The Reverse Review - November 2010

!HUD

%Ethics advisory

2010-01

The heCM Saver

and SalvaTionA parable on ML 2010-34 and

NRMLA ethics advisory 2010-01

Fed Kamensky and Joel Schiffman

THE

REVERSEreview

N O V E M B E R 2 0 1 0

save the industry?

can it

$

Count on MetLife Bank for what you need to succeed. Proprietary technology to

streamline the application process, so you can close more loans. Extensive training to help you attract

more customers and grow your business. Ongoing support throughout the reverse mortgage process,

including people who are there when you need them. It’s the complete package that helps our

reverse mortgage wholesale brokers and correspondent lenders get real results. Find out how we

can help you succeed as a reverse mortgage provider.

If you’re an FHA-approved lender, call 1-866-359-3817 to start the conversation.

Happiness is getting everything you need, all from one reverse mortgage company.

MetLife Bank

All loans are subject to property approval. Certain conditions and fees apply. Mortgage financing provided by MetLife Bank, N.A., Equal Housing Lender. © 2010 METLIFE, INC. L0310092581[exp0311][All States][DC] © UFS

Technology. Training. Support. All from one reverse mortgage company.

61308 Snoopy with laptop.ai

!HUD

Ethics advisory

2010-01

can it

05 editor’s note Information at your Fingertips

06 ask the Underwriter Is it Stuffing or Dressing?

08 industry Stats August 2010

34 opinion Piece

The Wake-Up Call

37 directory

38 The last Word A New Direction, A New Look

“ M o v i n g F o r w a r d i n R e v e r s e ”

TRR11.1012 The Future of Reverse

Mortgage Lead Generation

Everything that’s old isn’t new again! What? No, this is not a typo — let me explain.

Jorge Villar

24 REO Presents Different Challenges to Reverse Mortgage Servicers

The key to a successful REO sale process in the reverse mortgage world is the ability to move quickly

Darren White

27 The Trifecta The ideal vs reality syndrome David Bancroft

28 CRMP: History Behind the Designation

A certification that demands the respect of professionals, government officials and the confidence of seniors Karen Keating

30 Taxation on Foreclosure – Part II

A rise in foreclosures brings further tax consequences James E. Veale

36 Senior Moments Making a difference

Mark Sisco

FEATURE - pg 18

save the industry?

The HECM Saver and Salvation

A parable on ML 2010-34 and NRMLA ethics

advisory 2010-01Fed Kamensky and

Joel Schiffman

16745 W. Bernardo driveSuite 450

San diego, Ca 92127

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Publisher aman Makkar

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© 2010 The Reverse Review, LLC. All rights reserved. The Reverse Review, LLC is a California limited liability company and is the publisher

of The Reverse Review magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in

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I’m so pleased with our November issue! We’ve made small changes and improvements throughout and I hope you appreciate them just as much as we do. Once again it was such a pleasure working with all of the contributors this month; I constantly look forward to information that is sent my way and later turned into yet another great issue of The Reverse Review.

Our industry is small and we strive to reach each and every one of you with the stories and latest news that matters. It is our goal to deliver the most up-to-date information and drive the debate within the industry, whether it’s online or within the publication.

With that said, we are thrilled to welcome Brett Varner as News Editor of ReverseReview.com. I believe his efforts and ideas will turn our website into one that is visited by you every day.

Until next time, we hope you enjoy our November issue!

emily vannuccieditor-in-Chief

THE

reviewREVERSE

Information at your Fingertips

L

| TRR November 2010 6

Later this month, families across the nation will sit together and give thanks for another year of events, blessings and plenty that have enriched their lives. A sign of this commemoration begins as dishes are passed with outstretched hands from guest to guest, offering a variety of elements to the dinner that need no introduction. There is one thing I have always wondered: Is it stuffing or dressing? Word definition leads to little resolution on this fact. Both words are used to describe a delectable mixture of ingredients that, when combined with meat or poultry in one of a variety of methods, ultimately takes the dining (or eating) experience to a higher level.

The confusion of what to call a side dish is not nearly as challenging as preparing the main focus of the dinner,

the Thanksgiving turkey. This bird is the subject of conversation for weeks ahead of its preparation and weeks thereafter in the review analysis stage. This bird has instilled fear, mystery, stories of achievement and failure, and a tremendous amount of misconceptions and misinformation.

Perhaps the greatest support for the Thanksgiving holiday is the Butterball Turkey Hotline. These dedicated women (and, I would imagine, a few good men) put themselves out there as an education and training resource each holiday season to counsel first-timers engaging the “bird” task. Year after year, they seek to dispel rumors and provide clarity and ease. No doubt as families gather this holiday season, meal conversation will probably include how best to provide the right

information, choices and clarity for parents or relatives facing rising housing and living costs with limited resources. The reverse mortgage conversation will be laden with misconceptions, misinformation, fears and tales of successes and failures.

Similarly, at our company reverse mortgage tables, we find a descriptive dilemma for the reverse mortgage product. Bottom line: It is a reverse mortgage program with a different name, and – similar to our stuffing and dressing issues – the end result is a mixture of loan features and option ingredients providing a senior borrower with an enhanced set of choices.

The recent addition of a second set of alternatives for the HECM program, the HECM Saver, has yet to be fully developed in many areas of our industry, as well as in the consumer sector.

Is it Stuffing or Dressing?A reverse mortgage program with a different name

Ralph Rosynek

Bottom line: it is a reverse mortgage program with a different name, and – similar to our stuffing and dressing issues – the end

result is a mixture of loan features and option ingredients providing a senior borrower with an enhanced set of choices.

November 2010 TRR | 7

One of the main purposes of the new product is to provide choices to borrowers seeking to limit or reduce costs based upon needed or desired loan objectives. FHA designed the HECM Saver as a second reverse mortgage option for the purpose of lowering upfront fees and loan closing costs, for homeowners who want to borrow a smaller amount than what would be available with a HECM Standard loan. This mortgage option significantly lowers costs by almost eliminating the upfront mortgage insurance premium (MIP) that is required under the HECM Standard option.

For HECM Saver, the initial MIP is 0.01% of the maximum claim amount (MCA), and it is collected at the time of loan closing. For HECM Standard, the amount of initial MIP will continue to be 2% of the maximum claim amount (MCA), which is also collected at the time of loan closing.

The reduction in upfront fees will be accomplished while substantially lowering the risk to the FHA insurance fund because the principal limit or amount of money available to a borrower under the HECM Saver is reduced. Borrowers will receive approximately 10 to 18% less under the HECM Saver option than they would receive under HECM Standard.

HECM borrowers may opt to receive funds as a lump sum, establish a line of credit or request fixed monthly payments that are disbursed for as long as they continue to live in the home. Funds are advanced to the borrower and interest accrues, but the outstanding amount does not have to be repaid until the borrower dies, leaves the home or sells the property. At that time, if the balance due on the loan exceeds the value of the home, FHA insurance pays the difference.

As with the HECM Standard, positive information delivery combined with continuing education and training for both the HECM Saver and Standard needs to be provided to originators, borrowers, lenders and counselors as a key component to assisting senior borrowers as they make comparative choices when seeking a reverse mortgage.

So which is it, Saver or Standard?

Unfortunately, the folks on the Butterball line this season aren’t going to be able to help us arrive at a resolution to this question (but I wonder what they do the other 10 months of the year?!)

Happy Thanksgiving.


August wholesale results are in, and as we’ve seen in past months, retail/direct lending in the reverse mortgage market continues to lead wholesale/broker volumes. Total volume for August was up 13%, with retail/direct up 18% and wholesale/broker up just 6%.

Last month we asked why the volume recovery has been so narrow since May, primarily benefiting just three major lenders. As we discussed in last month’s report, July volumes were higher than May for only five of the top 10 lenders. This month we see a broader recovery, with seven of the top 10 lenders experiencing volume growth since the industry’s low point in May. Even more encouraging, the largest lender in our business saw a nice 12-month high in August, moving back to 2,000 loans for the first time in 16 months (April 2009).

While that might be small comfort to anyone whose compensation isn’t tied to Wells Fargo’s performance this year, our industry can benefit from the success of large, visible brands, as we’ve seen time and again in recent history.

