Homeowners Marooned

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Australia’s cautionary tale for America

[Download transcript] It’s said that nature abhors a vacuum. In the case of Australia, the question is who will fill it? Like an episode of Lost, senior homeowners in Australia now find themselves marooned being unable to tap their equity with no monthly payments. “Retirees are being blocked from accessing the money trapped in their property as banks pull out of the reverse mortgage market, fueling a growing income inequality among older Australians”, writes columnist Eryk Bagshaw for the Sydney Morning Herald. We had reported the recent exit of Australian banks from reverse lending in the wake of several large bank exits, many who feared repetitional risks in the wake of several negative media stories.

Even retirees who made contributions to Australia’s superannuation fund find themselves facing poverty. The superannuation or super is Australia’s compulsory program which requires compulsory minimum contributions of a percentage of one’s income into a government-managed portfolio. Australia, like many developed countries, finds itself threatened by tax policies which limit tax-advantaged retirement savings contributions. Today Australia, like the United States, is grappling with how to keep their rapidly expanding older population from slipping into poverty. or placing a further strain on its social welfare programs.

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Will this Save the Reverse Mortgage Industry?

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More looking outside the HECM as a single solution

What will save the reverse mortgage industry or at least put us back on a trajectory of sustained growth? One industry leader sees a path for recovery- one that broadens our vision and approach. Finance of America Reverse’s President Kristen Sieffert has successfully made inroads in expanding the reverse mortgage’s appeal. First, by engaging traditional mortgage originators through a strategic campaign that couples education and motivation. More recently, she helped shape Finance of America’s flagship jumbo reverse mortgage- the HomeSafe Select. The loan’s unique features such as a line of credit and the ability to be placed as a second lien behind a low-interest rate first mortgage align with the lender’s mission to be a retirement solutions provider.

So what is the solution to stop the slide in loan production? “It’s critical to be focused on what will help Americans get to work on retirement more holistically”, says Sieffert in her recent interview with the Reverse Review. “Historically our industry has offered a single solution to everyone...

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Should we tear down the wall?

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Diversification or Separation of HECM and Traditional Mortgage Lending

As the national debate on the morality or effectiveness of a wall on our southern border rages on, one barrier is being slowly removed. As the number of the federally-insured reverse mortgage loans has languished in recent years, more former reverse-only lenders are making their entry into traditional mortgage lending; in effect removing what was once a barrier of niche mortgage lending for some.

Considering such diversification, it’s natural to ask if loan officers can be just as effective in originating both traditional and reverse mortgage loans. That question brings to mind a statement made 10 years ago by a formerly forward-only originator. Seeing the upcoming spate of changes to the HECM he said, “watch, they are going to turn this into a traditional mortgage”. One could easily argue the enactment of the financial assessment and the verification of an applicant’s income and assets does indeed mirror much of what is common practice for traditional mortgages. Despite the similarities, there are two conflicting viewpoints on whether originators should remain specialized or offer both loans…

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The Source of All HECM Endorsements

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The leading indicator of HECM loan volume

Which came first the chicken or the egg? There’s no number that reverse mortgage lenders and originators track more closely than our monthly endorsement totals. That is, the number of federally-insured reverse mortgages that are formally ‘insured’. In fact, our monthly Top 100 HECM Lenders report is the single most popular item on HECMWorld.com. As our industry closely follows the number of HECM loans endorsed each month there’s another metric that is largely overlooked, Case Number Assignments (CNA’s). While all originators know that endorsements come from an application for a federally-insured reverse mortgage, many are not closely watching the leading indicator of future loan endorsement volumes.

FHA HECM case numbers are issued when a reverse mortgage application has been officially submitted. As such they are our most accurate barometer of consumer interest as evidenced in submitted applications. Case numbers also provide a leading indicator of future month endorsement totals. FHA publishes their most recently released case number assignments in their monthly publication entitled the “FHA Single Family Production Report” which tracks the issuance of case numbers for traditional and reverse mortgages insured by the agency.

