It’s that time of year when we hold our collective breath in the hopes that HUD will be gentle when it comes to enacting further changes to the Home Equity Conversion Mortgage.
There have been reports that the Financial Assessment has reduced defaults significantly, yet even so continued HECM claims from earlier books of business (reverse mortgages written in previous years) are likely to continue. In other words, no product changes can erase future losses in pending HECM loan terminations.
Major HECM changes typically come every two years. What should we anticipate in the final months of 2019? October 2017 brought us PLF reductions, single-tiered upfront FHA insurance premiums and a reduced interest rate floor from five to three percent. 2018 being the interim year brought us the Collateral Risk Assessment or the second appraisal rule.
There are no clues as to what further changes HUD may enact for the federally-insured reverse mortgages. However, we are interested in what you see as the most likely changes we will see enacted beginning in October.
Take our survey and let us know your thoughts.
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Fatalism is tricky. One for its meaning being widely misunderstood and two for how pernicious it is to those who have unwittingly embraced it.
While its name may engender some confusion, fatalism does not mean one eagerly awaits death- however it may be the death of hope, achievement, and satisfaction. Fatalism derives its name from the fabled fates who spun the future of mere humans who were powerless to change the outcome.
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Fatalism typically manifests itself in the belief that no matter what one does the die has been cast leaving us powerless to change the outcome. It hinges largely in the belief of Predeterminism- that all events have been established in advance.
Such ideologies may sound absurd in today’s society that exalts technology, science, and rational thought. However, regardless of our educational pedigree, intellect, or even good intentions we can find ourselves embracing this dark philosophy. Fatalism triumphs over those who believe in it.
Here are just a few examples of fatalistic thinking.
The Three Fates (Clotho, Lachesis, and Atropos) by the Italian artist Giorgio Ghisi (1520-82). In Greek mythology, the Fates (called the Moirae) were the incarnations of destiny. They spent their time spinning, measuring and cutting the thread of life
“It would have turned out this way regardless”.
“Nothing can be done, so why try?”
“HECM endorsements will never improve.”
“There’s no way I could do that. It just wouldn’t work.”
“Why bother making the call? They’re just going to say no anyway.”
Negativity and fatalism are close cousins and sap our faith, hope, and perseverance which begs the question- how does one steer clear of fatalistic thinking?
Here are a few ways to avoid fatalism
Find positive friends who inspire and uplift you. This is the crowd you want to spend time with, share your ideas and plans with, and ask feedback from.
Change your diet. Not food- but what you watch on television, read online, and listen to. Write down what your typical routine is and look back to see if any reinforce a negative perception.
Exercise. Moving and getting your heart rate up is the easiest and cheapest antidepressant available. Whether you walk, run, or use a treadmill to get active.
Drop off Facebook and Twitter for a week or longer. Much of what you see in your timeline is either (1) negative, or (2) fake.
Read inspirational books or quotes to feed the soul.
In conclusion, it can be said that fatalism can be fatal to your hopes, dreams, and achievements. The trick is to identify it and steer clear.
A defensive response is a sure way to lose. Lose a political debate, a public presentation, or even worse your credibility.
Much of what has been presented in the media at large regarding reverse mortgages can easily put any HECM professional in a defensive position. Hysteria, fear, one-sided stories, and intentional omission all in the effort to emotionally trigger the reader. But don’t let yourself fall into their trap.
Reading Plato’s The Republic with a philosophy group has revealed some fantastic techniques for how we can respond when challenged, accused, or misunderstood.
In The Republic, Plato uses Socrates as his fictitious narrator. When pressed on a point of disagreement Socrates doesn’t become defensive but rather responds with a question- a technique that bears his name to this day, the Socratic method.
The same can be said of the wild accusations that the media have heaped upon the federally-insured reverse mortgage. Delinquent property taxes, unpaid homeowner’s insurance premiums, a spouse being forced to vacate who was not on the loan, and unsafe property conditions- each of these can trigger a ‘foreclosure’ with a traditional 15 or 30-year mortgage.
That fact has been largely ignored by the media or buried 14 paragraphs into an article. Even worse, many who put themselves forth as a mortgage or financial ‘expert’ give the impression that such problems only plague reverse mortgage borrowers.
