The Reverse Review March 2009

March 2009

THE

REVERSE review

SPOTLIGHT: Jeff Lewis page

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“Wall Street and Main Street are joined at the hip: one cannot prosper without the other. This is a take away from the current mortgage and credit crisis.” This month our contributing author, Atare Agbamu had the opportunity to sit down with Jeffrey Lewis of Generation Mortgage Company to discuss his thoughts and insights regarding the future of HECM jumbo loans.

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March 2009

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THE

REVERSE

review

Publisher Aman Makkar Editor-in-Chief Erica English Copy Editor Harpreet Makkar Production Jason Westbrook Layout & Design Guenthoer Design Printer The Ovid Bell Press

Advertising Information

Rates, specifications, and deadline information available. phone : 858.217.5332 e-mail : [email protected]

Subscriptions and Editorial Content phone : 858.217.5332 e-mail : [email protected] website : www.reversereview.com

THE

REVERSEreview 11440 West Bernardo Court Suite 220 San Diego, CA 92127

© 2009 The Reverse Review, LLC. All rights reserved. The Reverse Review, LLC is a California limited liability company and is the publisher of The Reverse Review magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of The Reverse Review, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, The Reverse Review, LLC is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to The Reverse Review, 11440 W Bernardo Ct, Ste 220, San Diego, CA 92127

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editor’s note professions which are as rewarding as this one where you can honestly say that you touch someone’s life and genuinely improve it.

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e’re writing this note as we sit in attendance at the first National Reverse Mortgage Lenders Association (NRMLA) road show of 2009 in Boston. As a regular reader we know you’re probably thinking, “that was March 18-19, and you’re just writing this for the March issue!” We’re running a bit late this month, so we apologize for the delay.

With that in mind, it’s very easy to forget about all the great things we are doing as we read daily news stories or hear about great economic and housing meltdowns. We should all be thankful that we are a part of such a wonderful and positive industry in which we have all dedicated our lives to helping other people. Our positive energies will reflect in our work and help change the environment around us. If you have the opportunity to make it to any of the upcoming NRMLA conferences in Chicago, Orlando, or San Diego, we would definitely encourage the effort to come visit us and meet other industry leaders who live their lives with the same passion that you do. Thanks for reading and enjoy!

That being said, every time we attend a reverse mortgage conference, we’re reminded of the many reasons why we decided to be a part of this industry and the same reasons we used to justify the launch of this magazine. However, the one underlying theme we see time and time again is the dedication and passion innate within all the professionals who have chosen to service the senior community. It’s refreshing to be a part of something so rewarding, to help a community that can really use our assistance, and to reach out beyond a seniors’ financial needs and build lifelong relationships with our clients. There aren’t too many other

March 2009

Erica English Editor-In-Chief

Aman Makkar Publisher

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CONTENTS

12 Cross Selling is Against The Law???

26 Mandatory Live Pricing Brad Thompson

Michael Banner

16 Can You Hear Me Now? Monte Rose

32 Here Is Your Own 4

Day Marketing Plan

34 Creating a World Class Reverse Mortgage Training Program, PART II

Jacqueline Del Priore

Sam Collins

40 A Whole New “HECM”

18 SPOTLIGHT Interview

World – How Interest Rate Volatility Can Impact Your Magic Carpet Ride

with Jeff Lewis

Atare E. Agbamu, CRMS

Weiner Brodsky Sidman Kider, pc

ESSENTIALS 5 Note From the Editor

7 Ask the Underwriter

10 Industry Snapshot

39 Ask the Servicer NEW!

44 Press Release

45 Directory

46 The Last Word: “It was the best of times, It was the worst of times” 6

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ask the underwriter

“I am your vehicle baby……” March, another month upon us, for many the first sighting of spring flowers, the green beer of St. Paddy’s Day, the Vernal Equinox, HUD financial statement filing shortly due for you 12/31 year enders and for some of us, the Ides of March (for those “You Tubers” http://www.youtube.com/watch?v=_EBMo8xHGNs ).