A few other lenders stand out in this month’s report:

s Genworth continues its healthy recovery from May, with growth of 250% and its highest volume since September 2009.

s Security One Lending appears to be on the comeback trail as well, also showing their highest volume in 11 months.

s The race is heating up for second place, with MetLife gaining ground on longtime industry leader Bank of America (and, previously, Seattle Mortgage). MetLife’s growing retail presence and continuing wholesale strength puts them within shouting distance of No. 2 overall. BofA leads by more than 3,000 loans for the last 12 months, but if both lenders turn in identical totals in September, MetLife would still shrink the gap by 24%.

indUSTrY SUMMarY

Retail endorsement Growth

18.2%Wholesale endorsement Growth

5.99%Total endorsement Growth

12.96%

Trailing TWelve - MonTh endorSeMenTS

10,000

8,000

6,000

4,000

2,000

089 10 11 12 1 2 3 4 5 6 7

*Numbers Represent MonthsRetail Wholesale

* Figures Above Reflect Change from Prior Month

8

9

10

11

12

1

2

3

4

5

6

7

ToT

UnITs ChG% UnITs ChG% UnITs ChG%

3,903

4,081

3,836

3,954

3,171

3,124

2,783

2,692

2,465

2,900

3,358

3,969

6.03%

4.56%

-6.0%

3.08%

-19.8%

-1.48%

-10.92%

-3.27%

-8.43%

17.65%

15.79%

18.2%

5,567

4,692

3,901

4,326

4,450

3,890

3,038

2,813

2,086

2,404

2,521

2,672

6.12%

-15.72%

-16.86%

10.89%

2.87%

-12.58%

-21.9%

-7.41%

-25.84%

15.24%

4.87%

5.99%

9,470

8,773

7,737

8,280

7,621

7,014

5,821

5,505

4,551

5,304

5,879

6,641

6.08%

-7.36%

-11.81%

7.02%

-7.96%

-7.96%

-17.01%

-5.43%

-17.33%

16.55%

10.84%

12.96%

reTail WholeSale ToTal

august endorsementsRetail and wholesale volumesa bRoadeR ReCoveRy WITh moRe lendeRs expeRIenCInG GRoWTh

40,236 42,360 82,596


RAlpH RoSynek has been The Reverse Review Ask the Underwriter for more than two years. He is an industry HECM consultant and trainer, leveraging many years of executive and owner skills and knowledge in the reverse mortgage space including HECM Direct Endorsement credentials. Ralph is currently a seated Director for NRMLA and co-chairs the Professional Development Committee. 708.774.1092 | [email protected]

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. 949.429.0452 | www.rminsight.net

contributors

JoRge VillAR is the creator of SeminarSuccess®, one of the most successful seminar marketing programs in the country. Since 1995, Jorge has overseen the growth of RME to one of the industry’s most prominent organizations, reaching $30 million in sales annually. RME’s direct mail lead-generation programs have been responsible for 300,000 seminar events for more than 7,000 sales and marketing professionals.

Fed kAmenSky is an associate with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. 202.628.2000 | [email protected]

Joel ScHiFFmAn is a member with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. 949.798.5570 | [email protected]


JAmeS e. VeAle is a Senior Vice President at Security One Lending, Inc. Jim is also a California CPA and real estate broker with a master’s degree in business taxation from the University of Southern California.

ViRginiA dAVieS experienced 30-plus career years in human resources, customer service and the arts before joining the reverse mortgage industry. She has embraced corporate life as the fulfillment of her creativity goals, managed throughout her employment at a Fortune 500 company in Santa Clara, CA, and her personal business ventures in Atlanta, GA, as owner/manager as well.512.879.3542 | [email protected]

liSA SlAy, Owner/Manager of Senior Voice, LLC, brings more than 30 years of experience in management, operations and customer service to the company. Lisa has held the position of administrator and human resource manager in the home health care industry and currently holds the position of COO in the reverse mortgage industry. 512.879.3542 | [email protected]

dAVid BAncRoFT, Founder and former President of Omni Reverse Financing Inc., is an industry expert in the origination of reverse mortgages, FHA and VA government loans. David founded Omni Home Financing in 2002 in order to specialize in government lending and is now one of the largest originators of HECM reverse mortgages in the country. 949.355.4653| [email protected]

mARk SiSco is the RSD with West Star Reverse Mortgage and is the driving force of the retail sales and the training group of the reverse mortgage division. He holds a California Broker’s license and several other origination licenses and is an accomplished speaker, with over 18 years in the mortgage industry. 949.922.7859

dARRen WHiTe is Vice President for Default/Foreclosure/REO/Claims at Reverse Mortgage Solutions Inc. in Spring, TX. Darren heads up RMS Asset Management Solutions (RAMS), which handles the disposition of REO properties for itself and other companies. RMS provides private-label sub-servicing, as well as a state-of-the-art reverse mortgage loan origination system. [email protected]

kARen keATing is a partner at Tradition Title Agency. To provide the lending professional clients with the highest level of advice about reverse mortgages, Karen achieved the title of Certified Reverse Mortgage Professional (CRMP) from NRMLA. She holds the distinction of being the only person affiliated with a title company to achieve this designation. 631.328.4410 | www.traditionta.com

BReTT g. VARneR is the newly appointed News Editor for www.ReverseReview.com. He has served the mortgage industry for 10 years in leadership capacities in sales, marketing and operations. His unique and knowledgeable perspective is focused on developing useful content and strategies in a forum of open and lively debate. [email protected]

A | TRR November 2010 12

As the fog of the recession slowly rises and the housing market emerges from the ice age that’s had a virtual death-grip on home values, seniors are quickly reconsidering a reverse mortgage.

As a direct marketing professional with more than 30 years’ experience in generating qualified and motivated leads for sales professionals, companies and organizations, I have a unique perspective to share with you.

“Everything that’s old isn’t new again!” By this I mean that the reverse mortgage sales professionals who fall back on the marketing philosophy of the past (“Because we’ve always done it that way”) are going to fail. Why? Because the landscape has changed dramatically over the past three to five years. Only those who recognize this and adjust their marketing mind-set will be successful in the long run. Here are five keys to your success!

personalization: you never get a Second chance to make a First impression!

The past is the past: over and done with. The past I’m referring to is the old ways of generating reverse mortgage leads. When you invest in direct marketing, if your mail piece is not personalized – no matter how good your offer is – it’s going to look like junk mail. Now, by personalization I’m not referring to addressing the envelope. I’m talking about having your prospect’s name, even their city or town and relevant payout charts, throughout the mail piece. Very few mom-and-pop printers can afford the kind of printing technology to do that. But personalization is critical. Think about it from this perspective: Would you respond to a mail piece with the salutation “Dear friend”? Or even worse, “Current resident”?! With that salutation, what would you think about a company that was asking you to consider discussing one of their most valuable possessions: their home? To start creating trust and credibility, go with an image and a “Hallmark-like” look in the mailbox.

The days of using cheap flyers, postcards, fake checks, yard signs and small newspaper inserts are over – done and gone! I can save you the expensive lessons. Do it right for that sensitive audience.

The Future of reverse Mortgage lead generationEverything that’s old isn’t new again! What? No, this is not a typo — let me explain.JoRGe vIllaR

everything that’s old isn’t new again! By this i mean that the reverse mortgage sales professionals who fall back on the marketing philosophy of the past (“Because we’ve always done it that way”) are going to fail.

1


capitalize on What the Big Banks Have done for you

They have spent big money to set you up nicely. Anyone in the reverse mortgage industry knows how much money the big banks have invested in marketing and advertising. Their TV commercials included famous actors pitching a free DVD explaining everything anyone wanted to know about a reverse mortgage. With baby boomers entering retirement and qualifying for a reverse mortgage, you can expect these companies to continue their advertising efforts. So how does that help you? Well, if there’s one universal truth in sales, it is: People buy from people. A senior homeowner isn’t going to get a reverse mortgage because of a “compensated celebrity spokesperson.” However, that marketing will surely pique their interest. Now they will meet with a local professional they want to know, like and trust. That means you have to

get “belly to belly” with those prospects. Oh, and given the fact that almost every major financial institution received bailout money or went out of business due to poor investment decisions, do you think a qualified reverse mortgage prospect is going to trust one of the “big guys”? You have a unique opportunity to take advantage of what the big companies are doing to educate your prospects, but you need to be the face of the person who can help them embrace exactly what a reverse mortgage can do for them financially. You can help give them the peace of mind they so desperately want. So how do you get “belly to belly” with a prospect?

it Takes a neighborhood

If there’s one thing that’s proven true in recent history, especially during turbulent economic times, it’s the reality that you will make the majority of your income from the homeowner prospects that live

within a 7- to 12-miles radius of your market. The consumers (your prospects) in your market have little or no trust of big companies (again, think of the bailouts of everything from major financial institutions to the government). If you’re not there to fill that trust-gap vacuum, your competitors will be.