So the next time a financial advisor, banker, or potential borrower confronts you with a negative media story instead of becoming defensive instead try to ask one of these questions. Responding with a question instead of reacting shows strength and shifts the power back to the person asking the question.
Do you know how delinquent property taxes are handled in a traditional mortgage?
What do you think happens when the sole borrower dies and a person who is not named on a 30-year mortgage loan lives in the home?
What do you think a mortgage lender would do if a borrower lets the home fall into serious disrepair or fails to fix major safety issues?
What do you think may happen if a homeowner chooses not to respond to several notices from their lender, county tax authority, or insurance company?
These are just a few ways how the use of questions can help a critic or fearful homeowner separate unfounded fears from fact in reverse mortgages. Remember, if you say it they will doubt you- if they say it, it’s true. Ask the question and let them say it instead.
Yesterday I turned on our local AM station and was aghast at what I heard. “So you both make about $150,000 a year and your mortgage interest payments would be about $16,000 a year. With your combined income that would place you in a 40% tax bracket so your interest deductions would save you about $7,000 each year in taxes”. I was shocked. Here’s a ‘financial ‘expert’ with his own radio show misleading one of his faithful listeners who phoned in. The mistake is sadly a common one- oversimplification. A more accurate answer would have considered that caller’s standard deduction of $24,000 a year would make deducting home interest payments highly unlikely- unless they already had other significant itemized deductions.
This radio segment made me reflect upon some of the bad advice that I’ve heard given over by well-meaning originators over the years.
Often salespeople love to use simple anecdotes and solutions. No surprise as they often help close the sale. Here are just a few of the simple yet misleading explanations that have been touted for reverse mortgages:
It generates monthly income
It’s tax-free income
You can live in your home for the rest of your life
You can’t outlive the loan
Your Lifetime Expectancy Set Aside will pay your property charges until you die
The line of credit grows forever with no limitations
You only need to have enough equity to qualify
A HECM is a way to leverage your wealth
While the radio host failed to mention the impact higher standard deductions have on mortgage interest deductions, HECM originators must ensure they are providing accurate information in a meaningful context. To know the context you must do some fact-finding about their finances. Speaking of taxes, if your potential borrower is currently deducting mortgage interest payments, you had best inform them that they would no longer have that deduction with a reverse mortgage- that is until the interest is actually paid.
Regardless of our experience, it is always wise to reexamine the words we use when communicating with older homeowners, family members, and financial professionals. Are they accurate, confusing, or misleading? Will they create potential headaches in the future for the homeowner or our company? The answer truly depends upon the accuracy and clarity of your communications.
What misleading explanations of reverse mortgages are you seeing? Leave your comments below.
The following was originally published in November 2011. Despite much of the recent negative news coverage reverse mortgages have helped countless older homeowners avoid inevitable foreclosure and eviction.
Personal success stories are a powerful vehicle to imprint the value of a product or service in potential clients’ minds. The following true tale will brighten your prospects’ holiday season.
Reverse Mortgage To Prevent Foreclosure
A reverse mortgage was a lifesaver for 77-year-old Isidoro, who had been in foreclosure due to the current economy. By the time he contacted Security One Lending, Isidoro was on the verge of losing his home to foreclosure within a few months. He was faced with moving out of his home and trying to find a rental somewhere on a Social Security income of just $800 a month, which would have left him with precious little money for food and other necessities. Security One’s loan advisor quickly realized that the home’s value was in decline — something many Americans are experiencing now. Chase Bank had tried for the better part of a year to “short sale” the home, with no offers. Fortunately, the bank has a program to accept a reverse mortgage in lieu of a short sale.
Security One Lending negotiated with Chase Bank over several months — and several foreclosure extensions — to ultimately shave a whopping $182,000 from the principal note balance. Additionally, the loan agent was able to drastically reduce the reverse mortgage loan fees to allow the client to qualify, and have his existing Chase Bank loan paid off in full — which kept him from losing his home.
Isidoro retains full title to his home, and can never lose the house due to non-payment. That’s a true holiday gift!
