The Reverse Mortgage Blog - by Dennis Haber Esq.

Todays Federal Reserve Decision Will Increase Demand For Reverse Mortgages

The reverse mortgage industry received a dollop of good news in the last couple of weeks.  It looks like the lending limits will remain as they are. This, in my opinion is essential for the continued health of the industry. The industry is effectively held captive by the provisions in HERA that moved the program out of the general insurance fund. Keeping the MCA (Maximum Claim Amount) s as high as possible will increase revenues realized by the upfront MIP (Mortgage Insurance Premium). Unless legislation is enacted to move the program back into GIF, the proceeds generated by the HECM program will have to be re-examined each year.

Current economic circumstances are forcing older Americans to confront an additional layer of uncertainty. The program has already been mutilated by the denizens of doom. These pundits see no redeeming features in a program that has changed hundreds of thousands of lives.  While low rates are good for the mortgage markets, it is not good news for our elders who are trying to maximize return on investments. In addition to this, Social Security will not have a cost of living increase for the next two years.

 The economy is still quite fragile. Accordingly I continue to ask what intractable “black swan” events are lurking out in the ether.  Even if our economy is spared another calamity, the reverse mortgage program still remains the safest and best way for an appropriate eligible senior who has already made the decision to remain in their home, to access equity.

It is also important to know that notwithstanding the staged and disingenuous actions of certain politicians, the program has a staunch supporter in Congressman Barney Frank, one of the most powerful members of congress..  The balance of 2009 and 2010 will also be the time when the entire industry  will have to make its collective voices heard. As long as voices are not heard, lawmakers and regulators will assume that the industry agrees with the actions taken.

Newsday Act 2 cover story 10-24-2009

This cover story on reverse mortgages, written by Ron Roel, is fair and balanced. 2 of my clients, Bill and Marilyn Devlin and Walter Reed are quintessential borrowers who relate their experiences. The article mentions how the Devlins were almost taken advantage of by unscrupulous players in the industry.

I am also photographed and quoted, along with Meg Burns (FHA), Peter Bell (NRMLA), Richard Jurgens (National Consumer Law Center) and George Lopez (James B. Nutter & Co.).

Click here to view the article in full screen.

 

The HUD HECM Reverse Mortgage: Policy Reigns Over Reason

The Reverse Mortgage Industry is facing an immediate sea of troubles. It is like a canoe on a river that is trying to steer an erratic path in an effort to stay afloat. The question remains, as the dark of night conflates into the dawn of a new day, whether the battles with these implacable untamed currents, will cause the canoe to finally capsize, break-up and plunge to its final precarious destination.

The above paragraph is an ample metaphor for the direction of this industry. The “implacable untamed currents” refer directly to the reverse mortgage edicts that are coming out of Washington. As long as this  industry remains relatively silent, and accepts things as they are, these currents will capsize the industry.

Just as HUD has effectively ignored the provision in  HERA (Housing & Economic Recovery Act 2008) that permits HECM’s to be used for  co-op units, it has also assaulted the sacred territory of condominiums as well. Their draconian guidelines (Mortgagee Letter 2009-19) makes it expensive and troublesome for a lender to due spot condo approvals. The result: As of November 2, 2009 condos will be effectively excluded from the reverse mortgage program or the time to the appropriate vetting will be indeterminately long.

The Reverse Mortgage industry is “people directed”.  Those in it are not suppose to be working “operating room” style-sterile. Yet this is what we are forced to do. There are legitimate, warm and friendly commitments that are made with families by originating individuals. In many instances the family depends on these individuals. Many originators  have acted altruistically accomplishing chores, etc. for the family  at the originator’s expense; there are professional relationships between appraisers and Banks, mortgage bankers and mortgage brokers that have existed in the mortgage industry for 30 and 40 years; there are counselors that would call originators with questions. And originators that would call counselors with questions.  Everyone wanted to be better at their craft. Yet each of these relationships are now considered dirty, corrupt and lethal.