The good news is that there are proven ways to build what I call the “know, like and trust” factor with your prospects. It’s called neighborhood marketing. In a nutshell, neighborhood marketing is providing prospects a way to respond to your direct mail marketing in a way that’s comfortable for them! Over the past five years I identified six types of responders that live within that 7- to12-miles radius of where you work. They are: event responders, one-to-one responders, phone responders, Internet responders, lead responders and centers-of-influence responders. g

2

3


By far, “event” responders make up the majority of your neighborhood market. Through 300,000 direct mail promotions in 15 years, we discovered that senior prospects want to meet with you either one-on-one in a neutral, social setting, or at an event surrounded with lots of people just like them in a safe neighborhood location: yes, a restaurant. Marketing dinner events – and it’s a fact that dinners continue to out-pull breakfast or lunch events – continue to generate the most consistent flow of qualified reverse mortgage prospects. These face-to-face dinner events will help position you as the “local expert” on the subject. They will come to the event to hear you speak, get updated, and be reassured about reverse mortgages. They are not coming there to be sold anything. When you’re in front of your event attendees, your focus must be

on gaining their trust. Only after you’ve established that will they agree to meet with you privately at your office or at their home. That is permission marketing at its best! What can you expect from marketing at dinner events? On average, those that mail 6,000 invitations are getting between 60 and 120 qualified seniors to show up.

The devil’s in the data!

Given the fact that there are specific requirements to qualify for a reverse mortgage (age and equity), your mailing list is critical for the success of any direct marketing campaign. I can’t tell you how many horror stories I’ve heard from brokers who were ecstatic with the response they got from a mailing they did with a local print or letter shop, only to find out that almost all of the prospects

they met with weren’t able to qualify for a reverse mortgage. Please be sure you work with a marketing company that has years of proven experience in this market and are up-to-date on the regional differences in LTV lists. While the list companies are doing their best to keep up with home values, there are only a handful of direct marketing companies that can counsel you on issues surrounding the right list for your campaign. One more thing: If your marketing company won’t tell you who they rented the mailing list from, be afraid! Visit them; do not do mailings with them because of a sharp-looking website or because you can save a few pennies-per-piece. There are a lot of cheap shops out there that just want to make a buck. Do your due diligence.

passive prospecting

Remember when I mentioned phone responders? Well, we’ve seen an increase in the number of prospects who will participate in a conference call on reverse mortgages. I call it passive prospecting because a homeowner’s conference call gives many prospects the security of remaining in the privacy of their home while still getting the information they need before they decide to move forward with a reverse mortgage. True, this will require a bit more follow-up on your part, but remember, the concept of neighborhood marketing is to provide prospects with the means to respond in a manner that’s comfortable for them, not you. There are a lot of homebound seniors in your neighborhood who own their home outright. Who’s going to help them understand how a reverse mortgage can help them: you or your competition? These conference calls are designed to feel and sound almost like a local community radio show. You mail out invitations asking them to dial in at certain hours and folks can listen in to a reverse mortgage interview with a local and trusted expert: you.

I hope this information has been helpful. Let me leave you with these final thoughts. First and foremost, marketing is an investment, not an expense, and you should treat it like one. When you learn and understand the proven marketing formulas, you will make more money and live a happier business life. You can ask me anytime. It worked for me, a Mexican who came to this country when I was 17 and discovered the power of effective direct mail marketing. After 25 years, I can finally share my experiences to help those who want to learn better ways to market. It’s all about being personal with folks, and in my world it starts with how you look and what you say in their mailbox.

BonuS ideA!

if there’s one universal

truth in sales, it is: PeoPle buy

from PeoPle.

4

5


Copyright 2010

Texas / USAReverse Mortgage

Looking fora few good

Loan Officers

16 | TRR November 2010

17November 2010 TRR |

The launch of the new HECM Saver, MIP and PLF change, and new counseling protocols.


th E h EcM sav Er an d sa lvation

A parable on ML 2010-34 and NRMLA ethics advisory 2010-01

Fed Kamensky and Joel schiffman

n september 21, 2010, following a summer of lethargy, with reverse mortgage

volume down more than 30% from the last fiscal year,1 the department of housing and

Urban development (hUd) issued Mortgagee letter 2010-34 (Ml 10-34)

implementing a new hEcM product: the “hEcM saver.” the hEcM saver had been

anxiously awaited and is viewed by industry leaders as the single most promising

opportunity for reversing the downward slide in industry volume since october 2009.

O

1. According to ML 10-34, the two programs must be identified as separate and distinct initial mortgage insurance premium (MIP options).

>>


!Ethics advisory

Ml 10-34 rEqUirEs

hEcM lEndErs & coUnsElors

to UsE a spEcial

ForMUla

HUD %

2010-01

S


Shortly thereafter, on September 30, 2010, in recognition of the potential for abuse in marketing the HECM Saver as a refinancing option for existing, traditional HECMs (now referred to by HUD as the “HECM Standard”), and to safeguard the industry from the evils of “churning,” the National Reverse Mortgage Lenders Association (NRMLA) issued its Ethics Advisory Opinion 2010-01 (Ethics Advisory 2010-01).

This then is a parable of the saver and salvation. What is the HECM Saver, and will it prove to unleash a whole new market of reverse mortgage borrowers? Can it save the industry? Just as importantly, will Ethics Advisory 2010-01 provide the industry with salvation from the sin of “churning”? Can it save us from ourselves? While the future remains cloudy, this article provides an overview of the most significant HECM program change since HECM for purchase, and the ethical limitations associated with its offering in a HECM to HECM refinance.

introducing the Saver: ml 2010-34

The purpose of the new HECM Saver program is to lower upfront closing costs for senior borrowers who wish to borrow smaller amounts than the maximum loan amount that would otherwise be available to the borrower under the traditional HECM product. ML 10-34 thus coined new product names for the two HECM programs that are available to senior borrowers: HECM Standard and HECM Saver.

In a nutshell, the HECM Saver is a second FHA-insured HECM option that essentially carries no initial MIP. Effective for all

HECM case numbers assigned on or after October 4, 2010, senior borrowers may select either a HECM Saver or a HECM Standard option. In addition, ML 10-34 implemented changes in the following areas related to HECM lending: determining initial and monthly MIP; calculating the initial MIP in HECM refinance transactions; setting new reduced

HECM principal limit factors and a reduced effective interest rate floor; providing guidance for managing the existing pipeline of HECM loans; and utilizing correct and updated HECM loan documents and disclosures.

All existing program features associated with the HECM Standard are also available under the HECM Saver. This includes all HECM transaction types (traditional, purchase money and refinance); all five payment plans (tenure, term, line of credit, modified tenure and modified term); adjustable and fixed interest rate features: and all interest rate indices (CMT and LIBOR).

initial and monthly mortgage insurance premiums

By statute, all FHA-insured loan programs must provide for an initial MIP.2 As a result, for the HECM Saver, HUD announced that the initial MIP will be 0.01% of the maximum claim amount (or MCA), which is collected at the time of loan closing. For an average MCA of $250,000, under the HECM Saver the initial MIP will be $25. For HECM Standard, the initial MIP will continue to be 2% of the MCA, which is also collected at the time of loan closing. Thus, under the HECM Standard, an average MCA of $250,000 will require an initial MIP in the amount of $5,000. The term “maximum claim amount” is defined

as the lower of the appraised value, the national mortgage limit, or the sales price for the home (for HECM for purchase loans).

Monthly MIP (the mortgage insurance premium that accrues to the loan and paid monthly to HUD) for both HECM Saver and HECM Standard will be charged at an annual rate of 1.25% of the outstanding loan balance. As a reminder, HUD previously increased the monthly MIP for “traditional” HECM loans (i.e., HECM Standard) from .50% to 1.25% pursuant to Mortgagee Letter 2010-28, effective for all case numbers assigned on or after October 4, 2010.

initial mip calculation for Refinance Transactions

ML 10-34 requires HECM lenders and counselors to use a special formula (provided below) to calculate the amount of initial MIP due at loan origination in connection with refinance transactions. This formula applies to both HECM Saver and HECM Standard options.

refinance formula:

1. new mca X new initial miP (%)

= new miP

2. old mca X old initial miP (%)

= old miP

SubtrActIng the reSuLt of (2) froM the reSuLt of (1) yIeLdS the miP amount owed to hud

This formula replaces the guidance on calculating initial MIP HUD previously provided in Mortgagee Letter 2009-21 (ML 09-21). All remaining guidance provided in ML 09-21 continues to be in effect.

2 12 u.S.c. § 1709(c)(2)


Reduced principal limit Factors and interest Rate Floor

ML 10-34 reduced principal limit factors that apply to HECM Saver and HECM Standard loans effective October 4, 2010. The new principal limit factors are available on HUD’s website at: www.hud.gov/offices/hsg/sfh/hecm/hecmhomelenders.cfm. HECM lenders use principal limit factors to determine the amount of loan proceeds available to HECM borrowers. A reduction in the principal limit factors generally means that less loan proceeds will be available to a HECM borrower at loan origination.