If we’re at the new norm of industry-low volume, what’s next?
Reverse Market Insight’s recap of June 2019 endorsements states, “2,500 endorsements per month is the default volume setting for the industry right now”. Calculate that out and that would equate to a new low in annual HECM endorsements totaling just over 31,000 loans insured by the FHA this fiscal year (which ends September 30, 2019).
“It’s only up from here” (anonymous)
If there’s a silver lining it would be that perhaps we’ve reached a functional low for HECM loan volumes. Functional in the sense that the remaining large lenders and brokers have found a way to succeed in today’s market.
click to enlarge
For those watching our industry’s volume plummet with a growing sense of unease, consider the following:
Our distribution network has been sharply reduced with the exit of Wells Fargo, Bank of America, MetLife, Generation Mortgage, and most recently LiveWell Financial.
We no longer have a national brick & mortar distribution network with the absence of the largest national banks who once marketed and originated HECMs.
Loan proceeds have been reduced considerably with a series of principal limit factor reductions that began in 2009 and accelerated in subsequent years with the most recent reduction in October 2017.
Only one national lender is consistently seen on American’s TV sets; AAG’s Tom Selleck ads continue in the lender’s national marketing campaign.
Private or proprietary reverse mortgages are gaining popularity; just how much remains to be seen as lenders are not reporting loan volumes presently. The increasing popularity of these loans may be slightly depressing HECM volume.
Interest rates remain low and further cuts to the federal funds rate are anticipated which may impact the LIBOR rates used on Home Equity Conversion Mortgages to the point where we breach the 3% interest rate floor. Prior to October 1, 2017, the HECM interest rate floor was 5%. Notwithstanding any further PLF cuts, this should increase borrower proceeds.
The U.S. median home price was $334,400 in Q4 of 2013 and stands at $377,700 in Q1 of 2019. That’s a 12-percent increase on average, with several markets, far exceeding the median price.
While principal limit factors (PLFs) have been reduced 30% on average since 2013, increasing home values have offset the net reduction to an approximate 12-percent net reduction in proceeds using today’s current PLFs compared to the 2013 tables which stopped at 5% (interest rate floor).
Select originators are reporting an increase in monthly loan volume.
Barring any further reduction of PLFs or additional restrictions, we may have tested the bottom of the lowest volume of HECM loans. If that is the case, it’s only up from here.
Recently I was reviewing some of our earlier articles here on HECMWorld. While this post is from late 2014, it still holds some timeless nuggets of wisdom on how mortgages have been received by the general public, and where the HECM fits in that historical context.
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“Refusal to believe until proof is given is a rational position; denial of all outside our own limited experience is absurd.” These words ring no truer than when it comes to those who embrace or reject the federally-insured reverse mortgage. Reverse mortgage professionals encounter varying degrees of denial with their clientele, but even more insidious is the denial of those in the financial community who often dispense advice which may be harmful to their audience- more specifically attacking the validity of the reverse mortgage or dismissing it outright.
Reverse mortgages have often been the unwanted child of the mortgage industry. Frequently spoken of in hushed tones as toxic, radioactive, predatory by critics the tide is beginning to turn. A 2014 article in the New York Times entitled “Love Them or Loathe Them, Reverse Mortgages Have a Place” reveals a substantial awakening amongst the financial and banking community.
The historical reality is even traditional mortgages were not warmly received. Early mortgages prior to the Great Depression were typically short-term loans where the homeowner had to renegotiate the terms each year. Not surprisingly as home values plummeted in nearly one in ten homes were foreclosed upon. The early stigma was that mortgaging your home was a risky proposition. Even following the establishment of the Federal Housing Administration, mortgages were viewed as a perilous venture. Then let’s consider the economics of a traditional mortgage. A borrower with a 30-year mortgage will have very little of the monthly payment applied to the loan’s principal balance until after year 15. Let’s not forget a borrower could make payments almost exclusively to interest and lose the home after sinking in tens if not hundreds of thousands of dollars of their hard-earned money. So again, which is riskier; a traditional or reverse mortgage?