While the mortgage industry does have its share of miscreants, as does every industry, rules and laws that take the human interaction out will also suck the life out of that industry. There are plenty of laws on the books that permit regulators to eliminate the bad apples. Sadly they are conveniently ignored. Politicians and regulators get more political mileage if they can point at new laws, and new regulations that “we are using to protect you now”.

If one were to take current and prospective regulations into account the following  is a composite of  what  Reverse Mortgage industry would  look like:  The originator, will not be able to help seniors who are otherwise eligible, that live in co-ops or condominiums; An originator is not permitted to answer a “where should I go to get the counseling done”  question or other reverse mortgage questions.  An appraiser will do an appraisal in an area that they are not familiar with, thereby causing values to come in below market value and not at market value. An individual who obtains counseling will soon be tested and can be denied  access to the program. Underwriters will be the ultimate deciding factor as to whether the principal was of sound mind when a power of attorney was executed. The result will be totally nonsensical. To wit: A  power of attorney will be appropriately accepted by others, for all things EXCEPT for getting a reverse mortgage.

I hope I am wrong about the long view. However, I firmly believe that there is a way to affect the right kind of changes that will demonstratively protect seniors . At the same time it is important that Washington and the states  see that a framework is in place that preclude malevolent forces from taking  advantage of this cohort.

The Bane of The HECM Reverse Mortgage: More Onerous Regulations

The collapse of the U.S. Economy has left an indelible lesson for regulators to ponder. The fact that the financial industry and the mortgage industry cannot be trusted to police themselves should  not be forgotten any time soon. 

 For years the Federal Reserve, under Chairman Greenspan, championed  the broader  approach that markets are self correcting entities and do not need governmental interference. This approach was built upon the notion that unbridled  greed can be tamed and directed toward the greater good of  ever expanding markets. When this model collapsed, the mirage of self correcting markets revealed  the stark delusional sophistry  of an institution that was suppose to know better.

Many believe that Congress will not be fooled again. I beg to differ. The plutocracy that is endemic in Washington will make sure that certain laws get passed; regulations get promulgated. But by Washington standards, it will be business as usual.   The reform will  not affect any vested interest.  It  will only affect the "little guy".

In this case the “little guy” means the  HECM reverse mortgage industry.  In comparison to the mortgage industry as a whole, the HECM reverse mortgage industry volume represents but a pin head of closed loans. Therefore the frustration of the big boys (Fannie, HUD, Federal Trade Commission, Comptroller of the Currency, etc) will come down hard on our burgeoning industry.

A sea of laws, rules and regulations with their galaxy of unintended consequences will wind up hurting those who are the subject of this protection. Demagogic politicians will continue their clarion call for  “morenessness”- more rules, more laws, more regulations, more punishment. They will push this agenda until the mix of perfect laws chokes the industry into submission.  As long as those policy makers substitute their judgments for the decisions that the industry should be making, it will severely limit the amount of individuals that will be helped.

The next post will discuss the HECM reverse mortgage industry’s usurpation of the use of the power of attorney.

DISPARAGING THE REVERSE MORTGAGE PROGRAM IS NOT THE ANSWER

The reverse mortgage industry has been under siege by respected magazines and Newspapers (Consumer Reports, CPA Journal, New York Times, Wall Street Journal, etc.) and by the National Consumer Law Center. The amazing fact is that the reverse mortgage program depicted in the articles does not resemble the actual program.

 The continuing assault has become hardened, unprincipled and impertinent. It has been joined by feckless politicians who conveniently wish to ignore the real differences between a reverse mortgage and other types of loans. They want to give the impression that they are protecting those who are unable to protect themselves. The attack by such a diverse amalgam would appear to give gives credence that the program is flawed.
 
The articles, for example, tell partial stories that distort the facts and lead readers to believe that reverse mortgages are no different than sub-prime loans; the politicians are complicit and have jumped on this band wagon. No article has included the indispensible point that the program has an approval rating between 93% and 97%.