However, as part of ML 10-34, HUD has also lowered the “effective interest rate floor” for all HECM case numbers assigned on and after October 4, 2010. Lenders use the effective interest rate floor to calculate the borrower’s initial principal limit. HUD has reduced the effective interest rate floor from .50 to 5%. This change, while prevailing mortgage interest rates remain well below the 5% floor, will ironically result in more loan

proceeds available to HECM borrowers at loan origination (higher loan-to-value ratios), and partially offset the effect of higher monthly MIP and more conservative principal limit factors on the calculation of the principal limit. By lowering the effective interest rate floor, HUD has arguably made a product with loan-to-value ratios considered too generous by some (relative to cross-over risk – or the risk that the collateral property’s value will be less than the loan amount upon maturity), even more so.

existing pipeline of Hecm loans

For all HECM applications with case numbers assigned on or before October 3, 2010, HECM lenders have the option of closing the loan with the “old” initial and monthly MIP and using the “old” 2010 principal limit factors. In other words, for such pipeline HECM applications, the lender may close the loan using an initial MIP of 2%, a monthly MIP of 0.50% and the fiscal year 2010 principal limit factor table/expected rate floor.

ML 10-34 expressly provides that borrowers with pending applications may convert to the HECM Saver. With a reduction in the effective interest rate floor, which, as previously noted, effectively increased loan-to-value ratios for the new HECM Standard, some pipeline traditional HECM applicants might conceivably opt to convert to the new HECM Standard (with lower principal limit factors and higher monthly MIP). HUD has clarified in separate informal guidance that HECM applicants with case numbers assigned on or before October 3, 2010, may convert to either a HECM Saver or the new HECM Standard.

Thus, borrowers with pending applications and case numbers assigned on or before October 3, 2010, may convert from a HECM loan that uses the “old” MIP rates and the “old” 2010 principal limit factors/expected rate floor to a HECM Saver or HECM Standard loan that uses the new MIP rates and the new 2011 principal limit factors/expected rate floor. However, for these

Refinance examples

ml 10-34 Provides several eXamPles

for calculating the initial miP due on hecm refinance

transactions:

hecm saver to hecm saver:new miP: $250,000 X 0.01% = $25old miP: $200,000 X 0.01% = $20miP amount owed to hud: $5

hecm standard to hecm standard:new miP: $250,000 X 2% = $5,000old miP: $200,000 X 2% = $4,000miP amount owed to hud: $1,000

hecm standard to hecm saver:new miP: $250,000 X 0.01% = $25old miP: $200,000 X 2% = $4,000*miP amount owed to hud: $0* If the new MIP is less than the old MIP, the amount owed is zero.

hecm saver to hecm standard:new miP: $250,000 X 2% = $5,000old miP: $200,000 X 0.01% = $20miP amount owed to hud: $4,980

hecm saver to hecm standard:new miP: *$200,000 X 2% = $4,000old miP: *$250,000 X 0.01% = $25miP amount owed to hud: $3,975* If the new McA is less than the old McA, the amount owed can be

greater than zero.

Note that when a borrower refinances a HECM Saver loan with a HECM Standard loan, the initial MIP authorized by ML 10-34 may exceed the amounts currently authorized under the HECM regulations (see 24 C.F.R. § 206.53(c), providing that in a refinance transaction, the initial MIP may not exceed 2% of the maximum claim amount). HUD indicated that it will amend the HECM regulations to reflect this adjustment.

>>

>>


pipeline conversion loans, HUD has indicated that applicants must be provided a disclosure or disclosures illustrating the HECM product choices then available through the lender, i.e., the HECM Saver, the HECM Standard, and the traditional HECM loan that is based on the old MIP rates and the old 2010 principal limit factors/expected rate floor. HUD has indicated that lenders may provide separate HECM Comparison Worksheet printouts to demonstrate initial mortgage insurance premium pricing options under the traditional HECM, the new HECM Standard and HECM Saver The three products need not be displayed on the same worksheet.

lenders who do not offer the hecm saver are not required to provide a comparison product printout for the hecm saver on pipeline conversions from the traditional hecM to the new hecm standard.

in addition to the new product comparison worksheets, lendersshould also provide:

• A revised good Faith estimate

• new Truth-in-lending Act disclosures (as applicable)

• new TAlc (total-annual-loan cost rates disclosure)

• Anti-churning disclosure for such pipeline conversions

Each of these new disclosures must be included in the FHA case binder. Finally, lenders must ensure:

That they use updated HECM loan documents showing the new MIP rates and new 2011 principal limit factors/expected rate floor (see “Changes to HECM Loan Documents,” below).

That all HECM loans offered to a senior provide a bona fide advantage (see “Introduction to the Salvation - Ethics Advisory 2010-01,” below).

ML 10-34 also clarified that if an applicant does not convert to a HECM Saver or a HECM Standard, the lender does not need to change the principal limit calculation or provide additional disclosures to the borrower because the amount of loan proceeds will not change. changes to Hecm loan documents

In ML 10-34, HUD reiterated its long-standing policy that lenders are required toadapt their HECM legal documents as necessary to ensure compliance with program requirements. HUD also reminded lenders that they are permitted to make the necessary and appropriate modifications to the HECM legal documents to ensure compliance with FHA

requirements as well as other federal, state and local laws.

ML 10-34 goes on to provide specific changes to Section 1.7 of the model HECM Loan Agreement, originallypublished in the HUD HECM

Handbook 4235.1 REV-1 and amended in Mortgagee Letter 2010-07. Specifically, ML 10-34 states:

Replace Section 1.7 with:1.7. Principal Limit means the amount indicated on the attached payment plan (Exhibit 1) when this Loan Agreement is executed, and increases each month for the life of the loan at a rate equal to the sum of the applicable monthly interest rate charge, plus one-twelfth the annual MIP. The Principal Limit is calculated by multiplying the Maximum Claim Amount by a factor supplied by the Secretary, which is based on the age of the youngest Borrower and the Expected Average Mortgage Interest Rate.

Certain additional changes that are not expressly identified in ML 10-34 may nevertheless be advisable. For instance, Section 2.13 of the model HECM Loan Agreement provides in part that monthly MIP shall be calculated as provided in 24 CFR Part 206. This reference will need to be changed to also make reference to ML 10-34, which describes the new MIP rates for HECM Saver and HECM Standard loans. Lenders should also ensure that their disclosures for HECM Standard and HECM Saver loans (particularly the Truth-in-Lending Open End Important Terms Disclosures) reference the correct initial and ongoing MIP rates and the correct formula for calculating the upfront MIP on HECM to HECM streamline refinance transactions.

Finally, the HECM Saver and HECM Standard programs must be identified as separate and distinct initial MIP options. Accordingly, lenders should review

1

2

save the industry?can it


save the industry?

their application and closing HECM loan document packages to ensure that materials provided to borrowers refer to the correct HECM product. HECM lenders are strongly encouraged to consult with their counsel and compliance personnel to assure compliance with applicable federal, state and local laws.

introducing the Salvation: ethics Advisory 2010-10

The purpose and intent of Ethics Advisory 2010-01, as stated in the advisory itself, is to, “inform and restrict the choices NRMLA members may make as they offer both HECM Saver and HECM Standard loan products to consumers, including, in particular, the opportunity to refinance such HECM loans with additional HECM loans.” In announcing Ethics Advisory 2010-10, NRMLA cited heightened sensitivity to inappropriate refinancing and the adverse impacts this had, not only on individual borrowers, but also on the overall perception of the industry and the HECM program. Potential refinancing activity has not only drawn the recent attention of policy makers and industry leaders, but also of secondary market investors concerned that a wave of refinancing activity spurred by the HECM Saver, or the lowering of the expected interest rate floor on the new HECM Standard, might increase prepayment rates of existing HECM portfolios.

Anticipating these issues, Ethics Advisory 2010-01 reminds NRMLA members of the standard embodied in the Code of Ethics requiring that any loan products offered to consumers provide them a bona fide advantage (Rule 107). Importantly, Ethics Advisory 2010-10 presumes that a bona fide advantage will not exist when a HECM to HECM refinance transaction occurs within six months of the closing of the prior HECM.

For HECM to HECM refinances that meet this seasoning requirement, the advisory goes on to provide that the principal limit for the new HECM must exceed the principal limit under the old HECM by at least five times the total cost of refinancing (the “Five-Times Threshold”), with one very important caveat. For HECM to HECM refinances where the sum of the note rate

and the mortgage insurance premium rate (the “accrual rate”) under the new HECM is less than the accrual rate under the old HECM, lender paid closing costs may be deducted from the cost of refinancing for purposes of calculating the Five-Times Threshold. For HECM to HECM refinances where the accrual rate under the new HECM is higher than the accrual rate under the old HECM, lender-paid closing costs may not be deducted from the total cost of refinancing for purposes of calculating the Five-Times Threshold.

The advisory cites Mortgagee Letter 2004-18 as the basis for incorporating the Five-Times Threshold and its adoption as a bright-line

test for demonstrating a bona fide advantage under Rule 107. Mortgagee Letter 2004-18 utilized the Five-Times Threshold in a different, but related, context, namely, as one of the factors for the purpose of determining whether an applicant may opt out of new counseling in a HECM to HECM refinance transaction. Nonetheless, Mortgagee Letter 2004-18 is the most relevant guidance HUD has published bearing upon these issues. For this reason, the Five-Times Threshold was adopted by NRMLA as an appropriate safe harbor for demonstrating that a bona fide advantage has been afforded the borrower in a HECM to HECM refinance.

