Greetings and Tributes

by Peter Bell

Board of Directors transition, which occurs each year in conjunction with our Annual Meeting, always triggers complex emotions: on the one hand I find myself sad to see people we have worked closely with rotate off; on the other, I am excited about the new trove of experiences and high energy brought by those who rotate on.

The board that served from November of 2011 through our San Antonio meeting in late October oversaw, among other things, our response effort to the CFPB report, the public launch of our "Borrow with Confidence" campaign and the launch of our re-designed consumer website, reversemortgage.org., all major efforts.  On behalf of the membership and the staff, I want to thank David Fontanilla, Dan Harder, Mario Martirano, John Myers, David Peskin, Scott Peters, Rob Wyatt and Michelle Zachensky for their support and their valuable time.  You should all be proud of the board's achievements during this tenure.

The task confronting the nominating committee each year is to assemble a group of professionals who as a unit best represent the scope of interests of member companies.  They need to be responsive to the ever changing makeup of our membership, to geographical distribution, personnel movement within the industry and sensitive to the varying needs among businesses of different sizes.

This year's nominating committee--chaired by John Nixon and also including Sherry Apanay, Sarah Hulbert, Mark Browning, Joe DeMarkey, Pete Engelken and Robert Sivori--carefully constructed a board that includes representation of the current most active lenders, of the most active servicers, of larger and smaller shops, and of the invaluable history of this industry,

New additions to the board include:
--Colin Cushman, now of Generation Mortgage and formerly the Director, Portfolio Analysis at FHA where his achievements included shepherding the creation of the HECM Saver;
--Reza Jahangiri, who has built an aggressive organization at the American Advisors Group where he serves as CEO;
--Steve McClellan, who moved from CFO for Generation to President and CEO of Urban Financial where he has shuffled the deck and surrounded himself with an impressive group of experienced professionals; and
--Gerald McCoy, Executive Vice President of new NRMLA member Nationstar Mortgage, which made a sizable entrance into the reverse mortgage sector in the past year.

Returning to the board after rotating off is Scott Norman, formerly of MetLife and now with Sente Mortgage, who is recognized as a leader of the reverse mortgage community in Texas where he is galvanizing support for an effort to implement HECMS for Purchase.

This group will be joining re-appointed board members:
Joe DeMarkey, MetLife (co-chair)
George Lopez, J.B. Nutter (co-chair)
James Cory, Legacy Reverse Mortgage (vice chair)
Pete Engelken, Genworth (vice chair)
John LaRose, Celink (secretary)
Sherry Apanay, Urban Financial Group (treasurer)

Mark Browning, Homechex

Nick Buscaglia, M&T Bank  

George Downey, Harbor Mortgage Solutions           

Sarah Hulbert, 1st Reverse Mortgage USA                      

Bart Johnson, Premier Senior Home Equity            

Torrey Larsen, Security One Lending

Joe Morris, Open Mortgage

John Nixon, Bank of America

Jean Noble, Urban Financial Group

Scott Norman, Sente Mortgage

Ralph Rosynek, Reverse Mortgage Solutions

Bob Sivori, Security One Lending

Gregg Smith, One Reverse Mortgage

Sandy Tennekoon, Moneyhouse

Robert Yeary, Reverse Mortgage Solutions

Past chairpersons serving in an ex officio capacity include Jeff Taylor, of Wendover Consulting Group, Cheryl McNally, of Harbor View Consulting, and James Mahoney, former chief executive of Financial Freedom.

And while we're on past chairs, I must give a very special and personal thanks to Sarah Hulbert, who graciously agreed to jump back into the seat this past year in the wake of some company exits from the sector despite the fact that she was simultaneously in the midst assembling a new retail brigade for 1st Reverse.  When her experience and savvy are needed, Sarah has never said no to NRMLA. 

The make-up of this board is an accurate snapshot of today's industry including representatives from nine of the current top dozen lenders, as well as owners of small businesses; five of the largest servicing organizations; and representatives of 21 companies with headquarters in 11 states spanning the entire nation plus Puerto Rico.  Most represented are California and Texas, the two largest production centers at the moment.

We look forward to a productive year of high level input from the 2013 NRMLA Board.

Researcher Responds to CFPB Report

 

 by Barry Sacks

         

              This response to the CFPB Report on reverse mortgages relates primarily to a particular segment of the Baby-Boomer generation.  That segment, while a minority of that generation, is nonetheless quite large in absolute number.  A conservative estimate of the size of that segment places its number between 1 million and 10 million individuals.