Peter Bell, President of NRMLA, has been a steady voice who has maintained that NRMLA has polled many state enforcement officials and not one could point to incidence to wide spread malfeasance specifically in reverse mortgage cases.  The problem started when John Duggan, the Comptroller of the Currency, compared subprime mortgages to reverse mortgages. His comments first appeared in the WSJ. It then spread like wild fire throughout the media. As reported, the comments suggested that “reverse mortgages posed substantial risks that appear to mirror those already seen in the subprime arena”.  Mr. Duggan has stated that his comments were taken out of context and has lauded the program. Yet his original comments keep appearing in articles.
 
While the disingenuous articles and reports are indeed troublesome, I do not expect them to stop anytime soon. There is a grave danger in misrepresenting the facts. An individual, who could benefit from the program, may decide not to move forward. They may have said “good-bye” to the one thing that could make a real difference in their life.

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HUD TO IMPLEMENT RULES DENYING COUNSELING CERTIFICATES IF BORROWERS CAN’T PASS A TEST

Recently there has been much talk about HUDs impending change to the counseling protocol. It has been suggested that the new protocol will embody a testing component. While the stated reason for this shift in approach (from education to education and testing) ostensibly has the protection of seniors in mind, it seems to me that this approach will hurt much more than it will help. In fact, for the enumerated reason set forth herein, the effect will unduly discriminate between classes of borrowers seeking reverse mortgages.

In my opinion it could also make the process more complicated; it will cast the industry and the program in a negative light; and set off a flurry of further feckless and restrictive regulations at the state and federal level. This industry is discovering that rules and laws only beget more rules and laws.

The answer to HUD, Congress & to the states is simple. Limit those that get into this industry. Before the program was opened up to everyone in the mortgage industry, the industry never had the problems that now seem to be endemic.

 A snap-shot of those we serve would indicate that about 77% of senior homeowners across the country own their homes free and clear. A substantial number have at least one chronic condition. It is estimated that about thirty five percent  of those 65 and older have 3 or more chronic conditions. Dementia and Macular Degeneration are common  maladies  that tend to keep seniors in their homes.

Those wishing to get  a reverse mortgage run the intellectual & cognitive gamut. Some clients are exceptionally bright and “with it”. Others may not have the education nor the intellectual curiosity. Yet, they will be held to the same test taking standard.

Let’s take this one step further. A client suffers from dementia. How will this be handled? Now it must be pointed out that there are many kinds of dementia. While it is a degenerative neurological disease that generally interferes with normal brain activity and function, it usually interferes with memory, communication and learning abilities. It is a progressive and insidious disease that usually takes years to develop.

This means that our test takers, in the early stages of the disease may exhibit short term memory loss, whereby they may forget recent conversations. Clearly family may not even recognize these telltale signs until the disease has further progressed. At this stage, the individual can still function and is considered competent, but gets flustered in unfamiliar surroundings and circumstances. And like any other reverse mortgage applicant, they will have to take a test.

An individual with mild dementia becomes  disoriented in new surroundings, evinces poor concentration and a short attention span. Even  a person with mild dementia can usually live independently with minimal support from relatives. And like any other reverse mortgage applicant they will have to take a test.

I would posit that it is usually between early and mild dementia symptoms that families are spurred into action.  At this stage of the disease, legal documents, like a power of attorney are often executed..

I agree with all the rules that actually make the industry better and stronger and protect our elders. While independent, third-party counseling is a very important piece of the puzzle, changing the process from education to education/test taking, at a time when they are facing a plethora of health issues, is an overly broad way to use the counseling function.  I am also afraid that this new protocol will lead to very un-even results. Accordingly, constitutional issues may be lurking as to the application of the testing requirement. This industry cannot put itself in a position of being viewed as “insensitive” toward the cohort it serves.

NOW IT's HUDs TURN TO DECLARE WAR ON THE REVERSE MORTGAGE INDUSTRY

It appears that HUD had no qualms about  hastily cutting the reverse mortgage principal limit factor so that  seniors receive 10% less benefits-even though this left the industry in turmoil, while scrambling to comply.   

It seems clear the United States of America has adopted a steely new policy toward older Americans.   While many Hundreds of billions have been paid to major corporations, a small fraction has been concentrated in the area of helping  individuals. One would need a microscope to discover how money is being spent on older Americans. An ordinary microscope would not detect a thing. For that matter, even a powerful electron microscope couldn’t detect governmental spending on senior financial programs.