The historical average time from a HECM’s case number assignment to endorsement is…

Older Homeowners Facing 3 Risks


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Even retirees who saved for retirement are at risk

Older American homeowners may want to take a second look at all their retirement options sooner than later.  Retirees who have saved for their retirement may find themselves challenged more specifically in three ways: home appreciation, stock portfolio losses, and increasing interest rates. [download transcript]

Seasoned reverse mortgage originators can certainly recall how the borrowers who took the loan prior to 2009 locked in a portion of their home’s value despite the market crash. While it’s highly unlikely that we’re in another housing or credit bubble, home appreciation is slowing nationwide in 71 of the largest 100 markets. According to the latest data from Black Knight, home values have shown their biggest single-month decline, albeit a modest one, since the housing market began to recover. In the west, California saw home price appreciation growth drop from 10.3% to 3.7% in nine months. While far from a death knell for the housing market this does serve as a reminder that a homeowner’s access to equity is no certainty, and what equity they have could dwindle significantly. A point worth making with prospective borrowers.

While the nation watches the stock market on their daily news shows, retirees are especially wary with good reason. Despite the Dow Jones Industrial Average’s significant gains in the last 3 years, the overall equities market remains volatile. That volatility is particularly real for retirees who may find themselves unable to draw the same amount from their investments each month without significantly shortening the life of those funds. As a recent New York Times article put it “If you have to start selling investments when they are worth less, you’ll have to sell more shares to get the cash you need — and the

More than a cliche: Back to Basics


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Increased sales skills effectiveness

One of the things we don’t have to tell you is that the business of originating reverse mortgages is challenging. Some see new sales opportunities.  Others say it is time to get back to basics. That was one of the themes heard on last week’s conference call presented by Reverse Mortgage Daily.  But don’t dismiss this as a common cliche. It’s not.

The reality is reverse mortgage originators are now being forced to revisit core sales skills and strategies to make a living in today’s challenging marketplace. What are those strategies? We will touch on a few today. But before we do a here’s a collective gut check. ‘Am I do everything possible today to see the maximum number of potential reverse mortgage borrowers?’ Most of us can honestly answer- no- seeing that there is always room for improvement.

First, how often you’re getting out of your office?

Tom Kelly’s Article: The Comparative Expense of a Reverse Mortage

Suggested reading:

How to Master the Art of Selling
Tom Hopkins

Influence: The Psychology of Persuasion
Robert Cialdini

Attitude is Everything
Jeff Keller

Unwinding Legacy HECM Issues

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Back-end issues such as occupancy fraud, delayed foreclosures, and deferred maintenance pose risks

As a wise man once told me, “it’s easy to wind something up. It’s quite another thing to unwind it”. Since 2013 the FHA and HUD have taken a number of steps to try to unwind the components of the Home Equity Conversion Mortgage that have led to increased claims against FHA’s insurance fund and those that negatively impact its projected future economic value of the program.


Just how both agencies will continue to address this momentous challenge remains to be seen. While the increasing losses from HECMs are troubling, it should be noted that $73 billion of the $1.2 trillion of the insurance in-force in FHA’s MMI fund are HECMs. That is 6% of all loans insured by FHA are HECM loans according to a report last month from the Congressional Research Service. The problem is that even that small cohort of HECM loans can have a significant impact on the overall fund.

While most may agree the most problematic issues in the HECM warranted correction, many are concerned that future policy changes are based on actuarial reviews. Reviews that have historically shown significant volatility and wild swings in their valuation of the program.

Larger issues may be lurking in the back end of the HECM portfolio which could be significantly contributing to continued insurance claims. Issues such as delayed foreclosures and conveyances to FHA, deteriorating property conditions and occupancy fraud in cases where the last borrower has died or moved. These require timely remedies. [download transcript] 

They would rather move & Fewer HELOCs in 2019

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Survey finds 1-in-3 would prefer to move elsewhere
Analyst predicts fewer new HELOCs in 2019

It certainly won’t stop those with a home equity line of credit or HELOC from tapping their equity, but it may give pause to those considering the loan. Housing Wire reports Bankrate’s Chief Analyst Greg McBride saying there will not be strong demand for HELOCs in 2019. This despite some predicting boom in home equity lending. “Yes, people are staying in their homes longer, home prices have gone up, people have more equity than they’ve had before, and it’s still a place that people look when they need access to significant chunk of money, But because of the fact that there is a wider aversion to borrowing from home equity than there was 12 years ago, the volumes are just not going to be what we had seen in previous economic cycles” he said. Perhaps the memories of the housing crash versus anticipated Federal Reserve interest rate hikes will give some pause before incurring another financial obligation. The good news? Despite the HECM ’s significant upfront FHA insurance premiums, many may find the HECM’s line of credit attractive in avoiding the risk of rising monthly payments.