Ralph Rosynek

5 key checklist words to remember when reviewing a are: • Conformity – The POA document must conform to ALL state statutes, rules and guidelines to allow the capacity for the Attorney-In-Fact to act. Be aware that State rules and guidelines vary necessitating a complete review by several I recently reviewed a rush file with 2 interesting features: participants in the loan process. A critical review checkpoint • The Processor note indicated the purpose of the rush was is the title company Underwriter who will determine if the “to replenish funds for continuing in home healthcare due document when used to encumber the property will provide to Borrowers’ Alzheimer’s condition” for a legal transaction in the property state. Generally, a • A “sticky note” affixed to the 37 day old POA document faulted document negates all parts of the transaction. in the file indicated “physician’s letter of Borrower • Competency – The loan Underwriter reviews the document competency will follow as an e-mail attachment” for determination of Borrower mental competency and/ or need for the Attorney-In-Fact based upon conditions “Ripley’s Believe It Or Not!!” I said to myself, dumbfounded present. Many times the Underwriter must be supported by a as I realized I had just stumbled on to a case where a serious physician’s evaluation and statement or letter of explanation incapacitating disease showed signs of reversal! What do you from the Borrower to arrive at a decision as to how the think? POA document can be used in the reverse mortgage loan transaction. Generally a faulted document or lack of form Speaking of vehicles, what an appropriate time to visit an often and substance of the situation and need for the document used, very confusing vehicle, the Power of Attorney (POA). could result in restrictive use or additional conditions for use of the document. Clearly, the Underwriter is not acting as an By the way, I am not an attorney nor a physician. For a more attorney or physician, but rather the “protector” of both the detailed analysis and opinion you should engage one of these Borrower and Lender interests. professionals as this information is for discussion purposes only. • Counseling – A General or Specific POA may not be used to represent the Borrower for Counseling purposes regardless of Simply, a POA is a legal document whereby one individual his/her mental capacity. The same would apply for application authorizes another individual to act on their behalf. execution purposes as well. Only a Durable POA would allow for an Attorney-In-Fact to represent the Borrower. In a reverse mortgage transaction, the most common uses of a Generally, many Lenders also stipulate that if the Borrower is POA would be in situations where: competent, he/she attends counseling and, at minimum, may • the borrower is mentally incompetent, be requested to execute the Counseling Certificate and 1009. • the borrower is mentally competent, but physically Incompetent Borrowers may not execute the Counseling incapable of signing, Certificate or the Application documents. • the borrower is mentally competent and physically capable • Closing – Generally, all 3 forms of a POA document noted of signing, but chooses to have an Attorney-In-Fact execute may be used to execute closing documents (may vary by documents on his or her behalf. Lender) provided the POA document complies with all State requirements and allows for both legal Note enforcement and Generally, there are 3 kinds of POA Documents: the subject property to be encumbered. • Durable – the Attorney-In-Fact is granted full powers to act, and in the case of a reverse mortgage transaction, to One last note, notice the absence of the “double C” encumber the property. The “durability” is an unrestricted Compassionate Collaboration in the checklist. As an Originator, ability to act from execution through incapacity versus other you may choose to be of the opinion that you are not a party forms which become ineffective when the Borrower to determining the Capacity of the Borrower, however, as becomes incompetent. the initial point of contact and “advocate” for the Borrower, • General – the Attorney-In-Fact is granted similar wide your actions or lack thereof may result in a dramatic negative range powers, however, lacking the durability feature, the impact to one or more of the participants in the loan process. POA document is only effective as long as the Borrower is Ethically, you must distinguish yourself to assist the Borrower competent. and the Lender in the transaction at all times. Your analysis and • Specific – the Attorney-In-Fact is granted powers for a review may delay the proposed transaction until such time as specific task or action and not wide and broad ongoing ability a court appointed Guardian or Conservator is in place, due to to act. .Lacking the durability feature this document is only the inability for the Borrower to competently execute a durable effective as long as the Borrower is competent and due to POA. The decision to do what is right and best for all parties is its nature only good for the specific task or action it was what affirms a professional. executed for. March 2009

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contributors Ralph Rosynek - Ask the Underwriter, page 7

Ralph Rosynek is President and CEO of 1st Reverse as well as a HECM DE Underwriter. Mr. Rosynek has been involved in mortgage lending for over 30 years with the last 5+ years exclusively providing reverse mortgage lending solutions. To contact Mr. Rosynek or to learn more about 1st Reverse Financial Services, Please visit www.1streverse.com or call 877.574.1000.

Jacqueline Del Priore - Creating a World Class Reverse Mortgage Training Program,

PART II, page 34 Jacqui Del Priore is the Director of MCTI (The Mortgage Career Training Institute), a company which specializes in reverse mortgage sales and product training. As former VP of Training and Development for World Alliance Financial, she has helped hundreds of reverse mortgage loan officers achieve success in our industry. For more information, contact Jacqui at 516-983-9396 or e-mail her at [email protected].

Atare E. Agbamu, CRMS - Why Jumbo Reverse could be in Limbo for Years,

Spotlight Interview with Jeff Lewis, page 18 Author and columnist, Atare E. Agbamu, is director of reverse mortgages at Minneapolis-based AdvisorNet Mortgage, LLC. A member of BusinessWeek Market Advisory Board, Agbamu is author of Think Reverse and more than 100 articles on reverse mortgages. He can be reached by phone at 612-436-3711 and e-mail at [email protected] or [email protected]

Ryan LaRose - Ask The Servicer, page 39

Ryan LaRose is the Executive Vice President of Celink, an independent reverse mortgage subservicer. Ryan has over 12 years of servicing experience; exclusively in reverse mortgage servicing since 2005. In addition, Ryan is an active member of the NRMLA servicing and technology committees.