Over the next two years Social Security recipients will not receive a cost of living increase.

The dough-nut hole in Medicare Part D is a greater challenge as seniors have less assets to cover this mandatory expense.

There are more recovery actions under Medicaid than ever before as states and localities scramble with budgetary shortfalls.

 Congress has collectively refused to subsidize the HECM program for possible losses that may be incurred during the new fiscal year.  Newly sustained increases in the Case-Shiller index could be a harbinger of things to come. Therefore it I possible that HUD’s projections may not be optimistic enough.

The Wall Street Journal reported today (9/29/09) that the Obama administration is thinking of providing 35 billion dollars to provide mortgages for low to moderate income families. Since HUD has made 7 billion dollars on the HECM program since 1992 (according to Susan Mehlman of the Congressional Budget Office as reported in NRMLA's Reverse Mortgage magazine), one would think that a potential temporary downturn could have been fixed by Washington without reducing benefits. Would this not be better than telling the reverse mortgage senior community to drop dead. In fairness, these words were not used, I believe we were told that HUD must maintain a “zero subsidy rate”.  Actually it’s a nice euphemism.

A report in Newsday today indicated that Wall Street has  (euphemistically) invested  11 million dollars on US senators. If Wall Street can hire adroit, powerful  lobbyists, what chance does the average American have?  Answer: not much.

Seniors are  forever being told that they do not have to get a reverse mortgage. They have other options available to them.  So with the dawning of each new day, how many senior homeowners will be unable to sell their homes because of the 8.5 month back log?

With the dawning of each new day, how many senior homeowners will be forced to ask family for money-money relatives now need for themselves?

With the dawning of each new day, how many senior homeowners will be compelled to use their last amount of meager savings?

With the dawning of each new day, how many seniors will now lose their home to foreclosure?

As the HECM benefit amounts are truncated by a factor of 10%, how much more evidence do senior homeowners need that our government- their government  has turned a deaf ear and a blind eye to their needs?

How many seniors will weep at night because they recognize that those simple but lofty words, “We the people” have been replaced by, “We the big corporations”.

And while questions are being raised, how about this one: Just where is the industry’s moral outrage?

Remember the words of Italian write/poet Dante Alighieri : The hottest places in hell are reserved for those who, in time of great moral crisis, maintain their neutrality.

How Unintended Consequences Hurt the HECM program and the Reverse Mortgage Industry

 

While two recent pieces of legislation ( The Housing & Economic Recovery Act 2008 and The American Recovery & Reinvestment Act of 2009), have had a positive impact upon the nascent  reverse mortgage industry, we must be forever  vigilant and mindful of lurking  unintended consequences  imbued in the activities of Congress and regulatory agencies.

Currently there are two appropriation bills affecting this industry that need to be reconciled in conference.  Neither bill purports to provide HUD with the money it needs to cover possible losses for the new fiscal year. Rather HUD is told to shape up- Make your program subsidy neutral.  In a vacuum and on paper this may look good. The public may think that Congress is finally acting with restraint.  However, reality tells a different story. NRMLA has suggested that HUD’s proposed 10 percent reduction solution will effectively prevent about 21% of HECM borrowers from realizing enough money to rid themselves of their existing mortgage. 

Too bad seniors do not have an inc. after its name. Government responds to certain industries and to certain corporations. The mortgage industry and seniors in this economic climate do not rate. One has to ask, “Just what is AARP doing? I thought they were advocates for seniors.  Maybe they are too busy lining their own pockets with misbegotten expensive insurance programs.

HUD summarily announced an across the board 10% reduction in benefits without giving the industry enough time to make system changes.  According to NRMLA, this could cripple the industry. HUD instead is desirous of  implementing  this change at the beginning of its fiscal year.  The unintended consequences of this action could adversely affect thousands of seniors.  But who cares?

Taking the appraisal ordering function away from brokers will cause appraisers to work in areas that they are not familiar with. The unintended consequences of this action will cause appraisals to be artificially low.  Since values are an important factor in determining benefits, seniors will be hurt.  Sadly a mortgage broker has become the poster child for the opprobrious conduct of a mortgage industry that has lost its way.  