            Who are the Baby-Boomers who comprise that segment?  It is the individuals who are, or will be, retired, own their own homes, and have 401(k) accounts or rollover IRAs (or other securities account) with value in the range of approximately $200,000 to $1,000,000 at the time of retirement, which is, or will be, their primary (or sole) source of retirement income.  These retirees can be characterized, for want of a better term, as the “not-quite-affluent.”  The important aspect to recognize about these retirees is that they have a significant risk of “running out of money” during their retirement. 

            To quantify that risk, we examine the financial planning literature:  That literature makes it very clear that, for example, if the retiree draws only $1,000 per month (inflation-adjusted) from a securities account worth $200,000 at the beginning of retirement, that account has about a 40% likelihood of running out of money within 25 years.  If the retiree adopts the conventional, passive, strategy of using a reverse mortgage credit line as a “last resort,” to draw upon if and when the securities account is exhausted, the probability that the retiree will run out of money within 25 years decreases to 30%.  If, however, the retiree adopts the more active strategy for using a reverse mortgage credit line, described in a recent article in the Journal of Financial Planning,[1] his or her likelihood of running out of money within 25 years is reduced to less than 10%.  Similar computations can be made for various values of the securities accounts and various values of the retirees’ homes. 

            Thus, this active strategy, an innovative use of reverse mortgage credit lines, can make a very substantial difference to the economic lives of several million retirees.  It would be a great disservice to these millions of current retirees and soon-to-be retirees to make reverse mortgage credit lines unavailable (or less readily available).  The consequences of millions of retirees experiencing cash flow exhaustion would be a great additional economic burden placed upon the children, or upon the taxpayers; these consequences are avoidable, so long as these retirees have reasonably ready access to reverse mortgage credit lines.

           

At the end of 2004, Barry Sacks, PhD, JD, Law Office of Barry H. Sacks, retired from full-time law practice as a tax attorney specializing in pension law.  Since then he has divided his time between a part-time law practice (still specializing in pension law) and a retirement income planning project that combines legal work on pensions and the quantitative skills he developed in my earlier career as a physicist. He has over 35 years of experience as an attorney dealing with a wide variety of pension law issues.  These issues include, among others, the rules governing investments by pension trusts in hedge funds, the design of hybrid pension plans (combining defined benefit and defined contribution features), and negotiations with the IRS and Dept. of Labor to resolve pension plan audit problems. 
On several occasions he has testified as an expert witness on various pension law matters. He received a BS in Electrical Engineering and a BS in Political Science from the Massachusetts Institute of Technology, a PhD in Physics from MIT and a law degree from Harvard.

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[1] Barry H. Sacks, J.D., Ph.D., and Stephen R. Sacks, PhD., “Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income,” Journal of Financial Planning, February, 2012.

Does Counseling Warrant Criticism?

By Peter Bell

One of the aspects of the reverse mortgage process that we believe to be a unique and essential safeguard is mandatory counseling.  As we have said previously, there is no other financial product that requires counseling by an independent third-party before purchase.

The counselors must conduct each counseling session in accordance with a protocol developed by HUD in collaboration with consumer interest groups and the industry.  And every individual counselor must pass an exam administered by HUD—not just to get started, but every three years. The protocol has been scrutinized regularly and continually improved over time.  It now includes two valuable tools developed by the consumer advocate group, National Council on Aging—the Financial Interview Tool (FIT), that helps a counselor discuss a clients’ financial resources, expenses and plans to stay in the home, and Benefits Checkup, which allows the counselor to identify any government benefits, federal, state or local, that may be available to the client.

Many reverse mortgage counselors have a background in social work, consumer advocacy or elder-law. Others, come to counseling from the banking, lending and financial services industries.  “They are people who decided they would rather be on the consumer’s side of the conversation and working for non-profits,” says Sue Hunt of CredAbility.   

Why would anyone choose such a profession?   You know the answer: because they are those special people whose primary commitment is to helping others.

So now the CFPB has issued a report on reverse mortgages that questions not the validity but the quality of counseling.  What are the sources of their criticism—especially given the fact that they have acknowledged doing no interviews with borrowers:

·         According to a footnote, a small sample of consumers who sent written complaints to the Bureau since it was formed in July 2011.

·         A GAO report issued in June 2009 that mystery shopped 15 counseling sessions early that year.  The CFPB report includes the complete list of GAO 2009 conclusions.  But they are now out of date.  Since then counseling has been vastly revamped and improved , all counselors must be HUD tested and the new protocol that includes FIT and BenefitsCheckup has been implemented.