John Lunde - Reverse Market Snapshot, page 10 John Lunde is President and founder of Reverse Market Insight, the premier source for market intelligence and analytics services in the reverse mortgage industry. RMI clients include five of the top ten reverse mortgage originators, both lender and independent servicers, as well as some of the largest financial services firms in the world. Find out more at www.rminsight.net or call 949.281.6470.

Joel Schiffman - A Whole New “HECM” World – How Interest Rate Volatility Can

Impact Your Magic Carpet Ride, page 40 Joel Schiffman is a member with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. Mr. Schiffman can be reached at [email protected] or by telephone at 949.798.5570. 8

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contributors Cross Selling is Against The Law, page 12 - Michael Banner Founder of LoanWell America, Inc., Michael has been in the mortgage industry for 27 years. He is one of few Reverse Mortgage professionals accredited to teach continued education classes for CFP’s, CPA’s, attorneys & insurance agents. A proven senior advocate, he is a member of NRMLA’s State & Local Issues Committee and sits on the Board of Directors for the FPA of Tampa Bay. Michael has been interviewed by the Wall Street Journal, the Tampa Bay Business Journal, Sr. Market Advisor & The Reverse Mortgage Wire as well as numerous other Reverse Mortgage Internet sites. For more information: [email protected] or 877.700.0555 Here is your own 4 Day marketing plan… - Sam Collins Getting back to the Basics…, page 32 Sam Collins is the President of Sam Collins Reverse Marketing, LLC and Founder of REMALO, the Reverse Mortgage Association for Loan Officers. REMALO is a web based National sales, marketing, training, and full service center, created exclusively for Reverse Mortgage Loan Officers, Correspondents, Branch Managers, and key executives, and brokers. www.remalo.org or 877.262.7656 “It was the best of times; It was the worst of times…”, page 46 - David Cesario David Cesario is the Executive Vice President of 1st Reverse Financial Services, LLC, (www.1stReverse.com) a national reverse mortgage retail and wholesale lender. David regularly participates in educational and training sessions for numerous mortgage industry organizations and is a nationally recognized speaker designated instructor for reverse mortgage loans. information, call 800.516.0545 or e-mail [email protected]. A Whole New “HECM” World – How Interest Rate Volatility Can Fed Kamensky Impact Your Magic Carpet Ride, page 40 Fed Kamensky is an associate with the law firm of Weiner Brodsky Sidman Kider, P.C. The firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. Mr. Kamensky can be reached at [email protected] or by telephone at 202.628.2000. Reverse Lenders Transition to Mandatory Live Pricing Technology - Brad Thompson Solutions That Could Save Your Business, page 26 Executive Vice President, Mortgage Cadence Finale™ Business Unit. Brad Thompson currently oversees Finaledocument services and compliance solution division of Mortgage Cadence, Inc. Mortgage Cadence, Inc. is the leading provider of Enterprise Lending Solutions (ELS) for both the forward and reverse markets. Mortgage Cadence Orchestrator™ provides data driven workflow automation and business rules management for seamless integration across the enterprise. Find out more at www.mortgagecadence com or call 888.462.2336. Can You Hear Me Now?, page 16 - Monte Rose Monte Rose has helped hundreds of seniors obtain a reverse mortgage during the past 17 years. He is an accomplished speaker and widely quoted industry expert, appearing in financial publications and nationally syndicated media. He was head of national retail sales for Financial Freedom Senior Funding Corporation. Monte is a Certified Senior Advisor and a Certified strengths Coach with Gallup University. For more information, call 800.516.0545 or e-mail [email protected]. March 2009

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reverse mortgage industry snapshot Statistics Provided by Reverse Market Insight - January 2009

Top 10 Rankings by Region

10 Regions, ranked by HECM unit volume YTD. Including rank change from prior YTD, as well as growth rates. Also includes active lenders and growth

Lender Distribution by YTD Growth Rate

Lender distribution graph and table, showing number of lenders growing at various growth rates YTD vs. prior YTD, including volume attributable to each group of lenders. Client Notices 1)

Help improve data quality in the Reverse Mortgage industry. If you believe your company’s numbers on this report are inaccurate, please e-mail us ([email protected]) and we will review your feedback promptly. Please include your name, company and contact information along with a thorough description of the suspected inaccuracy. Thanks!

2)

If you received this report as a trial or sample and would like to purchase this report or future reports for your company, please visit: www.rminsight.net/MICreports.php

3)

If you’ve been looking for a source for Reverse Mortgage intelligence beyond MIC endorsement numbers, we’ve got just what you need.