Government is wonderful at overreacting. Rather than kicking miscreants out of the industry, or raising the entry bar, it creates onerous and draconian rules and laws that are harmful to those it seeks to protect.

HUD is also abrogating its oversight activities. We saw this it with the change in the condo approval process. The unintended consequence of the new condo Mortgagee Letter (2009-19) is that lenders will stop underwriting reverse mortgages for condos. We have already seen the start of this.  Hopefully the discomfort level in this area will be short lived.

Now it appears that we will see the same kind of thing with HUD’s correspondent approval process. The hope is that mortgagees approved by HUD will choose to work with quality correspondents and other lenders.  As the competition to add correspondents and lenders spirals out of control, we will see additional laws and rule making.  So instead of HUD maintaining a prophylactic role in approving worthy lenders and brokers, it is essentially opening up the floodgates to an inordinate number of mortgage companies that will evidence  inappropriate behavior toward seniors.  This is 5 giant steps backwards.

When an industry is incapable of policing itself, when regulators set inappropriate guidelines, lawmakers will gladly fill the void.

As we have seen, sometimes well intended rules or laws have unforeseen consequences. These unforeseen consequences will hurt senior homeowners and retard the progress of this great industry.

When a particular cohort is treated badly there is the concept of intended consequences. To those lawmakers  on the state and federal level who refuse to get it right, who have forgotten what "We the people" means, who try, for example, to convince seniors that they are working in their best interests when they are not, the power of the vote will serve as a good reminder.

The Theory of Reversitivity: What Einstein Would Say About The HECM Reverse Mortgage

The Theory of Relativity is a rather pithy statement that among other things, states that  two events that appear simultaneously to one observer will not appear to be simultaneous to another observer who is in a state of motion. The focus is in the observing.  There are no absolutes.

Einstein’s E=MC² formula described the above noted relationship. The key is in the observing. However, in reverse mortgage parlance, this formula takes on a different meaning.  It means that Evil results  when misconceptions and misreporting (by the media,  regulators, politicians and  senior organizations) are constant and incessant. Although many view media reporting as biased and often one sided, these same people look to the media for viewpoints on unfamiliar topics.

Marty Bell of NRMLA recently wrote a  cogent and extremely well reasoned rebuttal to the current (September)issue of Consumer Reports.  He debunks the articles’ many misstatements that are presented as indisputable and immutable fact.

Inaccurate reporting is only one of the many challenges this industry faces. There are other challenges as well.   I believe that the balance of 2009 will prove to be  pivotal  for the reverse mortgage industry.  It contains the confluence of forces  that could result in the denouement  of a brilliant concept.  Whether the forces of good (the reverse mortgage industry) will triumph apocalyptic ally over the forces of evil  (biased media reporting, political demagoguery,  poor GSE policy decisions,  Congressional indifference toward seniors, poor state legislative initiatives, inappropriate FHA policy decisions) will soon be determined. If  an attitudinal change is not in the offing, then I fear that the program could morph into something vastly different.

The number of reverse mortgage originators as grown exponentially, yet there has not been a similar growth in the program. Considering the potential market, the penetration of same has only shown a slight increase. While many older Americans could never imagine the US economy suffering from depression-like symptoms again, the current recession, has been particularly injurious to their pocket-books and wallets. Likewise, the government’s pocketbook, while resembling a bottomless pit, is facing many major challenges as well.

A parallax view of these challenges  posits , on the one hand, an overwhelming need for  the program while the latter challenge  suggests that political hegemony and political expediency will decide the viability of the HECM program. 

Recently (9/4/09), a front page article in the Wall Street Journal title Loan Losses Spark Concern Over FHA, discusses the rising losses at FHA. In 2 years, FHA’s market share has increased from 2.7% to 23%. Rising defaults have eaten away at FHA’s cash cushion. In 2007 FHA has had a cash cushion of just over 6%. Last year the percentage was down to 3 percent. The question must be asked. How will the overall FHA picture affect the HECM reverse mortgage program? Then of course , FHA is projecting a loss of close to 800 million dollars for the next fiscal year. The House of Representatives already told FHA to drop dead. The Senate said we’ll help a little. Maintaining a subsidy neutral position means that  senior homeowner HECM borrowers will see substantially less money.