Fast forward to today. Retirees sitting with their financial advisor will hear the importance of asset allocation while often times they neglect to include their clients largest asset: their home. It seems odd and perhaps borderline malpractice to ignore what is typically one’s largest asset in the planning process. It would seem that even financial professionals can do harm merely by letting their biases and denial influence their recommendations. The good news is times are changing. Retirement reality is about to slap the collective public and the financial community in the face as nearly two thirds or pre-retirees have not saved enough money to live comfortably in retirement.
Alicia Munnell was quoted in the Times article of her belief in the increased acceptance of reverse mortgages saying “When I look forward, I don’t see how people are going to have enough, I really don’t. Our assessment going forward is that it’s (home equity) is a luxury we’re not going to be able to afford. There are going to need money, and this is the place where the money is.”
Denial and an outright rejection of the HECM are luxuries few can afford. The challenge is to position our industry and reverse mortgages (private or federally-insured) into the mainstream of American mortgage lending.
Let’s face it. As salespeople, we often fall into the trap of first explaining the features and benefits of what we are selling. Sadly, many of you reading this may be turning away potential sources of countless loans. Homeowners could miss out on a financial lifeline or a boon to their retirement years.
The tried and h may have worked for some who had a product with tangible results. Think of the Sham-Wow guy. He can sell features and benefits all day long because you can see the end result. The problem is we are not selling a widget, a polish, or an amazing rag. We are selling a concept. The concept of what a Home Equity Conversion Mortgage could possibly mean for the homeowner, a financial advisor or realtor.
How we describe what we do came to mind during a previous recent interview with Don Graves. He hits the proverbial nail on the head! As Don says “you have a way to eliminate the stress in their [advisors] life”.
“If there was a resource that allowed your clients to increase their cash flow, reduce their risk, preserve assets, improve liquidity, or even add new dollars back into their retirement savings- if there was a resource like that- what percentage of your clients would want you to tell them about it?”
DON GRAVES
“If there was a resource that allowed your clients to increase their cash flow, reduce their risk, preserve assets, improve liquidity, or even add new dollars back into their retirement savings- if there was a resource like that- what percentage of your clients would want you to tell them about it?”
Notice anything? Don is not diving into the intricacies of how a HECM works, the eligibility requirements, or even the specific benefits- he is creating a vision in the mind of the advisor of what the HECM could do for the advisor and their existing clientele. It’s powerful!
Perhaps you have your sales approach nailed down or you’re already successful in capturing the interest and imagination of outside sales professionals. But if you’re not, then it’s time to ask yourself why are they not interested and what am I telling them?
As a mortgage professional, I worked nights and weekends as a housing counselor during the financial crisis. Foreclosures are scary and heartbreaking, and I will admit to crying with clients when their only option was to pick up boxes behind the grocery store and find any friend with a truck. No, these were not reverse mortgage borrowers. They were homeowners with subprime loans, option arms, and even traditional 30-year fixed-rate mortgages. In fact, it was the reverse mortgage that prevented innumerable foreclosures and bankruptcies during this difficult time. The experience of saving countless homeowners from this misery changed my life forever.
The cases mentioned in the recent USA Today article were tragic. However, the article fails to recognize that not all foreclosures are equal, and there are no easy solutions when retirees need to access housing wealth to survive.
So, can a foreclosure occur with a reverse mortgage?
The short answer is yes. ANY homeowner or estate can lose a home for various reasons. While the media sensationalizes this as “news,” they haven’t taken the time to understand reverse. But as ridiculous as this sounds to the novice, there are ACCEPTABLE foreclosures from the borrowers’ (and the heirs’) point of view.
Consider Susan, who after theafter the death of her father decided to “walk away” from the property she inherited. That’s okay. Susan is protected by the “non-recourse” feature that guarantees her right to do this… with no recourse, even if the loan balance far exceeds the value of the property. While this type of foreclosure is often vilified by the media, it was a very favorable financial transaction for Susan’s father, and a non-recourse foreclosure was ACCEPTABLE to Susan.
When we think of foreclosure, we naturally think of the most common reason traditional (forward) loans end in foreclosure – failure to make the required monthly mortgage payment. Of course, that wouldn’t make sense with a reverse mortgage that carries no monthly repayment obligation. So, it’s understandable why homeowners, their heirs, and the media are often confused when they see that reverse mortgage foreclosures happen from time to time.