Find out more at www.rminsight.net/rmarket.php

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24 Month Penetration and Unit Volume

2 year trend graph of monthly HECM unit volume and industry penetration against 62+ homeowner households nationally. Appendix 1) All statistics based on retail originations from HUD’s Monthly HECM MIC reports 2) Loans are in unit volume, based on HUD reported mortgage insurance certificate issuance 3) Lenders are aggregated using HUD’s lender identification numbers and unique lender names, along with feedback from reporting lenders HUD Regions and Corresponding States/Territories Region 1 - New England Connecticut Maine Massachusetts New Hampshire Rhode Island Vermont

Region 3 - Mid-Atlantic Delaware District of Columbia Maryland Pennsylvania Virginia West Virginia

Region 5 - Midwest Illinois Indiana Michigan Minnesota Ohio Wisconsin

Region 7 - Great Plains Iowa Kansas Missouri Nebraska

Region 8 - Rocky Mountain Colorado Region 2 - New York/New Jersey Region 4 - Southeast/Caribbean Region 6 - Southwest Montana Arkansas North Dakota New York Alabama South Dakota Louisiana New Jersey Florida Utah Georgia New Mexico Wyoming Kentucky Oklahoma Texas Mississippi North Carolina Puerto Rico South Carolina Tennessee U.S. Virgin Islands

March 2009

Region 9 - Pacific/Hawaii Arizona California Federated States of Micronesia Hawaii Nevada Region 10 - Northwest/Alaska Alaska Idaho Oregon Washington

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Cross Selling is Against The Law??? - Michael Banner No way….The most capitalistic nation in the world, an entire society based on free enterprise, why would the government make the cross selling of financial products that are so badly needed by the elderly, utilizing the best source of funds ever created for the elderly, (The Reverse Mortgage) against the law? They wouldn’t do that… Next you will try and tell me the government is going to give 750 billion dollars to the very industry that crippled the financial markets and sent us spiraling into a seeming never ending recession… Hey, wait a minute. They did do that one…

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So, the cross selling of any insurance or financial products, using the proceeds of a reverse mortgage is now against the law….

obvious that one of the reasons for the unprecedented growth in the market is due to the fact that there is a lot of money to be made.”

Let’s put this in perspective. I think we can all agree that the passing of the Housing and Economic Recovery Act (HERA) was a very positive force in the reverse mortgage industry. Unifying a National FHA loan limit and increasing it to meet Fannie & Freddie is something I have been hearing about for more than 10 years, and they did it! The approval of the HECM Purchase, they did it! Approving the HECM for co-ops, they did it! Decreasing the 2 point origination fee to 1.5, they did it! Decreasing the cost of MIP, whoops, that one they didn’t do…. Well, you can’t have everything!

I’m sorry Senator, not all of us have guaranteed 6 figure salaries and the greatest lifetime medical benefits for ourselves and our families for free! That privilege seems to be reserved for the members of the House & Senate…

Still, HERA was and continues to be one giant step forward towards bringing back our ailing housing market and one giant leap for the reverse mortgage industry.

Again let’s remember, the good Senator does have the right intentions. Let’s also keep in mind that NRMLA’s Code of Ethics also forbids any requirement for the borrower to purchase another financial product to obtain a reverse mortgage. Now that’s the right language! If someone in any segment of the financial industry is coercing a senior into securing a reverse mortgage in order to facilitate an additional sale of a product then please make that against the law! However, NRMLA does allow room for ethical and moral cross selling of financial products by further stating if lenders meet certain disclosure and legal conditions, including that the other financial products and services that it originates or sells “provide a bona fide advantage to the customer.”

But at the last second, led by the very aggressive Sen. Claire McCaskill (D-Mo), the “No Cross-Selling” language was inserted into the Bill, and it was done. Talk about throwing the baby out with the bath water! Now, before I expand further on how this new law will most certainly hurt more of the very group of consumers (seniors) it was designed to protect then it will help, lets deal with a very important and very negative aspect of the emerging reverse mortgage industry. None of us like to say this, we very rarely see articles written about this subject but the hard truth is there is a tremendous amount of potential for abuse in the reverse mortgage industry. The senior segment of this great country has been a target for this abuse long before the reverse mortgage industry emerged. From the financial planning industry, the investment community, to the home improvement industry, the list is virtually endless. The seniors have the liquidity, let’s sell them something! And although I strongly disagree with Sen. McCaskill’s solution, I think we all must recognize she is on the right track. As a member of the Senate Special Committee on Aging the Senator has devoted much of her professional career to the protection of seniors and that I greatly respect. But come on Senator… the cliché that comes to mind is “the operation was a total success, but the patient died” The good Senator has been a very strong critic of the reverse mortgage since its popularity began to grow. At a December 2007 hearing on reverse mortgages she was quoted as saying “I want to make sure they (reverse mortgages) don’t become the scandal of the next decade.” She continued with “It seems