Recently there have also been suggestions out of Washington that the GSE’s will need to be revamped. The Housing and Economic Recovery Act (HERA) mandates that Fannie reduce its portfolio. Accordingly, the HECM program has taken it on the chin. Rising margins have definitely hurt.  Eliminating the use of the CMT could turn out to be a bad decision if the worldwide banking community loses confidence- particularly over the geo-political situations in eastern Europe.

The various states need to dispense with the histrionics that reverse mortgage bills are designed to save seniors from unscrupulous individuals and companies serving this market. Often the bills make little sense and serve to drive lenders out of the state. What we need are bills that make sense. There is one main thing that states can do. If they do this 99% of their fears will be assuages. Require separate licensing for reverse mortgage originators and companies. 

 Over the past 20 years HUD has done quite a remarkable job overseeing a  nascent and burgeoning  industry.  An example of this ongoing effort is evidenced by HUD ’s  attempt to standardize counseling and to create a counseling roster(24 CFR Part 206). I would urge HUD to require separate licensing for individual originators as well. States, likewise should create separate licenses for those that participate in this industry. Make it so that only those that care about seniors and about serving their needs are able to serve.

Albert Einstein was able to develop his breakthrough formula because his creativity had no sentimental attachment to the prevailing conventional wisdom. Likewise, the reverse mortgage industry needs to look at this program differently.  The goal of maintaining appropriate  funding levels for those in need is key.  Creativity, with the great minds that make up the industry , is  not in short supply.  I am confident that Washington working hand in hand with this industry can find a better way.  E=mc² represented a whole new way of regarding reality. 

Einstein became a United States citizen because he loved what this  country stood for. The United States represented the tradition of "moral strength".  Accordingly he  would urge that the incessant pressure our elders face must be assuaged with a reverse mortgage reality that continues to meet the needs of seniors across the country.  A politically expedient solution is no solution at all. Ignoring this pressing need places senior homeowners in a very precarious position.  He would never  believe that such a great country could treat elder Americans this way.

Madoffing The Truth-How A "Respectful" Media Falsifies HECM Reverse Mortgage Information

When a person or an organization maintains the appearance of being above reproach any position taken immediately has the quality of truthfulness. So when respected media runs an article/story on a subject one would think that it was carefully researched and vetted. Sadly, the reverse mortgage industry is discovering that this is not always the case.

Recently channel 7, an ABC affiliate in  Los Angeles, California aired a reverse mortgage story on the 5 O'clock news.  This is yet another example of reporting gone amok.  This kind of reporting is nothing less than the classroom whisper game at its worst. It lacks intellectual honesty and defies common sense.  Just how many times does an industry have to defend itself against a media that insists upon working at the margins of ignorance?

It seems to me that too much of the media is quickly devolving into low trust type of organizations. Often we see that facts are manipulated. Information that does not fit an agenda is withheld. 

In this story we hear the daughter say that 4 years later, the reverse mortgage her mother obtained was the worst decision she ever made. Then we are informed that her mother was “persuaded” to take out a reverse mortgage. Why it is when such a stories are aired the “broker” has always persuaded the individual to take out a reverse mortgage against their will? Gee I have been in this industry for over 7 years and I couldn’t persuade one to do this if they did not want to. I must be doing something wrong.

How many times does an industry have to correct inaccurate and misleading reporting? Does truth not mean anything anymore? If people led their lives the way reporting is done today, when crossing the street we would look one way and not the other way. When running a business we would be concerned with income while ignoring expenses. You have to agree that this is sheer folly.

Yet the media has great influence upon our views and conclusions. It affects how and what we think about a subject. It was not too long ago that a respected and trusted figure in the financial world did the unthinkable. Is the media misusing the trust factor to purposely sensationalize stories by falsifying facts? Is madoffing now the only way the media can increase viewership and circulation?