.

There are a number of unique features about the hecM program, one of which

is that it does not require escrows. homeowners with reverse mortgages do not have to make monthly payments on the reverse mortgage loans; however, they must continue to make tax and insurance payments. a growing number of borrowers are becoming delinquent on their reverse mortgage loans because they have stopped making property tax and home insurance payments. as a result, banks are seeing a rise in “technical defaults,” when homeowners fall behind on their taxes or homeowner’s insurance, both of which are required to avoid foreclosure. according to Reverse Market insight, about 4 to 5 percent of active reverse mortgages, or 25,000 to 30,000 borrowers, are in default on at least one of those items.

at the same time, borrowers have been taking the maximum amount of money available, often using it to pay off any remaining money owed on the home. Adding to the risk profile of HMBS loans, home prices continue to slide.

The impact on Ginnie Mae’s HMbs program

given the rapidly changing housing finance market, Ginnie Mae had to adjust its program to protect the american taxpayer. To that end, we recently made several critical changes to the standards for financial institutions that participate in

the hMBs program.

The changes to our standards require issuers to increase their net worth, liquid assets and capital asset requirements to participate in our program. The net worth requirements increased from $1 million base net worth to $5 million. existing issuers were required to meet these requirements october

1, 2011. We also instituted a new liquid asset requirement, stipulating that hMBs issuers have liquid assets of 20 percent of the agency’s net worth requirement. The new liquid asset requirement will help ensure funds are 8

since ocTobeR 2007, ginnie mae HaS

guaranteed more tHan $30 Billion in HmBS SeCuritieS, pRoviding a safe,

secuRe secondaRy maRkeT foR The

fedeRaL housing adminisTRaTion’s hecm pRogRam.

hecm oRiginaTions began To

dRamaTicaLLy incRease in 2009,

which TRansLaTed inTo soaRing

secuRiTizaTion voLume foR ginnie

mae’s pRogRam. ginnie mae’S HmBS volume inCreaSed

from $1.36 Billion in 2008 to $8.54 Billion

in 2009.

25%bank of ameRica and

weLLs faRgo were reSPonSiBle foR

neaRLy 25 peRcenT of ginnie mae’s hmbs

issuances.

$

QuicKfacts

The reasons for the success of the Ginnie Mae HMbs are clear. it is

an attractive investment opportunity that carries the full faith and credit

guarantee of the united states government, the same as any other

Ginnie Mae Mbs. The HMbs enjoys the superior liquidity and execution of the Ginnie Mae securitization program, and the security is insulated from the risk of tax and insurance defaults—risks that are borne by the HMbs

issuer.

2008

2009

2010

2011

2012

+

12

10

8

6

4

2

0

1,159

5,095

11,792

10,699

1,982

hmbs issuances by fiscal year

OPB

($M

IllI

On

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available when there is a need for cash to fund borrower advances, loan buyouts and/or potential indemnification requests from insuring agents. and we adopted institution-wide capital requirements. capital requirements provide better assurance that issuers have sufficient capital to cover their financial risks on an institution-wide basis. Regulated banks and thrifts must maintain 5 percent of Tier 1 capital/total assets, 6 percent of Tier 1 capital/risk-based assets and 10 percent of total capital/risk-based assets. nonbanks, credit unions and subsidiaries are required to maintain a minimum 6 percent of total equity/total assets. We firmly believe that issuers who retain more capital and liquidity are better positioned to absorb losses and advance principal and interest payments on delinquent mortgage loans.

our goal was to ensure that all issuers of ginnie Mae hMBs have adequate capital and liquidity to protect the program and taxpayers from unnecessary risk. These

hMBs requirements provide a critical layer of safety for our program and reflect the significant capital and liquidity required to manage an hMBs portfolio in a financially sound manner. These changes will make the ginnie Mae hMBs program stronger and, in turn, better ensure that our issuers are well equipped to handle challenges.

The Ginnie Mae HMbs program has made a positive impact on the reverse mortgage industry by generating liquidity and a long-term option for secondary market execution. at the same time, it does require a higher level of interaction, as well as integration across servicing operations, information technology, investor accounting and secondary marketing.

The secondary Market appetite for Reverse Mortgages

The secondary market for reverse mortgages has been unpredictable in recent years, but trends show investor demand is increasing and execution continues to improve, largely due to ginnie Mae’s guarantee of full faith and credit of the u.s. government. private label hecM securitizations never got off the ground due to the collapse of the non-agency securitization market, so the ginnie Mae hMBs program was the logical outlet. This, coupled with the zero percent risk weighting on securities for domestic banks, makes ginnie Mae’s hMBs an appealing securitization vehicle.