Finally, the advisory emphasizes that meeting the Five-Times Threshold is the clearest but not the only means of demonstrating a bona fide advantage to the borrower. Depending on the unique factual circumstances presented by the transaction, Advisory 2010-01 suggests that NRMLA members may be able to demonstrate compliance with Rule 107 in other ways.

Clearly, the HECM Saver and ML 2010-34 afford the industry new opportunities to catalyze growth and appeal to different market segments. Just as importantly, NRMLA, with its publication of Advisory Opinion 2010-01, has played a timely and very important leadership role in providing guidance to the industry on appropriately managing the risk of inappropriate HECM to HECM refinances. These tandem announcements, the ML 2010-34 and Ethics Advisory 2010-01, can provide savings to HECM borrowers while providing a clear path to salvation for lenders from the sin of “churning.” Prudent lenders will take heed of both.

This article provides only an overview of some of the federal and state laws and regulations that may affect reverse mortgage lending, marketing and finance matters. Although the practice of Weiner Brodsky Sidman Kider P.C. is national in scope, attorneys within our firm do not actively practice law in all jurisdictions, and these materials are not intended to and do not provide legal advice. Because of the generality of this article, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

in Ml 10-34, hUd reiterated its long-standing policy that lenders are required to adapt their hEcM legal documents as necessary to en-sure compliance with program requirements.

UUntil recently, real estate owned (REO) property issues were something reverse mortgage lenders didn’t have to think about much. The majority of reverse originators sold their Home Equity Conversion Mortgages (HECMs) to Fannie Mae, which handled any REO sale issues. Under normal conditions, there usually aren’t many REO properties in the reverse mortgage world anyway. In the past, there has been plenty of equity left after the borrower dies or vacates the property. For example, for a borrower age 62, there is typically only about a 50% loan-to-value ratio on the property. The reverse program was designed with this cushion, enabling property values to rise.

However, two things have happened that now make foreclosed properties and REOs a big issue for reverse mortgage servicers. With Fannie Mae withdrawing as a player in the reverse sector and Ginnie Mae advancing, there has been a shift from Fannie Mae to Ginnie Mae’s HECM (HMBS) program. As a result, issuers themselves now bear the responsibility and risks associated with managing the REO process, a sea change for many of them.In addition, as we well know, home prices are falling and continue to fall, which makes handling REOs particularly challenging.

The HECM program is certainly good for borrowers. They get the full amount of their loan even if the property value drops,

their loan amount never gets cut, and they never need to pay back the money – there is no liability on their part. But now houses are worth less and servicers must deal with REOs.

Even for those with past REO experience in the forward mortgage market, it is a very different process in the reverse world; we call it a “niche within a niche.” If you try to handle REO in the reverse world the same as the forward market, you will lose money.

Because of these differences, there is a growing need for asset management expertise (companies such as RMS Asset Management Solutions have been established to handle this specialty line of business and now are assisting other companies in this process).

A Very different Business

The REO business is definitely one you want to turn over to professionals who understand the process.

reo Presents different Challenges to reverse Mortgage ServicersThe key to a successful REO sale process in the reverse mortgage world is the

ability to move quickly daRRen WhITe

...issuers themselves now bear the responsibility and risks associated with

managing the reo process, a sea change for many of them.



How different is REO in the reverse mortgage world? There are some similarities with the forward market, of course. For example, document requirements are the same. But there are also some very different requirements, such as when you can take action and file claims with HUD, which guarantees HECMs.

The key to a successful REO sale process in the reverse mortgage world is the ability to move quickly once you obtain marketable title. You have six months to market a property before an appraisal-based claim is necessitated with HUD; you want to be able to sell the property as soon as possible.

For example, unlike the typical forward mortgage REO property, where servicers are allowed some leeway on bringing prices down, in the reverse market servicers and lenders can’t lower the price in order to dispose of the property. In the reverse world, the lender or servicer is required to sell the property at its “as-is” appraised value.

Under HUD rules, reverse mortgage servicers have 180 days to sell the house after the borrower vacates the property. The servicer can’t sell the house above the as-is appraisal price. Under HUD guidelines most repairs are prohibited; any repairs above $2,500 must be approved by HUD.

The problem isn’t that the property hits REO; it’s getting everyone to understand what the as-is appraisal value is. The appraiser has to identify what needs to be done to get the home up to specifications. If you don’t have the right value, you’ll lose money.

As a result, the appraisal must be very accurate and the appraiser has to know the HUD guidelines and not make any errors. Furthermore, the servicer must understand the regulations in order to preserve property values, and the servicer must follow the rules precisely as well as make sure the appraiser does too.

If the house is sold within the 180-day window, the government pays the difference between the actual sale price and the as-is price and for most expenses. For example, if the servicer is owed $100,000, and the house sells for $50,000, HUD will write the servicer a check for close to $60,000, which includes an approximate $10,000 for his expenses such as the g

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

Stricter RESPA rules, lower principal limits, a more complex FM1009 and other changes pose a serious challenge to our industry. Lenders will take on additional responsibilities and need to be meticulous while working with brokers. Brokers will lose all or most of the YSP and any mistake made in the GFE could cut into their origination fee as well.

But there is also good news around the corner...

The RESPAChallenge

real estate agent’s fee and the title fee. But the house must be sold in 180 days. HUD doesn’t pay real estate fees on properties that are not sold within 180 days and limits foreclosure attorney fees to two-thirds of what it considers to be reasonable and customary.

The biggest loss if you don’t sell the house within the required 180 days, is the amount of money you will lose; HUD won’t reimburse the servicer for those added expenses. Basically, the servicer stands to lose 10% of the value of the house if it doesn’t sell the property within the 180-day time frame. This 10% loss assumes no depreciation of the property.

The primary difference, then, is that the servicer immediately experiences a significant loss due to the sales costs. The reality is that the home probably was not worth $50,000, and the servicer must bear that difference as well. Any expenses that are incurred after the claim are also the servicer’s responsibility.

If you don’t get an accurate value, or document everything in your claim, you won’t make the grade. You must have somebody on your staff to document everything according to HUD guidelines. Those guidelines spell out everything, right down to how much HUD will reimburse you depending on how high the grass is.

increase in Tax and insurance defaults

Besides the death of the borrower, there are other incidents in the reverse mortgage industry that can trigger a default and subsequent foreclosure. In recent months there has been a substantial increase in the number of tax and insurance (T&I) defaults in the reverse market. This happens when the borrower cannot or neglects to pay taxes and insurance on the property. In the reverse world, unlike the forward world, servicers don’t escrow for taxes and insurance; the borrower is responsible for making those payments himself.

If the borrower fails to make his T&I payments, the servicer is required to put the borrower on a payment plan, if possible. If he then defaults on those payments, the servicer is required to begin foreclosure proceedings, after first receiving HUD’s approval.

It used to be that foreclosing on a senior borrower filled servicers and investors with dread because of the public relations headaches it creates. Large national and regional banks are particularly averse to foreclosures because customers have multiple accounts with them and fear losing them.

Lately the tide has been turning. Now the carrying costs of holding defaulted properties are simply too high. With property values continuing to fall, more

investors are willing to go to foreclosure. Also, many investors and servicers in the reverse world tend to be more anonymous and less well-known than the big banks and therefore more inclined to do it.

However, when a servicer does go to foreclosure, you must follow the HUD guidelines to the letter to make sure you do it properly. The servicer must provide evidence that he did everything he could to prevent a default.