Researchers at Age Friendly Ventures found one-third of today’s retirees would prefer not to age in place, but to move elsewhere. The top three influencing factors are family (65%), livability (36%) and the climate (32%). The cost of living is motivating some consider moving, not just to another state, but internationally. Last month I spoke with a well-respected financial advisor in our community who shared that increasingly the choice of where to retire is weighed, especially in states with high-income taxes cost of living. Despite this Age Friendly’s study found 2 out of 3 retirees did not conduct in-depth research to determine where to retire. While the majority of retirees do remain in place despite their stated desires, those who do move can retain more of their liquid assets by utilizing the HECM for purchase.

Any industry finds itself challenged when the regulations and rules which govern it remain uncertain. With that in mind, one lender says proprietary reverse mortgages are the solution. New York-based Quontic Bank CEO Steven Schnall thinks so. “I think the proprietary mortgage is the industry’s solution to the whipsawing around that HUD is causing with all the guideline changes.” The number 17 ranked HECM lender plans on prioritizing proprietary loans this year in the effort to reclaim some of their lost HECM volume. Being in New York does come with its own unique challenges. The state prohibits lenders from originating non-agency reverse mortgages but Schnall remains optimistic being a federally-chartered bank. Quontic’s strategy makes sense for lenders in states with high-valued properties while others continue to adapt and implement strategies to adjust to the new norm of originating HECM loans.

Down Under: When lenders disappear

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Australia: largest reverse mortgage lenders exit

What happens when reverse mortgage lenders suddenly disappear? Australia is instructive on what happens when lenders offering a needed loan to help seniors age in place suddenly disappear. Despite the strong criticism and negative media stories covering the loan, it would seem the need older homeowners down under remains. And despite increasing criticism of the program, one senior advocacy group laments the exit of the nation’s largest reverse mortgage lender Commonwealth Bank reports Reverse Mortgage Daily. Bankwest is also ceasing their reverse mortgage operations all which have left a handful of smaller lenders to offer the loan to Australia’s aging population.

Earlier in 2018, the Australian government opened discussions on the feasibility of offering government-backed reverse mortgages to all Australians over the age of 66 enabling them to age in place. Against the backdrop of a potential government product, the Australian Securities and Investments Commission opened an investigation into the financial health of reverse mortgages finding that 92% of over 100 files examined lacked any evidence that the broker or bank explained the risks to future financial security and repayment with the borrower.

Lender consolidation has complicated matters with five banks accounting for 99% of all reverse mortgages originated in the last two years. Why are Australian lenders exiting…

Government Shutdown, Endorsement Plunge & Outlook

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Thinking Big in a Smaller Market

The bickering continues in Washington DC resulting from the budget stalemate and subsequent limited government shutdown. Veteran originators will recall a 16-day shutdown in October 2013.  During this time endorsements of all Home Equity Conversion Mortgages cease. All FHA mortgages stand to be impacted the most during this temporary shutdown. Payments to reverse mortgage borrowers will not be interrupted but endorsement numbers for December and January stand to be somewhat skewed as a result.

The number of federally-insured reverse mortgages endorsed in the month of December was just released. A record low 1,751 Home Equity Conversion Mortgages were endorsed. For some perspective December endorsements totaled 4,765 in December 2017, 4,658 in 2016, and 4,233 in 2015. This December’s volume was somewhat of an outlier being only 68% of November endorsements, whereas in previous years December typically reached 90-100% of the prior month’s volume.

While we may collectively dream big as to how we would like to see our business and industry grow in 2019, we must also embrace the fact that we are a much smaller industry than just a few short years ago. As a result, brokers and lenders will become increasingly lean in their overhead costs and nimble in their marketing efforts. Long-term operators have addressed these challenges 10 years ago in the wake of the housing and economic crisis of 2008. What’s different this time is that interest rates are relatively stable and home appreciation is slowing moderately. The two legacy reforms that continue to impact the acceptance of the HECM are the decreased interest rate floor of 3% and numerous principal limit factor cuts...