Fraud Begins with Family

Fraud begins at home

Some adult children are especially anxious to get mom and dad’s inheritance. Others are so impatient that they take matters in their own hands- in effect receiving an early advance on their elder parent’s bequest.

This tragic drama of elder abuse plays out thousands of times each day while many regulators and lawmakers continue to portray financial and mortgage professionals as the typical perpetrators. After all, regulating these rapacious salespeople requires an army of regulators and enforcement officers.

So where can these heartless thieves typically be found? It turns out you don’t have to look far. Like most things, it begins at home. Michael Doll cites the National Council on Aging’s startling statistics which reveal nearly 90% of all financial crimes committed against elders are committed by family members. The familial hall of shame ranks the most likely players as adult children, grandchildren, and then nieces and nephews.

Many have witnessed the financial abuse inflicted by immediate family members. One series of incidents in my own neighborhood comes to mind in which a step-grandchild stole thousands of dollars from his elderly grandmother who was suffering the early effects of Alzheimer’s disease. “Grandma. Can I ‘borrow’ some money?” The problem is he never repaid her as her faltering recollection was that her trusted grandkid would have certainly paid back the last loan.  He did not. And the deception continued for the better part of a year until a family member became aware of the scam.

In the process of completing the application and financial assessment, reverse mortgage professionals become acquainted with the homeowner’s financial assets. What red flags should they watch for? Here are just a few indicators of potential abuse.

  • An adult child who is unusually interested when their parent will receive loan proceeds and how the money will be distributed.
  • The presence of a child or grandchild living in the home who is abusing illegal or prescription drugs.
  • The homeowner has little or no understanding of their own financial situation.
  • The homeowner is showing the early signs of diminished mental capacity and confusion.
  • Financial paperwork, checkbooks, and bank statements are disorganized and strewn about the kitchen or common areas.
  • A non-medical assistant or living aid who seems overly-interested in the reverse mortgage transaction.
  • Signatures on other documents appear to be written in another person’s hand.
  • The senior appears to be isolated from friends and other family members.

As it’s said, ‘An ounce of prevention is worth a pound of cure’. Here are some suggested financial abuse prevention tips.

  • Involve all children of the borrower when possible.
  • Ensure all adult children know how to contact you.
  • Ask if anyone has been managing their finances.
  • Ask for details about any accounts showing late payments or delinquencies. See if the homeowner was aware of the unpaid installments.

Financial abuse awareness is crucial to help our older homeowners steer clear of family members plundering funds from what is perhaps their largest and last financial asset.

How have you spotted financial abuse and what did you do in response? Leave your answers below in the comment section. 

The Ultimate Pick-a-Pay Loan?

The following is not for consumers, homeowners, or borrowers. It is intended for reverse mortgage professionals and is not intended to provide legal or financial advice.

Remember the infamous pick-a-pay loan? Perhaps we should have been calling them ‘pick-a-foreclosure’ loans. Back in the unbridled craziness that was the pre-2008 housing bubble homeowners could choose to pay a fully-amortized payment, interest-only, or negative amortization (underpay). A novel idea that was doomed to fail. Why? Those who paid less than an amortized payment saw a reset trigger when their loan reached 110% to 125% of the original balance. The siren song of optional mortgage payments is no less enticing today than it was 12 short years ago. Thankfully these poisonous exotic loans are extinct, however, one pick-a-payment loan remains hidden in the unnoticed corners of mortgage lending- the reverse mortgage.

It doesn’t take much reflection to recognize the vast majority of reverse mortgage borrowers took the loan to eliminate their required monthly principal & interest payments. However, that trend is slowly evolving with more seeking to have access to large sums of cash should they need it, and others choosing to make periodic payments. No one wants to admit they’re beside themself trying to figure how to make ends meet in retirement, but they’re more willing to act to avoid that dreaded fate.

In the post-COVID 19 world the choice-driven consumer will play an increasingly important role, particularly for the mass-affluent who are not driven by the pangs of need or desperation. People love to have choices- even if they will likely never exercise them. A quick visit to your nearest casino buffet serves as a tangible and tasty reminder.

So Adam and Rebecca just took a reverse mortgage last month which did in fact eliminate their former mortgage payments. Being fiscally conservative they decide they’ll pay what they used to on their former loan 9 months of the year. The other three remaining months they take a ‘payment vacation’. There’s no paperwork required, no loan modification agreement that must be approved by their bank, or begging of any sort. They’re in control. The skipped payments they use to partially fund their annual family vacation helping their children and grandchildren who otherwise would be unable to attend.