Ultimately, REOs in the reverse mortgage world need to be handled differently than they are in the forward market; consequences may lie ahead for those who don’t follow HUD guidelines. The key to a successful REO sale process in the reverse mortgage world is the ability to move quickly.

if you try to handle reo in the reverse world the same as the forward market, you

will lose money}



The TrifectaThe ideal vs reality syndromedavId banCRofT

The Trifecta, the Triple Lindy, the ménage à trois: all things three that are as memorable as your first fumbled kiss on a second date. I got a new top three and it is David Arquette, the DMV and the new rules for counseling, all things wrong that we can do nothing about. See, the problem is that we have people making rules on subjects that have no experience doing any of the things they are trying to fix. I call it the Ideal versus Reality syndrome: it would seem to make sense until found to be inapplicable in the system. Like the David Arquette thing, this bumbling extrovert thinks he is ideal for the more sophisticated Courteney Cox, but in reality we were all screaming “Loser!!” Another perfect example: Did you hear that the HVCC rule was eliminated on the forward side? You see, a month after releasing the new HECM Counseling Protocols, the average time spent during each session has increased substantially and future costs to the borrower will go up… great. Like we need another obstacle in the way, another reason to have the borrower lose faith in us or one more “FIT” test that hamstrings success. We need things to be easier, more flexible, with extended time tables to meet all of the personalities of our clients. See, some people don’t mind the process; they think it is OK to spend well over an hour talking to a stranger about MIP, MMI and Amortization tables that go out 30 years. Ask personal questions about income reserves, mental stability and if the client knows he can (shhhh) ask for a reduction on the origination fee. Read over GFEs and costs while being asked if they have evaluated all the “other”

options. i have never been part of such forward thinking since “The rock” did Tooth Fairy. i mean, c’mon, can we at least have somebody make a rule that has done one HECM loan? Here is my idea: At least make the counseling ordeal a prior to doc requirement. Right, then maybe we can qualify home value and pray to God that the underwriter doesn’t take a machete to the appraisal. Maybe we can find out if that lien on title has really been paid off or that the HOA president will get back to us so we can help him get the complex approved. Why are we spending so much time upfront on a flawed process when in reality there are far more poisonous venoms killing our deals? By the way, I have just left the DMV, 1 hour and 45 minutes after arriving to renew my license I let expire. Here is the kicker – no BS – you can no longer smile on your driver’s license picture and show teeth. As it was so eloquently said in The Hangover: “Thanks, Bin Laden.”

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ReverseVision's international team of software engineers, attorneys and mortgage specialists turn these challenges into opportunities. They build the tools that give their customers a competitive advantage. This is why over 6000 reverse mortgage specialists in over 600 companies rely on ReverseVision every day.

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RRecord numbers of homeowners are using reverse mortgages as part of their retirement planning. This is driving the need for qualified professionals who can explain homeowner options and help them make more informed choices.

The National Reverse Mortgage Lenders Association (NRMLA) is the national voice of the reverse mortgage industry, serving as an educational resource, policy advocate and public affairs center for lenders and related professionals. NRMLA was established in 1997 to enhance the professionalism of the reverse mortgage business. Their mission is to educate consumers about the pros and cons of reverse mortgages, to train lenders to be sensitive to clients’ needs, to enforce their Code of Conduct and Best Practices, and to promote reverse mortgages in the news media.

The Certified Reverse Mortgage Professional (CRMP) designation was created by an Independent Certification Committee comprising members of NRMLA that administer the program while working in concert with Professional Testing, Inc. Over the course of three decades, Professional

Testing has developed more than 2,500 programs, administered more than 1.2 million exams, and maintained licensure and professional certification examination programs for 125 occupations.

“We were intent on creating a certification that is rigid enough to demand the respect of professionals and government officials, and the confidence of America’s seniors,” says Peter Bell, NRMLA president. “On behalf of the entire membership, we congratulate our designees, all of whom have demonstrated a deep understanding of the product and an eagerness to continually pursue additional education. Earning the CRMP will distinguish them as having demonstrated superior knowledge and competency in the area of reverse mortgages and dedication to upholding the highest ethical and professional standards.”

When you talk about hot topics, few are as important as the credibility of reverse mortgage loan originators at this time. We hear it from politicians and regulators, and in the voices of the consumers who call us about heavy-handed sales tactics and misinformation they’ve received. NRMLA is

trying to address these concerns by adopting the industry’s first professional designation, known as the CRMP.

NRMLA has invested two years and hundreds of thousands of dollars crafting the credential. The process has been guided by the highly experienced staff at Orlando-based Professional Testing, Inc., who have collaborated with a dedicated group of volunteers with expertise in operations, origination, processing, underwriting and servicing.

Two years may seem like a long time, but NRMLA wanted to adopt a well-thought-through designation, one that would not be easy to obtain and would challenge even the most seasoned veterans. There are companies and loan officers operating in our industry who probably should not be; they don’t understand the product and they do not act in the best interests of their senior clients. It is NRMLA’s hope that the CRMP will separate the dedicated professionals from the posers, so that public trust in the reverse mortgage business can be sustained.

CrMP: history Behind the designationA certification that demands the respect of professionals, government officials and the

confidence of seniorskaRen keaTInG

NRMLA began the process of selecting item writers to develop the exam questions. In February 2009, a new group of 12 volunteers convened in Orlando.

The group underwent rigorous training from Professional Testing on proper techniques for writing exams. This forced people to think carefully about how questions and responses should be worded, so as not to make the exam too hard or easy.

The questions that were developed varied and encompassed a broad range of topics. They not only included the typical tasks that a CRMP applicant would encounter in their regular duties, but also an understanding of HUD guidelines, handbooks, mortgagee letters and policies, as well as proper advertising, ethics, compliance, etc.

The exam questions were reviewed by Professional Testing and incorporated into an item bank. Another task force was formedin May 2009 to review the exam questions for accuracy, clarity and grammar. All 350 questions were examined and updated as necessary.

Professional Testing updated the item bank and in July 2009, NRMLA invited 35 reverse mortgage professionals to sit for a test at MetLife Bank’s facility in Bridgewater, New

Jersey. Most of the participants had at least five years’ experience in the business, making them a high-level group of candidates.

Less than two months later, 10 members of NRMLA met in Washington, D.C. to review the test scores. Along with the test scores, each question was reviewed and re-evaluated. There was much debate over what the passing score should be. After collecting everyone’s input, Professional Testing produced a Passing Score Study Meeting Summary, which NRMLA recently presented to the ICC for review and approval.

On Febuary 26, 2010, a select group of candidates sat for the first formal test at the NRMLA Roadshow in Atlanta, Georgia. Of this group, 13 CRMP designees, including the author, will be honored at a ceremony at NRMLA’s annual meeting on November 3–5 at the Roosevelt Hotel in New Orleans.

Earning the CRMP will distinguish you as someone who has demonstrated superior knowledge and competency in the area of reverse mortgages and dedication to upholding the highest ethical and professional standards.

All CRMP applicants must meet the following requirements:

All loan officer applicants must have a minimum of two years’ experience originating reverse mortgages, and they must have closed at least 50 reverse mortgages.

All other applicants who are not loan officers must have a minimum of five years’ experience working in reverse mortgages in one or more of the following areas: underwriting, processing, management and operations, title and closing services, appraisals and/or loan servicing.

Within one year prior to taking the examination, applicants must complete 12

hours of continuing education from NRMLA or such other providers as approved by NRMLA in areas related to reverse mortgages and senior financial issues.

Possession of a current mortgage loan originator license in your jurisdiction, if a license is required.

Once an applicant has met all the requirements and has passed the exam, he or she will need to have a background check by our designated vendor. The background check costs $49.50 (unless otherwise noted) and is paid by the applicant directly to the vendor.

Submission of a signed consent statement.

knowledge points that every applicant seeking the cRmp should thoroughly understand, and the identified areas of the business with which all cRmp should be familiar, are the following:

1. Assessing clients’ motivations2. educating seniors, family

members and trusted advisors3. Setting expectations4. originating loans 5. processing loans6. underwriting loans7. closing, funding and

post-closing activities8. Servicing9. managing reverse mortgage

operations

29November 2010 TRR |

overview of the Certified

Reverse mortgage

professional:


AUnless home appreciation rates rise substantially in the near term and those HECMs that are in technical default can be easily cured, a higher percentage of reverse mortgage terminations will, no doubt, end in foreclosure or foreclosure-type transactions. This article continues last month’s discussion of the tax consequences of those transactions.

preliminary

The purpose of this series of articles is to provide general income tax information about the discharge (i.e., cancellation and forgiveness) of indebtedness related to reverse mortgages. It is assumed throughout the series that the property securing the reverse mortgage has only been used by the borrower as a principal residence (unless otherwise noted) and nothing else. Please see the section titled “Disclaimer” for more information.

For purposes of this series, “foreclosure” includes not only actual foreclosure but also its subset of transactions including short sale, trustee sale, deed in lieu of foreclosure, and any other disposition of the property securing a reverse mortgage where: the balance due is greater than the

proceeds received from the disposition of the property securing the reverse mortgage; or the balance due is greater than the fair market value of such property at the time when the property is transferred to “the lender.” Since there is little expectation that discharge of indebtedness will occur with reverse mortgages outside of foreclosure-type transactions, this series focuses primarily on those transactions.

Summary of part i

By federal law [15 USC 1602(bb)], all reverse mortgages are nonrecourse.

HUD specifically declares HECMs to be nonrecourse not only in Mortgagee Letter 2008-38 but also in Paragraph 1 3C of Handbook 4235.1 REV-1. It is the note that makes a HECM nonrecourse, not FHA “insurance.”