WHY WOULD A REVERSE FORECLOSURE OCCUR?
USA Today’s recent expose overlooks the true reasons behind reverse mortgage ‘foreclosures’.
While reverse mortgages don’t require a monthly principal and interest mortgage payment during the life of the loan, there are other borrower obligations contained in the reverse mortgage loan agreement. The borrower has agreed to occupy and maintain the home, as well as pay all property-related charges. Failure to do these things will cause the loan to mature. When a loan maturity event happens, the borrower (or their heirs) will often sell the home to pay off the loan balance.
For example, when the last surviving borrower leaves the home for 12 consecutive months for mental or physical incapacity (e.g. nursing home or assisted living), that is a maturity event. The borrower or their heirs will often notify the lender of their intentions to sell the property. The lender will then allow them 6 months to sell the home and HUD generally approves two 3-month extensions for up to one year.
If no action is taken to sell the home, the lender will need to foreclosure on the home, handling the sale themselves so that the loan can be repaid.
The following are two common reasons reverse foreclosures occur:
No equity remains at loan maturity
When the loan balance exceeds any reasonable sales price of the home, the estate has no economic incentive to sell the home on their own. Fortunately, all reverse mortgages are “non-recourse” loans. Nevertheless, foreclosure is the mechanism that conveys title to HUD (or the Lender) so the home can be sold to pay off at least a portion of the loan balance.
A property tax default occurs
Failure to pay property taxes will almost always result in foreclosure. This is true whether the homeowner has a reverse mortgage, a traditional mortgage, or no mortgage at all. However, the lender is the major lien-holder on the home and is required by federal guidelines to foreclose on the property for most reverse mortgages.
Keep in mind, a reverse mortgage naturally allows the homeowner access to funds, which should theoretically REDUCE the likelihood that a borrower will default on their obligations. But with the increased financial pressures of retirement, we cannot always guarantee that homeowners will keep funds in reserve.
PROPERTY CHARGE FORECLOSURES ARE DOWN DRAMATICALLY!
While nothing can be done to keep people from the grave, two measures were implemented by HUD over the last six years that have been helpful in reducing the numbers of foreclosures caused by tax defaults – InitialDisbursement Limits and Financial Assessment.
Initial disbursement limits were implemented that restrict the consumption of proceeds for the first year of the loan. Unless the borrower has large mortgage payoffs that necessitate higher draws, the borrower may be initially limited to 60% of their funds. As a result, borrowers now keep a portion of their proceeds in a growing line-of-credit available for future emergencies.
Financial Assessment requires the lender to examine the credit history, property charge history, and residual income for one primary reason – to determine whether the reverse mortgage is a sustainable solution for the borrower. To ensure sustainability, some borrowers are now required to set-aside a portion of the proceeds to pay property charges.
These two changes have reduced the number of reverse mortgages nationwide but has also reduced the number of foreclosures.
Yes. Foreclosures can happen, and they will continue to occur. Remember, Susan walked away because her father consumed more available funds during his retirement than the home was eventually worth. For more information on all forms of reverse mortgage product offerings, consider buying the reverse mortgage resource consumers and finance professionals use – Understanding Reverse.
Dan Hultquist, MBA, CRMP
Dan Hultquist is Vice President of Organizational Development at Finance of America Reverse (FAR), the largest wholesale provider of reverse mortgages. He has spoken nationally on the topic of Reverse Mortgages, and his training sessions have exceeded 25,000 in attendance over the last decade. He is a Certified Reverse Mortgage Professional (CRMP), and co-chairs the Education Committee for the National Reverse Mortgage Lenders Association (NRMLA). He also teaches continuing education courses that serve as annual requirements for CRMPs. Dan is a Penn State graduate and obtained an MBA from Kennesaw State University. He lives outside Atlanta with his wife and 3 children.
Retirement. It’s no longer a “retreat” from life (if it ever was). As we’ve explored multiple times, people are retiring later or downshifting from full time to part time employment, or moving into a consulting role or some other line of work, rather than simply leaving the job market altogether. And those who do fully retire from the work world are still fully engaged in life — sometimes so busy they wonder how they ever fit a job into their day.