·         And, we can assume, consumer advocates.  The Bureau has explained their methodology: They interviewed 30 industry participants—none of whom complained about counseling.  Five counseling agencies, none of whom complained about counseling.  And five consumer advocates.  I confess to making an assumption here.

I wonder if these consumer advocates have ever sat through a counseling session?  NRMLA members had the chance to experience a demonstration of counseling firsthand when we offered a session on a live webinar and then published the transcript in Reverse Mortgage Magazine.  We also surveyed 600 reverse mortgage borrowers about their experience.  The results included high marks for counseling as well as 90% claiming they felt that they understood the product well-enough to make an informed decision, for which counselors must receive some of the credit.

The report says that “Borrowers reported to the CFPB frustration that certain topics either were not addressed in the counseling process, not adequately explained, or not understood. Borrowers commonly cited issues surrounding when the loan becomes due and payable, taxes and insurance, costs and fees, and whether family members would be able to pay off the mortgage after the borrower passed away.”

Each of these issues is specifically explained as a part of the counseling process.  Each of these issues is explained by any qualified loan originator.  And each is very clearly explained—and in many different ways—on our consumer website, reversemortgage.org as well as in our booklet, Your Road Map to Reverse Mortgages.

Among the reports other conclusions on counseling are that borrowers did not take the counseling seriously, but just considered it a hurdle between them and their goal.    But that’s a criticism of human behavior, not reverse mortgages.   The Consumer Financial Protection Bureau can’t fix that one.  And the report questioned (incorrectly) whether the fact that counselors only receive payment when a mortgage is closed undermines impartiality, implying counselors may push clients into the loan to assure payment.  But we have already dealt with the fact that this does not mesh with the sensibility of those people who choose this line of work.

Now, all of this said, I am not arguing that there might not be room for further improvement in the counseling process.  And NRMLA would eagerly participate in such a process as we have historically.  In fact, we would be thrilled to be given specific, substantiated evaluations of the process and thus know what areas still need to be addressed.

But what I do argue with is the fact that the CFPB has some anecdotes and some impressions, but does not have anywhere near the evidence required to reach its conclusions.  Regulation by speculation is not in anyone’s best interest—especially consumers.

Original Intent--What Was It and Does It Matter Now?

By Peter Bell

Among the more unsettling of life’s little quirks is believing for a long time that something is good for people and then suddenly being told it is actually bad. I had this sensation upon the release of the Consumer Financial Protection Bureau’s Reverse Mortgage Report whose conclusions contained the observation that seniors utilizing their proceeds to pay off a forward mortgage was not a good thing and not the program’s intent.. This statement resulted in some jolting headlines such as “Borrowers Misusing Reverse Mortgages” on, of all places, the blog of AARP.

“Reverse mortgage borrowers appear to be increasingly using their loans as methods of refinancing traditional mortgages rather than as a way to pay for everyday or major expenses,” the report  reads in its Key Findings section. That is true.  But is it a problem?  Eliminating the monthly obligations of a forward mortgage and thus cutting expenses and freeing up cash for other uses has always been one of this financial product’s more attractive selling points.  And rightly so.

There is nothing in the HECM statute that indicates otherwise.  The program, according to the statute, is designed to “meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets.”   

Now, one might argue that liquid assets are cash or assets that can quickly be converted into cash.  You might interpret that to mean that by using reverse mortgage proceeds to pay off a mortgage, you are using up your cash.  But actually you are freeing up other cash.  Is some cash more appropriate to use then other cash? I don’t see the difference. 

For years we have heard and sometimes published stories of borrowers living on Social Security, perhaps a small pension, occasionally minimal savings, who are a few hundred or couple of thousand dollars short of being able to meet their monthly expenses getting a reverse mortgage and suddenly they can afford to age in their home. In consumer research conducted by Marttila Research for NRMLA in late 2010, 56% of a sampling of 600 senior borrowers said they would not be able to cover their monthly expenses without a reverse mortgage. And 44% said they would have to leave their home without a reverse mortgage.

The stories of these people are the ones that those of us who have chosen a career in reverse mortgages find to be heartwarming, spiritually rewarding, and  provide the justification for the whole exercise.

Suddenly hearing that this is a negative thing from the CFPB is like being told spinach is bad for you.   