I’m sorry, do I sound bitter or angry? I am! The ability of the far left to demonize “earning a living” while furnishing a service or product is just mind boggling. It is just one more startling example of how our elected officials have lost touch with the very people that elected them. But I digress…

Personally, I am one of the few individuals that is approved by the National Board of Certified Financial Planners to teach a 2 hour continued education class on reverse mortgages to Certified Financial Planners. (CFP’s) I do so on a constant basis in the state of Florida where my company does business. In March of 2008, months before HERA, the Financial Industry Regulatory Authority (FINRA) sent me the following language to add to my class. They were very clear that I must not only include it in my presentation but I must read it aloud verbatim at every class;

FINRA ALERT: If you are approached by a financial professional to do a reverse mortgage in order to fund a particular investment, keep in mind that all investments carry risks and costs – and the higher the promised return, the higher the risk. It’s best to steer clear of investments that are risky or under diversified – as well as those that make it expensive, if not impossible, for you to access your money if unexpected expenses arise.”

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Wow, it appears that the financial industry has recognized the importance of protecting the senior segment of our society against risky investments funded by the proceeds of a reverse mortgage.

might be urged to secure a larger liability policy or umbrella policy to offer additional coverage your auto policy doesn’t cover in case your teenager has an accident with horrific results…

I have performed my CE Class for more than a thousand senior advisors in Florida to date. And whether they were a CFP or not that slide was read aloud at every presentation.

But at no time does your trusted advisor become more important to you than when you turn 62 years of age, when retirement is either upon you or in your very near future. When products like Medicare supplement policies, Medicare advantage policies and long term care insurance are critical decisions that must be made at this point in your lives. When the repositioning of your assets, as you go from the “income earning” portion of your life to the “non-income” earning portion will determine the quality of life you have in your retirement years.

I think the one best example that has led to the great crossselling controversy is the lawsuit filed in California in 2006. This suit named Financial Freedom, a reverse mortgage industry giant as a defendant and made national headlines and appeared on CSPAN. According to the plaintiffs’ attorney an insurance agent convinced a woman to secure a reverse mortgage and then sold her a deferred annuity that would not mature for 20 years. The client was 80 years old! That insurance agent should not only be ashamed of themselves but they should be prosecuted criminally and civilly to the full extent of the law. What a disgrace! It should be noted that the insurance company cancelled the annuity and refunded the client her money. This was the action of a dishonest insurance agent, not an example of the insurance industry or of what a reverse mortgage is used for every day in this country! It should also be noted that the Superior Court Judge on the case granted Financial Freedom’s motion to dismiss the case. At this point let me disclose that I am not an insurance agent, I have never had an insurance license and have no plans to get one. I own no stock or interest in any entities that sell insurance. So let’s get right to the bottom line here; No matter what age you are, insurance is at the core of a solid financial plan. Almost all trusted senior advisors, in every segment of the financial industry, hold an insurance license. When you are young and starting a family your trusted advisor will make sure you have major medical coverage to protect your entire family. They will urge you to have the proper amount of life insurance to protect your family in case of yours or your spouse’s untimely death. Depending on your occupation, you will be urged to have disability insurance so you can support your family during an unplanned and extended period of time that you cannot work, due to illness or an accident (This happens to be the #1 cause of bankruptcy). When the kids become old enough to drive you

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To take the most valuable tool ever created (the reverse mortgage) away from trusted senior advisors would be devastating. You know, we can’t pick up a newspaper or turn on a news program without hearing of the many crises’ that plague our nation today. We of course have the mid east crisis, the energy crisis, the Wall Street crisis which now has turned into the main street crisis. All of the solutions to these crises’ seem so difficult and so far away…that’s because they are. There is one very real crisis that is very rarely mentioned. I guess it just doesn’t have the “sizzle” all the other crises’ seem to have…it’s the crisis that most of our seniors face every day. The combination of inflation, recession, the most volatile investment environment in the history of our country and the simple fact that we are just all living longer has greatly diminished the quality of lives for our seniors. This is a very real crisis and it affects many more people than we all care to admit. These are our parents, our grandparents our favorite aunts and uncles. The reverse mortgage industry can help so many of these people have a higher quality of life and I personally would like to see every trusted senior advisor, in all segments of the financial industry, have the reverse mortgage as the strongest tool in their tool box, the sharpest arrow in their quiver! Control it, yes! Regulate it, yes! But outlaw it, no!!!!! Have an incredible and productive month and let’s help as many seniors increase the quality of their lives as we possibly can.