Patti decides upon the old pick-a-pay interest-only option. Her concern is leaving some equity for the kids. Only paying the interest still saves her a tidy sum each month that she used to pay with her conventional loan. Her equity-conservation strategy is a win-win scenario for her and her son Robert who is still building financial security. Unlike the poisonous pay-option loans of yesteryear, there are no surprise minimum payment hikes once the loan reaches a trigger threshold because there are no required payments.

“You can invent your own balloon payment and pay every three years. The reality is because there’s no due date you can never be late”, says Martin Andelman in his recent interview on HECMWorld. And, unlike your traditional mortgage one can recoup those payments should they need them for any reason without having to plead with the bank for a HELOC or a costly cash-out refinance. “If 35-year olds could get HECMs, it would be the only loan in the country”, added Andelman

So while we cannot market the Home Equity Conversion Mortgage (HECM) or any private reverse mortgage as a pick-a-pay loan, that’s precisely what it is- more accurately what it can be. A HELOC alternative, pick-a-pay, or 30-year mortgage? A reverse mortgage has the flexibility to be each when the homeowner says so.

We are much more than ‘mortgage-elimination’ specialists. We provide choices that may reduce risks for older homeowners. After all, isn’t nice to have options, even if you don’t need them?

History- You’re Living It

Imagine it’s 1956 and you are writing your first 30-year fixed-rate mortgage as a loan officer working for your local bank. It was a historic period in home financing as most mortgages up to that time had 20 year amortization periods until the Federal Reserve began significantly increasing interest rates. In the effort to keep home financing affordable despite higher rates the Federal Housing Administration broadly adopted what is now the gold standard of mortgage lending- the 30-year fixed.

Today we find ourselves in the historic moment of the COVID-19 pandemic which has left many sectors of our economy closed, partially opened, or closed again. This modern-day plague has instilled a strong sense of insecurity in many, especially retirees. However, history has taught us that disease and economic upheaval are found throughout written history.  The Roman Emperor Marcus Aurelius wrote the following during the Antonine Plague. “To bear in mind constantly that all of this has happened before and will happen again—the same plot from beginning to end, the identical staging”.

Just as the Fed’s continued interest rate hikes in the 1950s spurred innovation and public acceptance of the 30-year mortgage, economic uncertainty is moving many undecided homeowners to reconsider a reverse mortgage- or at least to put their guard down momentarily to research how the loan works. Uncertainty and need are still two of the common motivators in getting a reverse mortgage.  It then comes as no surprise that counseling agencies find themselves struggling to find available slots for required borrower counseling- not surprising since FHA case numbers issued have surged to a record number HECM applications recorded in the months of March, April and May when compared to recent years.

Another historical shift we’re experiencing is how quickly older Americans are embracing remote meeting technology to stay in touch with family and friends while ‘social distancing’. Grandma and Grandpa are highly motivated to see their grandchildren’s smile and interact on a more intimate level than merely a phone call. Consequently, the resistance to using teleconferencing services such as Skype, Zoom, or Google Meet has dropped considerably. Reverse mortgage professionals have seized upon this shift offering remote appointments and ‘touch-less’ loan closings.

While useful in times of relative economic stability reverse mortgages are absolutely essential as long term financial outlooks are clouded by concerns of inflation, a volatile stock market, and investment losses. Will the general public suddenly embrace reverse mortgages just as they adopted the 30-year mortgage 70 years ago? Don’t go placing your bets in Vegas just yet. However, the present moment in history we share provides the occasion to make inroads with homeowners and financial professionals alike- both who’ve been harshly reminded that the only thing that’s certain in life is uncertainty itself.

Seven Ways to Work Happier

The following is from an earlier publication authored by Amara Rose.
We spend a lot of time focusing on ways to enhance the reverse mortgage experience for mature adults. Just as crucial, however, is the care of the reverse mortgage professional. The more relaxed, healthy, and well-rested you are, the better you’ll be able to listen and the more thorough and specific the service you’ll provide.

Here are seven ways to improve your workplace, mood, and manner:

  1.  Order in the workplace! There are people who can pull the precise piece of paper they need from a chaotic jumble on their desk. However, a well-ordered work area makes this exponentially easier. Think about placing your important documents in color-coded file folders, or whatever system suits your personality, available space, and daily needs.
  2.  Let there be light. Unless you have full-spectrum lighting, sun exposure through windows is preferable to sitting under fluorescent bulbs, which can weaken eyesight with their rapid, undetected blinking. Another health benefit of natural light is improved sleep, which affects the quality of life — and encourages people to get more exercise because they finally have the energy for it.
  3.  Go for the green. While plants improve air quality by breathing carbon dioxide and giving off oxygen, they also decrease stress and increase productivity by 12 percent, says a new AARP report. Maybe not a huge enhancement, but where else can you get a daily brain boost for the price of a little watering?
  4.  Vary the sitting. It’s a conundrum: sitting for more than four hours a day has been shown to increase the odds of developing cancer, diabetes, high blood pressure, and heart disease — ouch! — yet standing at a raised desk can lead to varicose veins, knee or ankle problems, and carpal tunnel syndrome. What’s a health-oriented reverse mortgage professional to do? The AARP article suggests (no joke) a treadmill: one study found those who walked during the workday lost weight and enjoyed greater productivity after one year. Of course, you could simply take a tip from one manager who possessed a lot of kinetic energy: he paced his office while talking on the phone, which burned calories, kept him from sitting or standing too much, and dispensed with the need for a treadmill.
  5.  Trust your animal instincts. A growing number of office buildings permit pets (and if you own the building, you get to make the rules). Pets help reduce stress, boost morale and collaboration, and raise efficiency.
  6.  Go walkabout for lunch. Give the sad-sack lunch-at-your-desk routine a pass and take a walk in the park; eat your meal while watching the birds. Or call a colleague and suggest you try that new sushi place. On the other hand, if you need to work on a closing or other mental task, staying focused at your desk is probably a better idea. Just try not to make a habit of it.
  7.  Music to your ears. While the younger generation seems to have earbuds surgically implanted, the AARP story does note that workers listening to music tend to complete tasks quicker and come up with better ideas than their quiet-loving colleagues. If you prefer to save music for after business hours, it still helps reduce stress, so listen to what you enjoy most when you’re unwinding at home, or on the drive there.

Do you have 20/20 vision?

5 hacks for a more productive new year

Believe it or not, tomorrow we enter a new decade! How can you best prepare to enter the new year with 20/20 vision? Here are some ideas to help you prepare and maximize your effectiveness.

Write down the lessons learned in 2019. Experience is our best teacher and both our professional and personal encounters are rich with opportunities to rethink how we react, plan, engage, or in some cases disengage.

1. Work backward. Most have defined their goals however a more important exercise is to examine the actions required to accomplish your objectives. Under each of your goals note the activities that must be completed. It could be repeated engagement with your local chapter of financial professionals, regularly-scheduled calls to potential borrowers, or presentations to your local real estate professionals.

2. Create a schedule for social media posts. Does your lender allow approved content on social media? If so, create a schedule to create content, submit for a compliance review, and publication. It’s best to create generic recurring events on your calendar such as “Facebook Post” or “Blog Post”. Each week you can create timely posts based on trending topics. Research which hashtags are trending on Twitter and Facebook and incorporate the topic in your post. This will significantly boost your audience.

3. Declutter your workspace. Get a large box and place in it every item you haven’t used in the last year. Next, look at the dust-collectors on your shelves? How many knick knacks could be put in storage, given away or simply trashed? If you’re afraid to remove these items from your office space, just leave the box in a corner for a month. If you don’t use it, move it.

4. Ask for feedback. Do you survey your borrowers after the loan has closed? How about one year later? Those who have done business with you can provide a wealth of insight on how you do business and what could be improved.

5. Measure your activity. What could you track? The number of outbound sales calls, appointments made, appointments kept, applications, cancellations, and closed loans are a good place to start. You’ll notice that periods of increased activity are followed by increased sales. Slow

Truth be told, no one has 20/20 vision for what the new year holds. What we do possess are the indispensable lessons learned in 2019 that if acted upon will increase our sense of satisfaction, well being, and personal income.

The Holiday Slump

6 ways to avoid a costly holiday sales slump

The big slump. That’s often what the holidays are for sales professionals. That may even include even reverse mortgage originators (gasp).

Years ago when working in financial services fellow agents would often disappear in December. This was before the age of social media so no ‘proof of life’ photos were available online to soothe my fears that perhaps they had been placed into witness protection or worse.

The truth is too often many believe that no one will be available or wants to hear from them during the holiday. Okay, certainly you could say that on Christmas eve or Christmas day. Beyond that, the need and interest in the reverse mortgage may be heightened as expenses mount, and bank balances dwindle. Perhaps the cash stuck in the bricks and mortar in their home just became that much more important.

