The Reverse Mortgage Blog - by Dennis Haber Esq.

AARP is too late to defend HECM reverse mortgage borrowers

The main point of the article is right on target. In fact, the shame lies with AARP for remaining silent for so long. Where were they when HUD first promulgated this rule that was seemingly fabricated, magician -like out of thin air? The rule makes no sense-I should say its clarification made no sense in 2008 and makes little sense now.  The rule clearly suggests without equivocation that for the first 20 years of the program, the entire industry "misapplied" this rule.  The fact remains that HUD was aware of the way the rule was understood by every member of the reverse mortgage industry and waited for 20 years to issue this clarification. This is so laughable, that it is not funny at all. Few stood up to voice a contrary opinion.

In the latest onslaught against the reverse mortgage program the NY Times article mistates and over simplifies some of its salient arguments about the program. Here are three quick examples: 1. It speaks of charlatans who engage in cross-selling financial products. while this practice made headlines years ago, many states have outlawed the practice and federal law has outlawed the practice since 2008. FINRA strictly prohibit its members from using reverse mortgage proceeds to purchase said products; 2. Reverse mortgage underwriting is not based upon how long the lender thinks a senior will be in the home; 3. Getting advice from 2 or more counselors is feckless advice and shows that the author has no idea about the intese counseling protocol requirements.

The article is a clear illustration of  how abusive government power can issue rules and regulation at will-with no basis in fact or law. When such a show of power is not decried by the reverse mortgage industry, government will usurp even more power, as it did with the introduction of its "Final Rule 5356-F-02". This rule took effect in 2011-without proper statutory authority. Again the feckless reverse mortgage industry remained silent.

The industry better wake up from their somnolent respite or one day it will discover that its worst  "nightmare" will not be the thing of dreams. This once great industry will suddenly vanish because it had no backbone.

 

Will the Forward Mortgage Industry be the Thing that Finally Destroys the Hecm Reverse Mortgage Industry?

If you really have the stomach to listen to where the reverse mortgage industry is headed, you better first get your vomit bag because the picture is just downright  nauseating. Without examining the insipid numbers of closed loans, even a cursory look at the broader forward mortgage industry would tell the uninitiated, that "something is rotten in the State of Demark" (Hamlet).

The symbiotic relationship between the stagnant reverse mortgage industry and the forward mortgage industry has the fetid aroma of a rotting egg.  If those in charge of the first mortgage debacle, are chosen to lead the mortgage industry out of the self inflicted mess, then stay tuned for the coming of the second great mortgage debacle.

 The push is being made to disband Fannie and Freddie. They have served the mortgage industry well. It was only when the politicians interfered in policy, made it a haven for political appointments and then shut their collective eyes and ears, did the agencies loose their way. Had the seminal guiding idea remained that one earns the right to get a mortgage, this debacle would never had happened. Had the tried and true underwriting principles not been tampered with, the economy would not have suffered a recession. Had the types of "innovative" programs not been created out of thin air by an insatiable group of Madoff  type denizens of Wall Street, then the mortgage industry would have remained the model for the world to see. 

Politicians have a nasty habit. They either wait for things to get bad (by doing nothing)or precipitate the event, then come to the rescue. They use their own version of Dues Ex Machina, the tool that the ancient Greek playwrights used, when they needed a solution to a problem.

Talk about the demise of the 30 year mortgage has reached viral proportions. If the GSE's are no longer around and FHA will no longer insure them, private industry would be loathed to do the same. This move could once and for all destroy the reverse mortgage industry. It will have other far-reaching effects. It is possible then that one could see a 20 or 15 year mortgage become the linchpin of the mortgage industry. Sadly this will carry higher monthly payments and will again exclude millions from the mortgage market...........and then the inevitable tool that the ancient Greek playwrights perfected will be used by disingenuous politicians in Washington. And so it goes.

Modern political practice sadly requires that government fix the problem which it made. So now there is talk that the mortgage markets will be better served if government had over control to the private mortgage market. It is not hard to see that it is the banks that control the government and not the other way around. Three relatively recent examples:  The Gramm Leach Bliley Act (1999), the enforcement of the SAFE Act (2008), HUD policy without statutory authority to outsource FHA approval (HUD's Final Rule 5356-F-02 as set forth in Mortgagee Letter 2010-20-Strengthening Risk Management Through Responsible FHA Approved Lenders-2011). Each gave more power and authority to the banks. Gramm Leach was a major cause of the first mortgage debacle. The other two will become the leading cause of the second mortgage debacle.