To take the most valuable tool ever created (the reverse mortgage) away from trusted senior advisors would be devastating reversereview.com

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Advertorial by eCommission Has there ever been a time when your business could have benefited from receiving an immediate infusion of working capital? For any business, accessing credit and maintaining consistent cash flow are vital for achieving success. In the words of Robert Kiyosaki, author of Rich Dad - Poor Dad, “Good cash flow is good business. No cash flow means you’re out of business.” So how does a business maintain good cash flow in the reverse mortgage industry? Most will have bank loans or lines of credit to use when closings are slow or investment opportunities arise. However, as banks tighten their underwriting and reduce overall loan volume, the reality of this economy is making it harder for everyone to access credit. Despite this, originators still need to pay expenses and salaries even if their bank line is tapped or their closing pipeline is stalled. Although some companies can absorb the wait, many new and growing companies simply do not have the financial resources to do so. As an alternative to traditional banks, more and more originators are turning to specialty financing programs like commission advance. A commission advance involves selling a portion of your pending commission receivables prior to the estimated loan closing date and receiving immediate payment of funds. Commission advance companies charge a fee for advancing the commission and receive repayment as loans close in the future. This type of arrangement is much easier to access than bank loans or lines of credit because the company’s pending sales pipeline creates the security for the advance. Commission advance provides customers with a predictable source of cash flow and enables them to meet ongoing expenses while providing a clear path to growth. This type of service is now available to the reverse mortgage industry through eCommission Financial Services Inc. Based in Austin, Texas, eCommission has been a national provider of commission advance services to the real estate industry since 1999. A number of forces have combined recently to create a demand within the reverse mortgage industry for commission advance. It started last year with the raise in HECM loan limits. Delays with getting the bill passed created pressure on the closing inventory of many originators. As the bill dragged through congress, eCommission started receiving requests for advancing commissions. Once HUD finally issued the mortgagee letter,

Gaining Instant Access to Working Capital

“ Good Cash

flow is good business. No cash flow means you’re out of business

” originators were calling again wanting to access their commissions to take advantage of sales and marketing opportunities. Recently, a moratorium on funding within a segment of the wholesale market has caused closing delays for some originators who have turned to eCommission to keep their cash flowing. Other factors have included delays in certain states with getting counseling completed due to dual certification requirements. A convergence of these issues as well as others, have caused cash flow shortages for many originators and it has led to the creation of Reverse Mortgage Commission Advance. Here are some specific details about how this new program works: Commission advances are made on HECM (FHA) approved loans. The Loan Origination Fee portion (up to $6,000.00) can be advanced per transaction on pending loans scheduled to close within a maximum of 85 days. Setting up an account is free and all approved advances fund within one business day. Supporting documentation includes: • a signed 1009 • a signed good faith estimate • a completed appraisal report OR FHA assigned case number • an escrow/title file number Most companies start off by advancing $10K to $25K. For originators needing to advance larger portions of their pending pipeline, eCommission can establish credit limits of up to $200K in most cases. In addition, eCommission offers smaller March 2009

advances to loan officers on a case-bycase basis as secured by their company. Industry feedback has been positive. Tony Garcia, founder and board member of the National Reverse Mortgage Lending Association (NRMLA) and CEO of LibertyStreet Financial Group says, “eCommission has been an important service for us over the past several months. The financing option they provide is very much needed within the reverse industry and I highly recommend them.” “I’m not easily impressed.” Says John Railey, President of Homestar Mortgage, Inc. “But eCommission has impressed me with the speed and ease of their service. We have a large inventory of loans to get through right now. Accessing some of these commissions ahead of closing is very helpful.” So how much does it cost to advance a commission? The answer is, it varies depending on the amount requested and the length of time until the loan closes. On average, the cost is 5% of the requested commission amount. So is commission advance right for you? There are several factors to consider. First, you will want to make sure the loans you wish to advance represent only a portion of your company’s total pending pipeline. This is helpful in case some of them fail to close for any reason. In those situations, the commissions are either repaid directly or replaced using the proceeds from different pending loans. Secondly, you will want to gauge the relative strength of the loans that make up your pending pipeline. Remember, you are assigning portions of the commissions that occur as a result of them closing as scheduled, so choose the strongest loans with the highest probability of closing within the shortest period of time. Finally, you should understand that advancing commissions is generally not done on a continuous basis. Most customers will advance in order to solve an immediate cash flow shortage or to take advantage of marketing opportunities like spreading the word on the HECM loan limits being raised to $625,500 for example. If you are interested in setting up a free Reverse Mortgage Commission Advance account for your business, please contact Sean Whaling, President of eCommission Financial Services, Inc. toll free at 877-882-4368, ext. 866 or e-mail [email protected] or online at http://www.ecommission.com/mortgageadvance. html

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Transform your “presentation” into a “conversation” for maximum sales impact!

sabotage trust. I found that a simple statement delivered respectfully would communicate my concern, elevate my stature and give the prospect permission to “quit blaming themselves.”

High performance people in our business understand that sales requires more sophistication than simply identifying features and benefits, talking about the product, and asking for the sale.

For example, “Are you aware that 450,000 persons have completed a reverse mortgage? Many of those people faced the same challenges that you face. You’re not the only one. Life happens. I’m here today to discuss your options.”