Here are some suggestions gleaned from a retirement workshop for how we might reframe “retirement”. Ideas take their inspiration from sports, advertising, and plain old ingenuity. Reverse mortgage professionals who enjoy creativity, consider these concepts:
Act 2
Between jobs
Bonus years
Continuum
Creative aging
Downshifting
Encore
Field of Possibilities
Growing bolder
Inspirement
Life 2.0
Living more
My time
Next Chapter
Next stage
Post-grads
Prime time
Protirement (it’s not for beginners!)
Rebalancing
Re-engagement
Refirement
Regeneration
Repotting (in new soil)
Retreads
Rewirement
Sage-ing
Seasoned
Success to Significance
The Creative Age
The Gifted Years
Third Half
Third Quarter
Unstoppable
My personal favorites for many years have been “chronologically gifted” and “over the speed limit”.
Attitude of Gratitude
Becoming chronologically gifted is about more than a date on the calendar, obviously. Dorothy Sander, whose website is Aging Abundantly, exemplifies the attitude of gratitude that defines seniors who become elders, not just elderly. On her 65th birthday this past summer, Sander penned a post entitled, “65 Things I’m Grateful for On My 65th Birthday”. Her gratitude bowl begins with her family: a loving husband, motherhood to “two sons who make me proud every day”, a beautiful daughter-in-law and good health.
Those take up the first eight spots. Then Sander branches out to embrace the wider world: the kindness of strangers; Nature: green grass, sunshine, the ocean, the wind, mountains, sunrises and sunsets, rain and roses; music that lifts her spirit; massage that restores her body; long walks, birdsong, delectable foods, technology that enables her to stay connected to loved ones near and far — and yes, challenges that provide opportunities for growth, resilience and wisdom to blossom.
Dorothy Sander is an elder.
No regrets
The sage-ing, seasoned, repotted, unstoppable seniors who comprise the above list will not look back at the end of their lives and wish they’d gone farther, forgiven sooner, taken that risk. Your role as a reverse mortgage loan originator is not necessarily to encourage your senior clientele to live full out — and yet, in a sense, a HECM can be the means to do just that, since it helps seniors relax about where the money they’ll need in their later years will come from.
The twenty biggest regrets of those close to death all have to do with wishing they’d lived larger on life’s canvas: “I wish I’d…”
Taken more chances
Persevered
Expressed love more often
Appreciated what I have
Listened better
Released a grudge
Traveled
Stayed in touch with friends
Trusted my intuition.
Protirement takes moxie. It’s a little like the delightful message on the Bag O’ Rags™ I bought recently to wax my car. The package insert reads, “Warning: This product is not for wimps! These rags have been used in industrial settings. Although they’ve been commercially washed, there might be stains and junk on them. If you want to pay 10 times the price to wipe up your muck, buy the other stuff. You’ll find those in aisle 13, next to the quiche pans.”
Life is messy and unpredictable, and by the time we get to be 60, 70, 80, 90 and beyond, we have stains and junk on us, metaphorically speaking. That’s part of aging, and washing doesn’t remove them. Seniors whose “life stains” spring from love and loss and listening and refirement and growing bolder are truly over the speed limit, driven to “re-tire” who they were and tread a new path, without regrets.
Much of what has been presented in the media at large regarding reverse mortgages can easily put any HECM professional in a defensive position. Hysteria, fear, one-sided stories, and intentional omission all in the effort to emotionally trigger the reader. But don’t let yourself fall into their trap. 
Yesterday I turned on our local AM station and was aghast at what I heard. “So you both make about $150,000 a year and your mortgage interest payments would be about $16,000 a year. With your combined income that would place you in a 40% tax bracket so your interest deductions would save you about $7,000 each year in taxes”. I was shocked. Here’s a ‘financial ‘expert’ with his own radio show misleading one of his faithful listeners who phoned in. The mistake is sadly a common one- oversimplification. A more accurate answer would have considered that caller’s standard deduction of $24,000 a year would make deducting home interest payments highly unlikely- unless they already had other significant itemized deductions.