 

The HECM Reverse Mortgage - Once upon a time it was a great program

It is with great melancholy that I look back upon a near decade- old  decision that gave birth to that indelible  “aha moment”; that moment in life that reverberates in every pore of ones being; which loudly and unabashedly reaffirms that yes, you are on the right path; until it is discovered in a cruel twist of faith, that you are not.  This antithetical discovery  can only reside in the pantheon of human cruelty.  It is, I confess,  gut-wrenching to figure out that after years of uncontested faith, the reason you  believed you were  put on this earth was wrong.

I believed with every molecule of my being, especially after emerging from life-saving brain surgery that my Raison d’être would become abundantly clear. I made that ubiquitous pre-surgery promise that survival would lead me down a “do something special with my life”path.

Many years later I could have sworn that I found that precious meaning. Clearly it was to help seniors lead the life of their dreams, while remaining in their homes. Working in the reverse mortgage industry became a labor of love because of the profound difference the program made.

When one discovers that labor of love, life becomes magically reciprocal. Each life changed proved Newton’s third law of motion: For every action there is an equal but opposite reaction. The joy, satisfaction and friendship my clients gave to me often made me think that it was I who was the lucky one.

When conceived  about 22 years ago, the reverse mortgage program was born out of the clarion call for finding a better way to keep our elders  in their homes. In its nascent years, the industry attitude evinced a singular desire to helping those in need at a time of reduced income capabilities. However, as the years flew by, and as the industry matured, the reverse mortgage loan took on the look, feel and flavor of its more mature sibling in the forward mortgage market. Compliance issues now reign supreme as the aforementioned singular forgotten glory has now morphed into a minor detail.

Many of my colleagues seem to think and maybe they are right-that this program is doing fine. Of course they will point to the fact that the Boomers are now in the third year of eligibility and are a growing cohort at the rate of 10,000 per day. This, along with the often cited statistic that the Social Security program will not have a cost of living adjustment for the second year in a row and that the retirement income deficit in this country is 6.6 trillion dollars. The above tallies are usually the focus of their optimism. While there will always be a need for the program, the program must reach a wider group of people. It seems that the new buzzwords are “long term viability”. This is nothing more than spinning something negative into something less negative-  “Let’s sacrifice a little today to make the program stronger tomorrow”.  The program is sick. All the hoping and wishing will not change this concrete fact.

Research has shown that in order for a product to tip it must gain a market share between 15-18%. After entering its third decade, the reverse mortgage industry has never had  market penetration greater than 2 per cent. It is worthwhile to note that the last significant increase in closed loans occurred in 2007 when the program grew by 40%. The next two years showed a meager growth of 2 and 4 per cent respectively. The  summer of 2008 saw the FHA Modernization Act passed and signed into law. Yet we saw only a 2,538 production increase from the previous year. The act provided a laundry list of initiatives and protections that the industry sought. In spite of this, last year was an unmitigated disaster. The industry did 31% fewer loans than the year before.

Clearly FHA wants to reduce market share and bring private capital back into the marketplace.  FHA insures 99% of all reverse mortgage loans. This is not sustainable, especially if it is at taxpayer expense. The specter of lower limits, although around for years, may become a reality sooner rather than later. As many point out, lower limits by themselves will not spur the creation of proprietary programs, when home values have not hit bottom. The latest Case-Shiller Index report bears this out.  The current administration, under their risk management avatar, have instituted policies which have resulted in making it harder for many to obtain the loan. Adding a credit score requirement is yet the latest example of another impediment- Wait. I hear it coming. “Let’s sacrifice a little today to make the program stronger tomorrow. 

The announcements by Bank of America, Seattle Mortgage and Now Wells Fargo-wholesale leave little room for doubt that the industry has seen better days. The industry has now virtually ignored the co-op market, hurt the condo market, does not like the use of a power of attorney, made counseling adversarial, and will institute the use of credit scores. 