Whenever amounts due are forgiven on a nonrecourse debt in a taxable disposition such as foreclosure, specific rules under Internal Revenue Code (IRC) Regulation (Reg.) Section (§) 1.1001-2 apply. Although there are no income tax laws, regulations, rulings, or court decisions specifically related to HECMs, one of the leading cases

on the tax treatment of nonrecourse debt involves an FHA-insured loan [Allan et al versus Commissioner, 86 T.C. 655 (1986) affirmed 856 F.2d 1169 (8th Cir. 1988)]. Despite FHA taking over the loan through default, the Tax Court (affirmed by the Eighth Circuit Court of Appeals) treated the transaction as it would any other nonrecourse debt.

The amount of debt forgiven will generally either increase gain or decrease loss since the amount forgiven must be treated as additional proceeds received in the taxable disposition. To the extent that accrued interest is forgiven and increases the taxable proceeds, it is treated as paid and may produce favorable tax results.

When forgiveness simply decreases a loss on the sale of a principal residence, it has no practical tax detriment since a loss from the taxable disposition of a principal residence is personal and cannot offset any gains or any type of income. Even when the forgiveness increases gain, such gain may be entirely or partially excludible under the limited exclusion rules pertaining to the sale of a principal residence.

Taxation on Foreclosure – Part iiA rise in foreclosures brings further tax consequencesJames e. veale


Paul N. Lovegrove PCRepresenting lending institutions for reverse closings for over 15 years

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Are Hecm proceeds Tax-Free?

In late 2005 while doing some research on the taxability of reverse mortgage proceeds, a statement very similar to the following was found on the correspondent portal of a very large lender: “Reverse mortgage proceeds are not taxable income because they are not income and since they are not income, they are not taxable income.” Reading that several times gave about the same sensation as hearing Yogi Berra declare in an insurance commercial: “…the one ya really need to have. If you don’t have it, that’s why you need it… And they give ya cash, which is just as good as money.”

A few months ago an article appeared in a reverse mortgage publication by a well-published “financial planner” advocating a questionable strategy using reverse mortgage proceeds to reduce income tax liabilities. The article declared reverse mortgage proceeds “tax-free.” During a

telephone call shortly following publication, I asked the planner why he believed reverse mortgage proceeds are tax-free. He immediately upbraided me, stating that he would rather have a few phone calls from CPAs than his entire email server choked with “1,500 emails” from reverse mortgage originators telling him in no uncertain terms that reverse mortgage proceeds are tax-free. He then said he knew that reverse mortgage proceeds were not necessarily tax-free but “try telling that to” originators.

The planner then went on to explain why he believed from a practical standpoint, reverse mortgage proceeds are tax-free. [Most tax preparers rely on federal Internal Revenue Service (IRS) Form 1099-C to determine how much of the forgiven debt is taxable. When a servicer fails to provide that form, preparers can normally assume that the amount forgiven is less than g

Unless home appreciation rates rise substantially in the near term and those heCMs that are in technical default can be easily cured, a higher percentage of

reverse mortgage terminations will, no doubt, end in foreclosure...


$600 and will not significantly impact the income tax liability of their client.] The planner gave the illustration of two tax attorneys who each had to file income tax returns last year where they needed to know from the lender how much reverse mortgage debt was forgiven in foreclosure. The servicers failed to provide Forms 1099-C so the tax attorney in each case reported the transactions without including any amount for debt forgiven. According to the financial planner, everyone close to the transactions – including the tax attorneys – knew substantial portions of the reverse mortgages had been forgiven, but no one knew what the servicers/lenders had determined those amounts to be.

Some have argued that reverse mortgage proceeds are not taxable because a tax ruling issued many years ago allegedly said so. Several have promised to deliver a copy of it. After vainly waiting more than five years and researching for such an IRS ruling, it can be safely said none exists.

Others have waxed on and on about the nature of FHA insurance; however, for insurance proceeds to make a transaction non-taxable, there must either be a law or a court ruling that provides such exemption. Again, there is no such law or court ruling.

When a borrower pays off a reverse mortgage in full, such as through direct payoff or sale, generally there is no taxable income from the loan proceeds

themselves. [There is perhaps one very, very technical exception to this generalization and that is if a disbursement is made to the borrower (or on behalf of the borrower) through a nonrecourse debt and the balances due immediately following payment on all loans and liens secured by the property exceed the appraised value of the property on that date, the payment could theoretically be taxable to the extent of the lesser of: the difference between the balances due and the appraised value; or the amount disbursed. Since having an appraisal done on the same day as a disbursement (or even very close to it except at closing) is a rare occurrence, chances of such an event occurring when a home is upside down are negligible at best. The theory is that since a nonrecourse lender in such cases can have no reasonable expectation of repayment at the time of the disbursement, a theoretical forgiveness of debt transpires upon disbursement. It seems the IRS took such a position on nonrecourse loans of 125% of the appraised value of the home. Some tell of having to issue Forms 1099-C showing the 25% above the appraised value as cancellation of debt income in the year the loans closed.]

It is very doubtful if reverse mortgage proceeds are ever taxable other than through a foreclosure-type transaction. They may not be “tax-free” but unless there is some debt forgiven, generally they will not be nor will they ever become taxable.

So how did the “tax-free” message become so prevailing? There is an adage that states something like: Repeat something untrue over and over and eventually it will become the truth.

Some have argued that reverse mortgage proceeds are not taxable because a tax ruling issued many years ago allegedly

said so. Several have promised to deliver a copy of it. after vainly waiting more than five years and researching for such an IRS

ruling, it can be safely said none exists. g


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disclaimerThe IRS requires that readers are informed that the information contained in this series of articles cannot be relied upon or used to reduce any income tax penalties (or interest). Readers are encouraged to consult competent and knowledgeable tax professionals experienced in such matters to determine how the information applies in specific situations.

The tax rules described are limited to federal tax rules; state and local tax rules may vary. The information is time-sensitive since laws and application of laws can change over time. The series only addresses simple situations. Far more complicated situations may exist including but not limited to:

Situations where not only nonrecourse but also recourse debt is forgiven.

Applicable property was fully or partially used in a trade or business of the taxpayer (including rental activities) at the time of foreclosure or in some prior period.

It also does not address other complications such as use of funds for purposes of:

Allocation of gain between passive and non-passive trades or businesses, portfolio, and personal activities.

Allocation of interest between such activities and home mortgage interest for tax-deduction purposes.

This article focuses solely on reverse mortgages insured by the Federal Housing Administration (FHA), known as HECMs (Home Equity Conversion Mortgages), and proprietary reverse mortgages provided by major lenders.

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TThink back for a moment to the first quarter of this year. The immediate future didn’t look good for the reverse mortgage industry, as the threat of a second principal limit reduction was looming. Why? The Office of Management and Budget (OMB) had projected our industry would need to be subsidized by Congress to the tune of $250 million. As former FHA Commissioner Brian Montgomery aptly put it, “That’s a rounding error in the world of government.” Amazingly, the reality was that our industry didn’t seem to have enough political support to fund this “rounding error.”

Doesn’t that strike you as odd? Consider the great social good our industry performs. Reverse mortgages provide, in the majority of cases, the best option for seniors to obtain money from their biggest asset: their homes. Millions of seniors are finding themselves financially ill-prepared to live out the rest of their lives, and the problem is growing because the baby boomers are now becoming seniors.

It certainly seems strange how an industry that has really blossomed over the last decade and provides such a valuable product to a protected class of citizens

wouldn’t have enough political support to fund a $250 million subsidy. When many of us in the industry came to understand this unpleasant reality, it was shocking. Some heard the wake-up call and realized the need to take action themselves, rather than relying on others to fix the problem for them or simply closing their eyes and hoping the problem would go away.

The industry Rallies

The realization that our livelihoods were threatened woke up a lot of people. Jeff Lewis of Generation Mortgage was the first to rally key individuals to wake up and smell the coffee — and to get those same individuals to take action. He realized that we, as an industry, could not just depend on NRMLA to do all that was needed. Lewis formed a coalition of significant voices and companies to really step up our lobbying efforts to gain political support for our industry in its dire time of need. But he was trying to win the game with two outs in the bottom of the ninth.

Eventually, the painful reality about what was needed in our industry became blatantly obvious. What was really needed was an ongoing, long-term campaign within the industry to create political support, by getting customers who have taken out a reverse mortgage to write their representatives and share their positive experiences. There needs to be a commitment by individual companies to do this internally and, most importantly, there needs to be accountability in the industry and on the company level.

The Wake-Up CallCustomers take action with simple letterslIsa slay and vIRGInIa davIes

Some heard the wake-up call and realized the need to take action themselves, rather than relying on others to fix the problem for them or simply closing their eyes and hoping the problem would go away.


A grassroots Solution

In an effort to support the lobbying efforts of Lewis’ coalition, a new grassroots initiative called Senior Voice extended a helping hand to Reverse Mortgage of Texas (RMOT) and assisted in successfully requesting RMOT’s senior borrowers to write key senators and representatives. The purpose of Senior Voice is to help reverse mortgage companies commit to a long-term campaign to get their closed-loan customers to write their elected government representatives.