A slump in sales in December would certainly be felt in February. With that in mind here are some practical strategies to have optimal engagement with potential borrowers:

  1. Send a holiday greetings email to those who’ve closed a loan, those who didn’t and especially to those who are sitting on the fence. Don’t ask for a sale- just include a short and heartfelt message.
  2. Mail a Christmas card to your top referring professionals. Attorneys, CPAs, and realtors still maintain the tradition of sending holiday cards and are accustomed to receiving them as well. Address your envelopes in your own hand. (See #6)
  3. Host an open house event. It may be too late to squeeze a date before Christmas, but you can certainly host a new year’s themed event. Remember the purpose of your open house is not to make sales but to express your gratitude and stay top of mind.
  4. Email gift ideas for several age groups. While few will admit it, often we find ourselves stumped to find the perfect gift for that special someone.
  5. Schedule appointments for the new year. If all else fails, schedule a meeting in January after the holiday frenzy has settled. Be sure to make a note in your CRM or calendar to remind them 5 days before your meeting.
  6. (BONUS): Send a New Years’ card. For the new year? Indeed. You will stand head and shoulders above the glut of Christmas cards sent.

These are just a few ways to beat the holiday sales slump. What strategies would you add to this list? Leave your ideas in the comment section below.

How many will benefit from 2020’s HECM lending limit?

How many borrowers in 2020 may benefit?

While HUD’s announcement of the increase of the lending limit for federally-insured reverse mortgages is a positive development, it will likely only benefit a minority of future HECM borrowers in 2020.

HUD’s 2019 annual report to Congress reveals that the average maximum claim amount (MCA) for HECMs endorsed in the fiscal year 2019 is $347,275- a number which has increased substantially from $262,000 in 2009.

So just how many future borrowers could be aided from HUD effectively raising the ceiling of the home value that can be considered when determining loan proceeds? To answer that question we first needed to ascertain how many HECMs exceeded 2019’s MCA. A daunting task, that is until we reached out to John Lunde, President of Reverse Market Insight.

A total of 1,272 HECMs endorsed in the fiscal year 2019 were appraised at or above the lending limit of $726,525 according to RMI which tracks our industry’s key metrics.
[Learn more how RMI can help you understand your local market]

That’s 4% of the 31,274 loans endorsed in FY 2019 appraised at or above $726,525. One could conclude a similar percentage of borrowers in 2020 may stand to benefit- some up to $19,654 more in their gross principal limit (available loan proceeds before closing costs, insurance, and payoff of liens).

If there is cause for widespread optimism in 2020 it is this: Congress has not approved HUD’s proposal to eliminate the national lending limit and return back to county or regional lending limits. A return to regional MCAs would severely impact those with moderately-priced homes who have the misfortune to live in a county with lower home values.

All things considered, there is a reason to be thankful. Originators in higher-valued markets can check their CRM/database for those who were short to close and may be able to qualify in 2020. Those in other markets can exhale seeing that the national lending limit remains in place presently.

BREAKING: HECM Lending Limit Increased

HUD announces the new maximum claim amount for HECMs in 2020

Today FHA released Mortgagee Letter 2019-20 announcing the new maximum claim amount (or lending limit) for Home Equity Conversion Mortgages. The new limit of $765,600 is in effect for the calendar year 2020 and represents a $39,000+ increase from last year’s MCA.

The move is not an unusual one. Reverse Mortgage Daily reports that the Housing and Economic Recovery Act or HERA mandates that conforming loan limits must reflect changes in the average U.S. home price. Last month, the Federal Housing Finance Agency announced a 5.38% increase in the Housing Price Index between the third quarters of 2018 and 19. By no coincidence, the lending limit increased nearly the same percentage.

The move may appear ironic at first glance since HUD called for a move away from the national lending limit returning instead to regional limits- a move the agency says will reflect local variations in housing markets and prices. That recommended reform, however, is legislative and requires the approval of Congress. With our current backlog of legislation in the House don’t expect to see that change soon.

Late this summer a request to abandon a national HECM lending limit was made in HUD’s Housing Finance Reform Plan. A return to the national lending limit would significantly impact HECM originations for higher-valued homes in counties that have a low mortgage limit. How much so? In our September 16th blog post we noted significant disparities in our own local market. A short 20-minute drive from our home offices would see over a $400,000 reduction of FHA mortgage limits if the national limit for HECM were to be repealed. Previous principal limit factors would pale in comparison.

This is welcomed news for lenders and originators alike. With today’s low-interest-rate environment some HECM borrowers stand to net significantly more loan proceeds. How this will affect proprietary reverse mortgage loans remains to be seen. While no national consolidated number of origination of private loans is available, more anecdotal reports indicate considerable growth. In addition, some lenders are offering private reverse mortgages for property values as low as $400,000. A move that clearly puts these products in the hunt to compete directly with the HECM.

Higher loan limits and lower interest rates could pave the way for moderate growth of HECM loans in 2020. Consider this most recent mortgagee letter your early Christmas card. One that hopefully brings you good cheer in the final days of 2019, and into the new year.