This program is no longer recognizable. While I will always be there for all my clients, the time has come to remember a cherished chapter of professional life and begin another. Unfortunately many of our prospective clients must succumb to the feckless policies that sealed their fate.

 

FOX NEWS & BOB MASSI do A DO-OVER DISCUSSING THE HECM REVERSE MORTGAGE PROGRAM

Here's a rhetorical question: When was the last time  this industry saw a recognized expert in their field rise up in front of the television camera a second time to clarify what was said on the first airing?  By my count the answer is none-as in zero.

I think this provides a teaching moment in two aspects.  First: Many in the industry voiced a strong opinion in opposition to the core of  the Fox reverse mortgage story.  Looks like the rapid response system actually worked. Second: it shows the difficulty one has in researching a subject like reverse mortgages when there are so many published written articles and so many media segments that have gotten it wrong. Let's not forget the declamations and  demagoguery from some of our feckless politicians.

So imagine for a moment that you know nothing about this topic and you had to research the subject. What would you find? On the one hand, you will find a bunch of positive articles and media segments. Then again, one would also find a plethora of negative articles. These categories can be further subdivided into positive spins that are also wrong and negative spins that miss the mark by a wide margin.  One must also realize especially in television, that some segments are not planned well in advance.

So how would you do if you needed to write or present a cogent piece on reverse mortgages? I would surmise that you would not do  very well- your piece would be inaccurate if you relied upon any of the following presentations noted in a previous post.
One would think that you couldn't go wrong if you relied upon the CPA Journal, Forbes Mag, New York Times or NBC News to name a few. Financial Planning Journals, Legal Journals and Accounting journals have all had stories that did not approach good journalism.

It is for this reason that I have advocated for an industry-wide rapid response system. This time it worked partly because of the measure of a man who happens to have integrity.

Also kudos to Fox News.

 I can tell you that the ubiquitous and brilliant CPA Jim Veale and I once tried to get an article that was replete with wrong and misinformation re-written. The authors appreciated our concern and our desire to set the record straight, but the publisher refused to correct the inaccurate detritus that his magazine published.

 

FOX & FRIENDS' REVERSE MORTGAGE SEGMENT GROSSLY MISREPRESENTS THE FACTS

Bob Massi is a well known lawyer whose views are respected throughout the country. No doubt he knows his stuff. But the reverse mortgage information in this segment was not accurate.  Too often experts have opined on this topic -without getting the facts right. Will Rogers once said "that we are all ignorant-just on different subjects".  And this segment reinforced Will Rogers' theorem.

As a lawyer who is known for providing provocative stories, I  just wish that he had a better grasp of  reverse mortgage facts. These days, with so many poorly researched articles published and  poorly researched media segments airing, it is difficult for an independent observer to separate out fact from fiction.

The tragedy of this segment is that such a segment could effectively dissuade one from taking a correct course of action for self and family. This is my beef with the segment. As I have said and written on many occasions, there are things that need to be fixed. The program is not perfect. But this on-air assault is not warranted either.

Not once did I hear about the painsaking and agonizing discussions and policy considerations the major industry participants had (over the years) about this technical deafult issue.

Not once did I hear how the industry self funded counseling plan is being implemented to assuage the concerns of those who have not paid their taxes and or homeowners  insurance, as a way to avoid foreclosure.

Not once did I hear that when one takes out a mortgage, any mortgage, that one of the requirements is that taxes and homeowners insurance be paid.

Furthermore erroneous assertions were made that the  lender is  betting that a senior will die before they can access all the money; that the non-payment of taxes and insurance is a very common problem-happens more often than not; that the home reverts back to the lender.

Maybe, just maybe it is time for Fox and all the other stations that just get it wrong to talk with people (and there are many) who have the knowledge and who can fairly assess the state of the program.

Who Must Follow The HECM Reverse Mortgage Rules and Laws?

I am on the verge of raising the red flag of surrender. Confusion is overtaking clarity.
Understanding industry directional bearings is important if one is to grasp where the reverse mortgage industry is heading.