With the help of Senior Voice, RMOT requested that their customers write a letter to Kay Bailey Hutchison, the senator from Texas who also happens to be on the House Appropriations Committee. RMOT contacted all of their borrowers who had closed a reverse mortgage from the first of the year through July 31, 2010, and sent a one-page letter to each customer explaining the state of affairs in the reverse mortgage industry. Customers were encouraged to write their representatives and share the positive impact their reverse mortgages were having on their retirement years. Then, two weeks later, a phone call was made to each customer, assessing their interest in writing a letter and offering limited assistance. The follow-up phone call was the key to success; the response was tremendous. Customers were only too willing to help. The letters they wrote explaining how their reverse mortgage had positively impacted their lives were very touching and heartfelt.

As a result of this campaign, RMOT’s customers ended up writing 230 letters to representatives, primarily to Kay Bailey Hutchison. This was a gentle process; RMOT made it a point not to be heavy-handed or twist their customers’ arms in their communications. The pitch was lower-key; the letters suggested: “If you believe in something or disapprove of something, write your government representatives.

It only helps them do their job better.” RMOT found that approximately 25% of the borrowers contacted actually wrote a letter. As a test to see if the effort had a real impact, a principal of RMOT called Kay Bailey Hutchison’s office in Washington, D.C. in September 2010. A simple question was asked: “What are the top five things people are writing and calling about?” Without prompting, the response was that reverse mortgages were among those top five things! The staffer in Kay Bailey Hutchison’s office went on to explain how topics of constituents’ letters are conveyed to the senator and their significant impact.

The bottom line is RMOT learned that letters from constituents really do make an impact. Our industry can get on the radar with our elected representatives if individual companies make an ongoing effort. Based on the success of their efforts, RMOT encouraged other companies in the industry to rally their customer base. As a result, such letters were brought to the attention of notable people like Patty Murray, the chairman of the Senate Appropriations Committee.

The new dynamics of our industry – companies must Take Action

NRMLA is our trade organization and does a fine job. However, they can only recommend action on the part of their members, and are not equipped to provide the critical component of accountability. It’s also important to appreciate that the big banks, Wells Fargo and Bank of America, are also somewhat constrained. As they received TARP funds, they really can’t rally their customers to lobby for reverse mortgages. Based on 2009 volume, Wells Fargo and Bank of America comprised 26% of our industry volume. So the message is this: The responsibility for getting customers to write their government representatives falls on the individual companies in the industry, not the big banks.

The wake-up call we received this year should make each successful company in the reverse mortgage industry accept responsibility for conveying to our representatives the tremendous value our product provides to seniors. Initiatives like Senior Voice are a conduit through which individual companies can do their part for the industry. It makes NRMLA’s message all the more effective. When NRMLA is meeting with a representative or senator in Washington, D.C. and that representative has received no letters about reverse mortgages from his or her constituents, NRMLA is just another trade organization asking for special consideration. However, when that representative has received multiple letters about reverse mortgages from constituents, NRMLA is now speaking with a representative that has a personal, vested interest in what is being said. As Reverse Mortgage of Texas found out from calling Sen. Kay Bailey Hutchison’s office, constituent letters do matter!

The need for ongoing legislative support will only become greater in the future. In The Wall Street Journal weekend edition of October 2–3, an interview with Eric Cantor was published. You may not recognize the name, but he will be the next majority leader of the House of Representatives in the event the Republicans take control in the upcoming November elections. His message was clear: If the Republicans gain control of the House, their top priority will be to extend the Bush tax cuts and cut spending. Cantor intends to pare back government programs as much as possible. That may mean the reverse mortgage program as well. So the call to action for companies in the industry to rally political support for reverse mortgages has never been greater.


TThis past November, I encountered Laverne, a senior who had lost her husband, Frank, a little more than two years ago. They had resided in the same Chicago home for more than 45 years.

When I contacted Laverne, she said that she had just sold their home and was moving to Arizona to be closer to her daughter, son-in-law and grandchildren. She was going to live with her daughter until

she could find a one-story patio home. Her vision had worsened and she was hoping to relocate before the harsh Chicago weather arrived. At the time, she was staying with one of her sons and his family in the city.

Laverne was concerned that the money from her home she had just closed on would be absorbed in the purchase of the new property, leaving her with little to live on. She was worried sick about having a mortgage payment all over again and did not want to be a burden on her daughter’s family. Oh, and did I mention her cat and longtime companion, Boots? Laverne found him abandoned on a snowy night when the temperature was 20 degrees

below zero. Worried about her financial situation and the cost of having a pet, Laverne thought she was going to have to leave Boots behind and began to cry whenever she mentioned him. After her husband’s passing, Laverne was not about to be without her “baby,” as she called him.

After several more conversations with Laverne and her children, I’m happy to report that she and Boots are doing great, having settled into their new home in Arizona. She has had her vision corrected and has renewed her driver’s license. Laverne has plenty of money in the bank and a new perspective on life, all thanks to the HECM for Purchase. When we talk, she calls me her angel – she can’t believe how

a simple phone call created something so wonderful. She has her independence back and says she feels 20 years younger. (Did I mention she’s 80?) She has plenty to do and we talk when I can get through; she’s on the phone a lot these days and has not considered call waiting. “Too much technology,” she says. “I can only talk to one person at a time.” Her answering machine greeting begins, “You have reached Laverne and Boots,” To this day, Boots has not picked up.

it is this and many other “senior moments,” as i call them, that make our careers so rewarding. For those that are in this for the long haul and have a true passion, i say: Keep on fighting the good fight.

Senior MomentsMaking a differencemaRk sIsCo


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IIt was about two and a half years ago when The Reverse Review released the first issue of a magazine specifically for the reverse mortgage industry. Publisher Aman Makkar launched the publication with a seemingly simple goal: “to educate and create awareness in the industry” and “create a community of reverse mortgage professionals that will continue to help this industry grow in the right direction.”

The magazine has served that purpose well for a very simple reason: it is built upon and supported by industry insiders. Aman was compelled by his experiences at NRMLA’s conference to start the magazine. From the beginning, the contributors have been active and engaged participants, helping the magazine to continue to be a strong voice and gathering point for the industry.

However, to truly meet the mission crafted by Aman and diligently pursued by the staff, the magazine must do more to not only bring the community together, but engage it in lively discussion and debate the issues and opportunities that lie ahead. The magazine has always had a vehicle for serving this purpose in their website, but honestly, it has lacked focus and direction.

When the magazine was first released in April 2008, one of the biggest concerns we had was a flood of new participants and whether they were prepared with the same knowledge and passion for the product and clients as those who had

helped drive the growth of the product. Industry changes did not happen rapidly, so the magazine was the perfect vehicle to fuel the discussion. Since then, however, the pace of changes in the industry, including product changes, economic impact and regulatory developments, have come in rapid-fire fashion. It is nearly impossible for an individual to keep up with the research necessary to track changes and understand the impacts on their area of the reverse mortgage sector.

The magazine is one piece to the puzzle, but it needs to be complemented by daily updates from the website that address the topics of immediate importance – not only for the purpose of disseminating information, but to provide useful analysis and advice on how the information impacts the industry and foster discussion and debate from participants.

I am thrilled to have the opportunity to join The Reverse Review as News Editor with the sole purpose of revitalizing the website and supporting its noble mission. As I have been preparing for this role, I have been bolstered by the unending passion exhibited by Aman and Editor-in-Chief Emily Vannucci for this project. Our planning sessions have generated some amazing ideas to unify the industry, raise the bar for expected knowledge and service, and create a platform where approaches and strategies are developed, debated and implemented. I promise that our enthusiasm will spill over into new and exciting elements that will capture your

attention, compelling you not only to stay tuned, but to get involved!

The expectation is clear: This is not about information dissemination; it is about knowledge expansion! If your goal is to thrive in this industry, then the only way to stay ahead is through constant, interactive education. Your role in this mission is to engage in the debate. I challenge you to partner with www.reversereview.com and share your own voice. Get involved by commenting on articles of interest to you, responding to others supporting or debating their viewpoint, contribute articles or information, and let us know about information or topics you’d like to see. We will make sure information and topics of discussion are informative, relevant, engaging and entertaining!! You just have to promise to join the fray.

Those who persevere in this industry will reap the benefits. The Reverse Review will continue to be a unifying source and community gathering point where we can support, defend and grow, as professionals and as an industry, in a manner aligned with the mission of The Reverse Review and many other committed individuals and organizations within the industry.

Are you ready to join in? Start today by making The Reverse Review your homepage. Then give me your thoughts and share your ideas for content that you would like to see or even contribute. [email protected].

a new direction, a new lookThe missing piece to the puzzle bReTT G. vaRneR

Novebmer 2010 TRR | 39

July / August 2010 TRR | 40

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