But let’s imagine, just for a moment, that the Bureau’s observation might be true and that paying off a forward mortgage was not the program’s original intent when it was implemented in 1987.  At that time, perhaps, no one imagined we would be confronted by a major recession that has taken a large chunk out of both home values and retirement savings.  So if paying off mortgages was not an original intent of the HECM program, but over time the usage of reverse  mortgage proceeds has become more varied and helped some seniors get through a difficult period, why would that be a problem? It seems to me that the flexibility in how a reverse mortgage might be deployed is one of its greatest benefits.     

  

Where's the Beef?

By Peter Bell

The average age of reverse mortgage borrowers has decreased since the creation of the HECM Saver and so it might seem logical to conclude, as the Consumer Financial Protection Bureau has done, that taking out reverse mortgages early in retirement or even before reaching retirement increases risk to consumers; that borrowers who tap into their home equity in their 60s may find themselves without the financial resources to finance a future move.   But there is no data referenced in the report to provide evidence.

What is also not referenced  in the Bureau’s report are the three recent independent research studies by accomplished academicians at three separate institutions that argued the exact opposite—that smart usage of home equity beginning at a younger age can actually prolong the availability of one’s resources. 
Given the amount of press attention throughout the country that these three reports received, they are a rather glaring omission from the CFPB study.  (The report also fails to acknowledge or provide data to show that the risk is tied to the duration of the loan.  People in their 60s who take a reverse mortgage and expect to remain in that home and accumulate compounded interest for the balance of life may well face challenges, but the history of the HECM program thus far shows that the average loan is held for just seven years.)

To review the academic research:

In February, the Journal of Financial Planning published a report by brothers Barry H. Sacks, a San Francisco tax attorney and Stephen Sacks, professor emeritus of economics at the University of Connecticut Law School, entitled “Reversing conventional Wisdom: Using Home Equity to supplement Retirement Income”  that demonstrated how taking a reverse mortgage early could significantly increase the chances of “cash survival” over the long term.

In May,  Alicia H. Munnell, Natalia Sergeyevna Orlova and Anthony Webb of Boston College’s Center for Retirement Research published a paper entitled "How Important is Asset Allocation to Financial Security in Retirement?'' that argued, "Given the relative unimportance of asset allocations, financial advisers will be of greater help to their clients if they focus on a broad array of tools -- including working longer, controlling spending and taking out a reverse mortgage."

Now the Journal of Financial Planning is about to publish yet another study, this one by Harold Evensky and John Salter of Texas Tech (and presented at NRMLA’s Annual Meeting last October), entitled “Integrating Reverse Mortgages with Other financial Products to Create a Balanced Retirement Plan,” that advocates reaching into a reverse mortgage line of credit as a standby tool for your cash flow reserve to meet short term financial needs rather than selling a depreciated asset that can recover in the future.

None of these brief descriptions do justice to these extensive reports, each packed with examples of the claims made.  The counterclaims in the CFPB Report are, on the other hand, lacking in this level of thought and demonstration, which is disappointing.

Many of us in this industry cooperated with the CFPB on their study.  As businessmen with a responsibility to America’s seniors, we anticipated their report and hoped it might finally provide evidence-based findings that would help eliminate some of the bad mythology about reverse mortgages and provide us a clearer fact-carved path towards improving the product.  Instead, unfortunately, as the report now stands, it only feeds the hunger of those who choose to continue the viral spread of the myths and outmoded notions about how and when reverse mortgages might be utilized.     

The Old Ball Game

By Peter Bell

The day after we held a press teleconference to announce our Borrow with Confidence  consumer education effort, we received a call from a producer of Maria Bartiromo’s Closing Bell show on CNBC, inviting me to appear the following evening to discuss its intent. 

On a subsequent call, I was informed they were searching for an additional guest  who was “less supportive of reverse mortgages,” according to the producer.  And so I was not being invited on to present our new educational campaign, but rather to argue about it.

I suppose it is not surprising that in a culture obsessed with sports and politics, far too many things are turned into competition.  Throughout the broadcast segment, the chyron message on the television screen read, “The Pros and Cons of Reverse Mortgages.”

As it turned out, in the one day they had available, the opponent selected for me was Christopher Thornberg  of Beacon Economics in California, whose website describes him as an “Expert in economic forecasting and real estate dynamics.”     Dr. Thornberg has a PhD from UCLA, is by all indications an extremely intelligent man and speaks frequently about economic issues.  What he does not have is any real background in reverse mortgages. 