 When our industry acts like an octopus on roller skates, it is difficult to decipher what all the movement means. Recent activity by the big banks and NRMLA  appears to be  antithetical to the plain meaning of ML2008-28 is just a case in point. This Mortgagee Letter was written in direct response to the passage of HERA (Housing & Economic Recovery Act 2008). Section 2133(3)  prohibits any lender funding of counseling. NRMLA'spress release of January 7th and Marty Bell's  NCOA article comments on the January 6 article in  RMD  suggest that the intent to fund the program through various lenders is genuine, and done with the best of intentions. If intentions (without appropriate waivers) can supersede rules and laws, then there are effectively no rules and no laws.

For many reasons, (all of which have been previously discussed in prior posts), including the iniquitous results of the SAFE Act, along with the wrongful implementation of HUD’s Final Rule 5356-F-02 as set forth in ML2010-20, the lenders along with a complicit federal agency, and as economists would say, a rationally ignorant Congress, apparently do what they want when they want simply because they want.

It is for the little fella to follow the letter and the spirit of the law. Should it not be followed they do so at their own peril.

NRMLA’s View That All is Well With The HECM Reverse Mortgage Program Belies the Truth

I read with interest the Nov-Dec special issue of NRMLA’s Reverse Mortgage Magazine. The issue was devoted to opinions and comments by some distinguished colleagues. Many have held leadership positons in the National Reverse Mortgage Lenders Association. While I appreciate the comments as accurate as they are, they simply fail to paint a complete picture of the abiding challenges facing this industry.

 The magazine content reflected a never-ending cascade of program superlatives, plusses, and positives without addressing the deleterious minuses, and negative focal points which continue to adversely affect the viability and sustainability of the program.

If the intent was to create a rah-rah piece to inspire those reverse mortgage industry souls who are discouraged, maybe the mission has been accomplished. However, to appreciate the quagmire we find ourselves in requires that the industry look at some failures as well. Researchers Karl Weick and Kathleen Sutcliff, in their prolific research on HROs (high-reliability organizations) proffer that it is important to look at failure to see where an organization is going.  If we were to substitute “industry” for “organization” the same arguments discussed therein remain germane.

Dissecting successes and failures are equally important endeavors. Examining both sides of the issue becomes vastly more instructive, than focusing on, for example what has gone right.  When a singular success-focus is taken, it creates a very powerful confirmatory bias that not only prevents one from seeing those surprising and shocking “black-swan events”, but it also insidiously lulls one into a false belief that everything is OK. 

If we led our lives with the ethos presented in the aforementioned edition, what follows is a rather comical depiction: When crossing the street, we would look one way instead of both ways; when running a business we would look at income and ignore expenses, or vice versa.

Peter Bell, in his monthly commentary suggests all is well and states, “I think we arrived in a good place”. To support this thinking he provides support for the above claim as follows. “Market dynamics, growing investor interest, re-engineered HECM options, more robust counseling and a low interest rate environment leaves us poised for growth….” While I can agree with the spirit of the comment, I find it wanting and incomplete because it leaves the impression that everything is fine with the program.   The point is that everything is not fine. A real opportunity for program refinement is thus being ignored.

 Similarly, what remained unstated makes the latest edition reek of disingenuousness.
It (the comments) suggests that eligible seniors can continue to enjoy their homes as they transmute equity into cash. However, the dirty little secret remains that many seniors, as far as access to the HECM program is concerned, are being locked out of their own homes.

Current dire economic conditions have made the HECM program a loan of first-resort. Sadly for many, it has become a loan of no-resort. The HECM program are the new "liar loans", as seniors in desperate need for funds discover that governmental policy will no longer provide them access to the program. An industry that once catered to those borrowers living in condos and co-ops, now must deal with utterly frustrated people who feel cheated and lied to, as access for many due to draconian governmental policy is for all practical purposes- DENIED.

 

Consumer Reports Continues its Specious Attacks on the HECM Reverse Mortgage Program. All We Ask is That You Just Get the Facts Right

I have found it quite disheartening how much of the media in this country no longer considers facts when reporting on issues.  This view is particularly true when the subject matter is reverse mortgages. For some reason, this topic is treated as if it was a fly that needed to be constantly swatted at.