Lessons learned from the traditional mortgage market

The lessons to be learned from the growth of alternate mortgage products

Late in the Fall of 2018 traditional mortgage brokers scrambled for new ways to generate loan volume as average home mortgage rates spiked. In late 2018 refinance transactions began to fall leading many brokers to focus more on alternate loan products such as non-qualified mortgages and in some cases HECM loans. 

Sound familiar? When market conditions or regulations were not ideal lenders innovated.

Qualified Mortgages generally meet these four requirements:

  1. Traditional documentation of the ability to repay the loan from income sources
  2. Restrictions on exotic mortgages features such as loan terms longer than 30 years, negative amortization, interest-only installments, and balloon payments
  3. Caps on fees and points paid
  4. Limits on how much of the borrower’s income is consumed by both mortgage and consumer debt (debt-to-income ratio DTI)

“Consumers should understand that every loan made today is subject to the ability-to-repay rule; non-QM loans just have a different way to get there,” said Mike Fratantoni, chief economist with the Mortgage Bankers Association in a Bankrate column in November 2018. He added that lenders have to jump through more hoops to qualify non-QM borrowers.

Unlike a private jumbo reverse mortgage traditional non-QM applicants must be screened first to see if they qualify for a government-backed or Fannie/Freddie loan. Unlike? Yes, unlike the reverse mortgage market non-QM loans are inclusive of most low and median home values and loan amounts. Today the majority of proprietary or private reverse mortgage offerings are targeted for homes above $726,525 (FHA’s national lending limit).

*Recently one reverse mortgage launched a proprietary loan for properties as low as $400,000.

As FHA considers further structural changes to the Home Equity Conversion Mortgage and calls for decreased dependence on FHA-backed reverse mortgages, our industry finds itself at the crossroads of a unique opportunity- to develop a robust non-HECM mortgage portfolio. HECM-alternative mortgages for median-priced homes could be a draw for cost-conscious borrowers wishing to avoid costly FHA insurance premiums or those who don’t wish to undergo the rigorous financial assessment which may include a large lifetime expectancy set-aside.

If history is one thing it is cyclical. The HECM was launched from the concerns of a largely unregulated private shared appreciation mortgage market and the need for older homeowners to fund their retirement.

Today FHA is nudging revere mortgage lending toward private loan programs. A clear signal that we could, in fact, learn a few lessons from our traditional lending counterparts in developing a diverse alternate private market.

 

Proprietary RMs Gain as HECM Evolves

Lenders continue to expand their proprietary reverse mortgage offerings – a timely development FHA sees as encouraging.

“We are considering some other changes [to the HECM program]”. Those are the words of FHA Commissioner Brian Montgomery during a media conference call for the release of FHA’s report to Congress last week. “I don’t think we ever envisioned that the FHA reverse mortgage product would dominate the market, for now, almost 30 years. I know there have been some proprietary products that have grown in the industry.”

It was in fact 32 years ago that Congress passed a bill creating a pilot program of the Home Equity Conversion Mortgage. As it’s said, ‘the rest is history’.  That history shows us subdued HECM loan volumes until 2002 when endorsements broke 10,000 units for the first time and then skyrocketed seven short years later to a staggering 114,000+ loans.

Did Congress anticipate that the federally-insured reverse mortgage would consistently represent over 90% of the market? Most likely not. In the last decade, both HUD and FHA officials have expressed their desire for an expansion of the private market and less reliance on FHA. In the years leading up to the housing crash of 2008, there were a handful of popular private reverse mortgage options on the market. While primarily popular with homeowners with values that exceeded FHA’s lending limit they did not significantly shift new applicants with moderate home values away from the HECM program.

Traditionally private or proprietary reverse mortgages have been confined to homes that appraised above the national lending limit. Recently, however, a few select lenders have broadened their product offerings- one to include properties valued as low as $400,000. This could entice potential borrowers who wish to avoid the significant upfront and ongoing costs that come with FHA mortgage insurance premiums.

What would possibly attract more homeowners to a private reverse mortgage solution? Here are just a few existing and potential features that are appealing.

  • Broader eligibility for those with home values closer to the national median home price.
  • Increased access to the home’s value for properties in areas with historically-rapid home appreciation.
  • Simplified underwriting and qualification guidelines.
  • Risk-based interest rates or loan pricing based on credit history and average regional appreciation rates.
  • The flexibility to include a line of credit along with period lump-sum payouts.

Despite the incredible potential of private reverse mortgage loans the HECM continues to attract the lion’s share of older homeowners. As long as housing market conditions remain ideal expect to see more innovative private products that may move us toward a more diversified market.