I am not sure why he was tempted to appear on this particular segment.  Is it that in this world of the blogosphere we have all become critics and are willing to speak negatively about anything?  Or possibly that the chance to be on television for someone who makes his living as a speaker is of such value that they will talk about whatever you ask?

In any case, I was invited to be the pro side and Dr. Thornberg was invited to be the con side.  While I discussed the value of counseling and the insurance fund, comparison of closing costs to conventional mortgages and the tools offered by the Borrow with Confidence campaign, Dr. Thornberg’s cons were of such a general nature that he could have used the same comments to debate against health insurance, iphones, dating, kale or almost anything else I can think of.

“At its surface, this (reverse mortgages) is a great idea,  just like subprime mortgages at its surface was a great idea as well,” Thornberg began.  “But we know in both circumstances there’s a lot of room for shenanigans .  And of course, with reverse mortgages, because you are dealing with people in retirement this leaves very little room for air.”

“Maybe the underlying industry is good today, but as this grows there’s going to be problems and there have to be regulators there to make sure the problems are kept to a bare minimum.”

After I ran off a series of regulations and said we are a business of transparency, Dr. Thornberg, the opposition, responded, “I agree with most of what he just said.”  Only to go on and say, “In any of these growing industries, there’s going to be problems on the edge.”

When Ms. Bartiromo asked him, “What should regulators be doing?” Dr. Thornberg replied, “There has to just be a lot of basic clarity.  Consumers have to see both the upside and the downside.”

You get the gist. 

The point here is not to in any way make fun of Dr. Thornberg or anyone else. But we are living in an economy where so many seniors are in need and a reverse mortgage can fill that need.  Just a week later, the CFPB offered their report claiming seniors are confused about reverse mortgages.  Here was an opportunity to explain the product to a sizeable audience.  But by turning the show into a ball game instead of an educational opportunity, the producers and CNBC eliminated the chance for the fifteen minute segment to do any public good. 

I have requested an opportunity to revisit the show and discuss reverse mortgages one-on-one  with Ms. Bartiromo.

New Audiences

By Peter Bell

As an organizer of conferences for reverse mortgage professionals, we are continually looking to expand the product’s horizon.

At NRMLA’s Annual Meeting last October in Boston, we presented both a session featuring financial planners explaining their point of view to loan originators and a special post-conference session for financial planners who wanted to  learn more about reverse mortgages.

At our Eastern Regional in New York in March, we presented both a session featuring security traders explaining their perspective to loan originators as well as a special post-conference seminar on Ginnie Mae’s HECM Mortgage Backed Securities for investors.

At our Western Regional in Irvine in May, we presented a panel of financial planners discussing the growing interest in using reverse mortgages as a retirement funding tool in the wake of three recent academic research reports that were widely covered by national press.

Over the course of these three conferences, our members had the privilege of meeting and hearing from John Salter of Texas Tech, Anthony Webb of Boston College and San Francisco attorney and researcher Barry Sacks, each of whom co-authored one of the research reports mentioned above.

None of these sessions would have occurred or been appropriate just five years ago, before Ginnie Mae launched its HMBS program in 2007, before the recession hit in 2008, and before HUD created the HECM Saver in 2010.  Each of these developments created a new audience eager to learn about and perhaps become more involved with reverse mortgages.

On another panel in Irvine, one that focused on successful techniques for selling both the HECM Saver and the HECM for Purchase (designed for home buying), Eric Hiatt of Security One Lending pointed out that the latter has created a new audience of realtors and builders, while Jim Cory of Legacy Reverse Mortgage suggested that the former product gets an even better reception from estate planners than financial planners.  These are two additional audiences we will now make it our business to corral (perhaps at our upcoming Annual Meeting in San Antonio, where there are a lot of corrals).

I view all of this interest from new audiences as a tribute to the versatility of reverse mortgages as well as to the foresight of those in government and within our industry who made adjustments to the product  that created additional  usages.

What was once thought of as a tool to help seniors age in their family homes or pay for uninsured medical expenses, has continued to emerge-- into a means of expense support while waiting for diminished investments to regain at least some of their previous value; as a means to delay tapping into Social Security benefits that grow by 8 per cent per year between 62 and 70 ½; as a way to pay for long term care insurance;  as funding to maintain an aging home at livable standards, or to purchase a new, possibly more affordable or more manageable home. 

Reverse mortgages are living organisms, continually evolving. There are bound to continue to be new products, new uses, new audiences.  Sometimes amidst the day-to-day burden of conducting business,  we may forget that we are still in an early chapter of a story that continues to be written.