I have vehemently stated beforethat the program has been subject to harsh and misguided invectives, by reporting that merely repeats  old worn out general talking points that are no longer issues. Relatively new legislative and or policy changes have already taken affect and have made these prior arguments moot. This new article falls into this category. And like most articles of this genre, they are grossly misleading.  Each has a Wizard of Oz-like quality. Reporters write about a program that remains unrecognizable to those in the industry.

The authors paint a picture of a nefarious industry swooping down on unsuspecting prey. The accomplishments of this industry are many and quite significant and are totally ignored by this piece; the industry is working closely with legislative leaders in Washington DC and around the country, as states craft reverse mortgage bills of all shapes and sizes.

The article should be seen for what it is-a quintessential hatchet job on a program that already has significant governmental oversight. The industry is and has always looked to improve itself.

There are significant industry successes and failings which the article ignores. I'll leave it to the authors to figure that out.  Industry-wide there is still no voice that is heard over the crescendo of media babble. This continues to be a major problem for an industry that is begging to be understood.
 

 

Can The Incarnation of the HECM SAVER and Other Recent Changes Turn The Reverse Mortgage Industry Around?

The triad of very recent changes emanating from the reverse mortgage industry includes the continuation of the current HECM loan limits; lower expected rates; and the unveiling of the HECM Saver program. While this is indeed a propitious start to HUD’s new fiscal year, the question remains whether this will be enough to shake the program out of its somnolent state, as the industry experienced a precipitous 31% drop in endorsements this past fiscal year.

These three changes, while important, are entirlely focused  upon available proceeds and concomitant costs. Besides perhaps recapturing some potential customers that were lost to the last principal limit reduction, it does nothing to open the process to eligible borrowers who through no fault of their own remain shut out of the program.  I have addressed this point before.

If the industry is to remain the steward over our elders’ financial well being stringent controls, like the one promulgated by NRMLA in their latest ethical opinion must become the norm.. The concepts and points therein contained need to be adopted by HUD and all the lenders, without delay. Otherwise, I would expect HUD’s  OIG to investigate every refi in the same manner that it is currently scrutinizing every fixed rate loan closing.

While the SAFE Act has made the reverse mortgage industry a bit safer, there still remain too many incorrigible originating companies who believe that our trusting elders are ripe for the picking. I am afraid that HECM to HECM refinancing could make an insidious comeback for the sole purpose of garnering a double dip of the originating fee. The Office of Inspector General must be put on alert and take swift action against these miscreants. Special Agent Stolworthy will be one busy boy. Should these unnecessary refis become news, the industry will have to battle the media on yet another front. So let’s nip this in the bud now, so the focus can remain on the effect the innovating avatars are having on HECM product redesign and consumer interest.

While some strident dissatisfaction with the configuration of the HECM Saver product remain, I can see the program evolving into a “lighter” program for individuals who wish to take out even smaller amounts. I would agree that we need a more definitive contrast  between the Saver and Standard program.
The above notwithstanding, I would suggest that it is a good start.

The HECM Reverse Mortgage Industry Continues To Adapt To Whatever Washington Dishes Out

Once upon a time there was a great industry that took great pride in providing a better way for our elders to continue to live in their homes. The overriding focus and concern was to insure that the borrower received the appropriate loan in a very timely manner. Yes, there was a time when the industry was the slave to the needs of those it served. And yes, those halcyon days felt good because we did good, real good.

Now our industry has changed, as it has become the slave to governmental laws, rules and regulations. Focusing on serving the needs of our clients is now out of focus. It is as if the industry has taken on a familiar symptom of decrepitude confronting our clients who suffer from glaucoma, cataracts and macular degeneration. Abiding by these laws and policies has displaced the need to treat the cohort we serve in the way we have done so in the past. Today, it has become so difficult to set the proper expectations and to properly be of service to those that need our help.

Perhaps you have heard about the apocryphal “frog boiling in water” story. This story represents the quintessential nature of our industry. If a frog is placed in a pot of boiling water it will naturally jump out. However, if one were to place the frog in a pot of water at room temperature, it will remain. Now, if you were to slowly increase the temperature, the frog, as the story goes, will acclimate to the rising temperature of the hotter water. As you continue to increase the temperature of the water, the poor critter will eventually boil to death. This illustrates the concept of adaptation. Adaptation is what this industry excels at.