The appetite for the hMBs in the secondary market has been centered on the Ginnie Mae fixed-rate product, leading to a much higher premium paid to lenders on these loans when compared to LiBoR-based adjustable rate mortgages. This interest is most likely due to the fact that there are fewer variables to analyze compared with adjustable rate hMBs. Joe kelly, a partner at new view advisors, a Wall street boutique specializing in reverse mortgages, has described ginnie Mae’s HMBS as the “holy grail” of fixed-income securities, “one of the most important developments in the U.S. fixed-income markets in the past couple of years.” however, that could change. some analysts say that as demand continues to build in the fixed product, some investors will start looking at adjustable reverse mortgage products. But it’s impossible to tell if pricing currently available to lenders and consumers will last forever.

The future of the HMbs Market

The ongoing financial crisis will no doubt continue to increase the appeal of reverse mortgages, as many elderly homeowners are still reeling from losses suffered in their retirement accounts. ginnie Mae’s hMBs program is the only source of liquidity for reverse mortgages. our hMBs program offers attractive investment opportunities for fixed-income investors. They enjoy the same full faith and credit guarantee of the united states government as any other ginnie Mae MBs and

have superior prepayment characteristics.

The ginnie Mae hMBs program has made a positive impact on the reverse mortgage industry by generating liquidity and a long-term option for secondary market execution. at the same time, it does require a higher level of interaction, as well as

integration across servicing operations, information technology, investor accounting and secondary marketing. Lenders must fully analyze and understand the balance between reward and risk that comes with participation in the hMBs program.

it is obvious, however, that there are lenders willing to step up and enter the program. There are several new lenders already in ginnie Mae’s hMBs approval pipeline, and there are a few already approved ginnie Mae single-family issuers that are active in the forward market and interested in expanding their status by also becoming hMBs issuers. The reverse mortgage market is dynamic and changing, with lenders leaving and entering, but there is one clear message: older americans will need to tap into equity in their home to supplement retirement savings and social security. The capacity is there. and in order for lenders to continue originating reverse mortgages, the market needs to be liquid. For that liquidity, you need ginnie Mae. x


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t a certain point when i was growing up, i

simply stopped fearing the boogeyman and checking for monsters under my bed. i know this may sound like a simple way to dismiss the fears many of us have of the cFpB, but the truth is, at this point, they are just that: baseless fears.

in the past, new federal regulations and agencies have tended to confuse borrowers and lenders and increase the budgets of our compliance departments. however, i believe that in the reverse mortgage business, we need to take a

step back. We need to tone down the rhetoric, embrace this new agency and help educate their team, especially since they are open to suggestions and constructive input from knowledgeable people in our industry.

every day i hear somebody verbalize a new fear about what the cFpB is sure to do to ruin our industry and livelihoods. But as of yet, we have no facts or recent actions that remotely back up any of these fears. With the Mayan calendar running out this year, maybe it doesn’t matter either way. all kidding aside, at the very least let’s

watch the agency closely and derive our opinions or predictions from the bureau’s actual actions. in the meantime, let’s lead the way in guiding the bureau as the most ethical segment of the mortgage industry.

The cFpB has launched consumerfinance.gov. I encourage everyone to visit the site and look at the section titled, “Time to simplify mortgage disclosure.” We can all appreciate how past changes to disclosures and documents have done nothing more than create problems rather than provide so-called solutions. however, if

the draft test disclosures named “Butternut” and “hemlock” are any indication, the agency may actually be on the right track. not only does it look like the bureau is saving a few trees by reducing the number of pages by 50 percent, but i also commend it for creating disclosures that are actually easier to read and understand than past government documents.

it has been some time since i’ve had to roll up my sleeves and personally work with these documents on a regular basis, but so far, i like where the cFpB is taking these and i agree with its intent. Loan officers should compare these new disclosures to what they’re currently using to explain the bottom line to seniors, and consider for a moment that something positive and truly helpful may be going on here.

none of us know what may lie ahead, or the exact effect the actions taken by the cFpB will have on the reverse mortgage industry. however, i do believe the more publicly we protest an agency with the words “consumer” and “protection” in its name, the more likely we are to invite criticism of ourselves. after all, we proclaim to be the most ethical segment of the mortgage industry, so do we really have anything to fear? x

What Do We Have to Fear?eriK riChArd

laSt wordOpiNiON

Want to comment on this article?Comment online at reversereview.com.

a

We need to tone down the rhetoric, embrace this new agency and help educate their team – especially since they are open to suggestions and constructive input from knowledgeable people in our industry.


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The Reverse Review April 2012