Top producers are thinking counselors. They demonstrate a facility for inquiry, synthesis, and persuasion. The sales professional who really wants to excel must perfect the art of communication. This includes an emphasis on intently listening, asking meaningful questions, and letting the ideas register in the client’s mind. The communication must be specific to the audience and must be spoken in the appropriate dialect. There are four phases in the kitchen table conversation: (1) the relational, (2) the conceptual, (3) the practical, and (4) the tactical. In this issue I will cover the first two phases, which set the “stage” for decision making by both salesperson and prospect. The remaining two phases will be discussed in next month’s article. The result of methodically working through each of these phases is that all parties will find a place of comfort and confidence. The salesperson will feel secure in their recommendation and the prospect will then find the freedom to say, “Yes.” You have a sale. They become a client. First things first Establish some common ground. Drop the sales and be a person. The relational phase gives you an opportunity to make a friend, and provides a foundation for the resultant conversation. It gives you, the salesperson and the customer, time to develop trust. It’s the time for the salesperson to demonstrate

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Empathy can unlock denial. authentic concern. This paves the way for deeper, probing questions that uncover the customer’s true need and interest. Heartburn or heart attack If you hope to gain a complete revelation of their situation (the real story), you must connect. The relational phase consists of three connecting elements: affirmation, empathy, and credibility. First, authentic affirmation is the opposite of a condescending comment. I’m not asking you to play games. You’re an invited guest. Treat the invitation as a privilege. Say something positive. A compliment can be as simple as “You gave me great directions. I didn’t get lost. I struggle with this all the time and I want to thank you for your help.” Find something in their life, home, or neighborhood, and offer a compliment. “You have a wonderful family. I see all the pictures on the wall. You must be very proud of them. Congratulations,” or “You have a charming home. The yard just looks great.” Say something truthful and encouraging. Second, demonstrate appropriate concern. Contrived empathy is unkind, disrespectful, and likely to reversereview.com

Third, practice the five rules of being a credible person: likability, composure, dynamism, confidence, and reliability. Don’t overstate your firm’s status or your credentials. State your unique sales proposition and move on. “I want to work with you to tailor a solution that addresses your specific situation. I am happy to provide references should you desire.” Discover the transcendent objective. The goal of the relational phase of the kitchen table conversation is to establish trust and then to find out “what business you’re in.” Learn about your prospect’s dreams and goals. Uncover their transcendent objective? Is it peace of mind? Is it connecting with their family? Is it to travel the world and revisit famous places seen long ago? “High level” agreement In the conceptual phase, you’re giving the prospect an opportunity to “cut to the chase” and identify their “significant objections.” For example, I was shopping for a bed and a salesman met me at the door. Before I could say a word, he said, “Don’t worry. All I want you to do is find a bed

that will help you sleep. I want you to assume they’re all free. If that were the case, which one would you like to take home?” That was a conceptual frame. First things first: is there a bed that meets my sleeping comfort needs and desires? Is there something that will inspire comfortable rest? Let’s start with that. If there isn’t one in the room, we don’t need to go any further. I’m going to go down the road. “detail noise” vs “solution benefit” I didn’t begin worrying about price, financing, or anything. I just began to think about what it was going to take to satisfy me. That’s exactly what we need to do in any sales conversation. We need to begin with conceptual exploration. We want to eliminate the detail “noise” and focus on the solution. We’ll deal with the noise later. If there isn’t a conceptual solution in our toolkit that’s appropriate for this prospect, then we don’t need to worry about explaining all the details. It’s not going to be appropriate or they’re not going to like it anyway. We would just move on. The “conceptual sale” is typically the most overlooked part of a sales conversation. How do you feel about using home equity to meet your financial objective? When you leave a sales opportunity without taking the order, did you obtain conceptual agreement? And, it’s always better sooner rather than later because it also provides a foundation from which you can handle objections.

conceptual is that once they agree to the concept, the rest is really an explanation of how it works. Then, it’s more of an “if-it’s-a-fit” than a “should-we-doit” decision. You’ve crossed the most treacherous decision chasm. Does that mean that every time you get conceptual agreement the deal happens? No. I realize there can be issues that prevent them from proceeding. A macro view However, conceptual agreement is where to begin. The conceptual component embodies the macro view of the opportunity and then allows you to drill down to the basic questions: “Is this solution, the right solution? What are we looking to accomplish? Have you thought about your options?” The objective of this phase of the sales conversation is to determine if the reverse mortgage product is the best solution for this particular senior. The conceptual phase is comprised of three parts: 1) Pinpoint their need or desire. 2) Discuss their options. 3) Clarify the uniqueness of your solution.



Take your time. Show respect, and obtain permission to ask questions. Listen closely. One of the important benefits of this step is that it allows the prospect to share their concerns, their early objections, and any preconceived ideas and misunderstandings they may have about the program.