There is an inherent disconnect how government looks at a problem and how those on the front lines in our industry views the same problem. Joseph Stalin and Mother Teresa, believe it or not, shared a belief. Stalin once said, “One man’s death is a tragedy, but a million deaths is a statistic.” Mother Teresa voiced a similar sentiment when she said, “If I look at the mass, I will never act. If I look at one I will.” Government looks at the masses, at the statistics and places all individuals, with differing needs into the same category. Those who serve our cohorts, see the individual suffering, and say “why”. Some in our industry take a close up view and see the hardship that government causes with its draconian laws and rules. Government only sees numbers and statistics. It doesn't see people.

 Accordingly, once government promulgates a solution to a problem it is usually not willing to consider a better solution than the one it proposed, nor is it generally willing to listen to compelling reasons to change its position. Government becomes married to its original position.

A visionary leader is always thinking big, thinking new and thinking ahead and has incredible insight so that he can see things that others cannot see. This kind of leadership once imbued our industry. It has been replaced with a paralysis that stems from fear that only leviathan governmental agencies can instill.

Some may think that the government supports this program because we have been showered with exulted paeans by the HUD and FHA Secretaries supporting the program. I believe that the speakers believe those words of support that they utter. With all due respect, these words in support are just words: words without feeling or consequence. It’s like talking about cancer. After awhile you get numb to the word. Cancer, cancer, cancer, cancer, cancer, until you don’t hear it anymore; except if it’s your cancer that is eating away at your body. 

 And the industry believes that Washington supports the program. The following examples will  provide a close-up perspective on the carcinogenic effect policy is having on the lives of the elderly.

So tell the woman who can no longer obtain a reverse mortgage (because the program benefit cuts prevent her from getting rid of her conventional mortgage that she could never have afforded to begin with)-that Washington supports the program;

Tell the man whose last financial hope hinged upon getting the reverse mortgage that he was turned down because HUD has threatened not to insure loans with a properly executed power of attorney (even if executed under the guidance of an attorney) because underwriting guidelines insist on using artificial standards that prefer guardianship proceedings to a validly executed form- that Washington supports the program;

Tell the war hero who gave his all for his country that in his time of monetary need, his appraisal came in low because the appraisal management company chose an inexperienced appraiser-that Washington supports the program;

 Tell the grandmother who has fallen on hard times  and who needs every dime that can be squeezed out of the reverse mortgage, that the benefits will  once again be reduced because Congress won’t provide the needed subsidy-that Washington supports the program.

Tell the family who can no longer pay the expenses for keeping their competent parent in the home, that their loved one will not be able to satisfy the testing requirement of the new counseling protocol because of her short term memory loss, and will be specifically excluded from the program because counselors are precluded from issuing a counseling certificate- that the Government supports the program. 

When Will Rogers said, “Things can’t go on like this, and they didn’t, they got worse”, who knew that he was talking about the reverse mortgage industry.

Instead of piling on rule after rule, Washington (and the states) needs to consider what they want the end result to be. If the agencies insist on piling on the regulation this industry will be left with a niche product.  Talk about crimes. At a time when more people need the program; at a time when more people are eligible for the program, the government has the temerity to make the program harder to access. To those practicing political demagoguery, back off. It is time that this industry fights back. No one I know got here because we were satisfied with a niche product. After 21 years, this program deserves to be mainstream. Sadly it will never be if things do not change now.

Once again, I end with the story of the wise old man and the smart –aleck kid who wanted to make a fool of the wise old man. Here is what the kid wanted to do. He, the kid captured a bird in the forest and he wanted to go up to the old man and say, “What have I got in my hand”? And the old man would reply, “You have a bird in your hand”. “Is it alive or dead”, the kid would say. The old man knew that if he said, “dead” The kid would let the bird fly away. On the other hand if the old man said “alive”, the kid would kill it and say, “It is dead”.

And so the kid actually went up to the old man and said, “What’s in my hand old man?” and the old man replied, it’s a bird.” Is it alive or dead old man?” And the old man replied, “The bird is in your hands, you have the power.”
And like the smart aleck kid, Washington is holding something very precious in its hands.   Washington has the power……………………..and the reverse mortgage industry also has the power…the bird is also in your hands.