Diving into details before obtaining conceptual agreement confuses the prospect. We create noise that obscures the central points of the encounter: 1) the client’s needs and wants, and 2) the benefit of our solution.

Use this dialogue as a strategic qualifier or as a temperature-taking benchmark. Is this person going to be able to pull the trigger or not? The following questions might help you make this determination.

The beauty of beginning with the

First, “Is this the home where you want March 2009

to live the rest of your life in if you could?” That’s sort of an open-ended, conceptual-type, high-level question. Second, “If you had access to more money, would your life be a little bit better? Would you rest easier?” Third, “How do you feel about putting your home to work for you?” These basic probing questions create a level of awareness on the client’s part that will help move the conversation forward. MIP this. It’s not about the rate or fees. At the end of the day, you must determine if this person can find comfort with the notion of accessing equity to accomplish their objective. That’s conceptual. The optimal result in any conversation is that both parties are heard. Sales is no different. The two phases discussed in this article, the relational and conceptual, are key to accessing the real customer story and assessing the prospect’s capacity to buy. Once the “real story” is discovered, you are able to prescribe a solution that is appropriate and attractive. Then, the prospect has the best opportunity to choose the best course of action. In Part 2 of “Can you hear me, now?” I will share with you how to make the details palatable by mastering the practical and tactical phases of the sales conversation.

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Transform Your “presentation” into a “conversation” for maximum sales impact!”

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HECM at 20: Industry Captains’ conversation with Atare Agbamu, a TRR Exclusive series

Why Jumbo Reverse could be in Limbo for Years:

J

A Conversation With

Jeffrey M. Lewis, Chairman Generation Mortgage Company 18

By Atare E. Agbamu, CRMS reversereview.com

Wall Street and Main Street are joined at the hip: One cannot prosper without the other. This is a take away from the current mortgage and credit crisis. For Reverse-lenders, the exit of jumbo programs causes hardship for customers who live in homes valued higher than the recent national HECM limit of $417,000.* Many of these customers need relief from forward-mortgage monthly payments now. While HECM reverse mortgage is their only hope of keeping their homes, they cannot get relief because FHA’s puzzling $417,000 national limit for HECM (HERA 2008 had approved up to $625,000) defies reality in the reverse-mortgage marketplace today: jumbo reverse mortgages are nonexistent. Jumbo is simply in limbo.

“

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WALL STREET AND MAIN STREET ARE JOINED AT THE HIP: ONE CANNOT PROSPER WITHOUT THE OTHER. THIS IS A TAKE AWAY FROM THE CURRENT MORTGAGE AND CREDIT CRISIS

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Technology. Training. Support. All from one reverse mortgage partner.

If you’re an FHA-approved lender, call 1-866-359-3817 to start the conversation. Mortgage financing provided by MetLife Home Loans, a Division of MetLife Bank, N.A., Equal Housing Lender. © 2009 METLIFE, INC. L0209017259[exp0210][All States][DC] PEANUTS © United Feature Syndicate, Inc.

March 2009

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ONE OF THE CONSEQUENCES OF WHAT HAS HAPPENED RECENTLY IS THAT WE’VE GOT THIS GREAT DISCONNECT BETWEEN WHERE ASSETS THAT ARE GOVERNMENT-BACKED TRADE VERSUS ASSETS THAT RELY ON THEIR OWN CHARACTERISTICS AND CREDIT QUALITY

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Meanwhile, industry conventional wisdom assumes that as soon as investors start buying mortgage-backed securities, jumbo reverse programs will come back, and all will be well again.

Not so soon says Wall Street veteran, Jeffrey M. Lewis. A senior managing director at Guggenheim Partners, Lewis is Chairman of Atlanta-based Generation Mortgage Company, a top-12 independent reverse mortgage lender/servicer. Guggenheim Partners, the controlling shareholder of Generation Mortgage, is a global financial services company, managing more than $125 billion in assets. Before helping to build Generation three years ago, Lewis formed and ran the fixed income derivatives group at Donaldson, Lufkin, & Jenrette (DLJ), where he also managed the mortgage arbitrage unit and co-led residential mortgage trading. Lewis earned a BA in Government and an MBA in Finance from Cornell University in New York. We spoke recently about the jumbo reverse market, Wall Street, and other industry issues.

rates than those at which people want to borrow money today.

AEA: Jeff, what is the short-term and long-term outlook for reverse mortgages in the secondary market?

One of the consequences of what has happened recently is that we’ve got this great disconnect between where assets that are government-backed trade versus assets that rely on their own characteristics and credit quality.

JML: We’ve got a lot of issues. In the short term, there will not be a market for jumbo products for years. That is the result of the enormous overhang of distressed mortgage paper in the marketplace. Investors who want to buy mortgage assets have return hurdles that are consistent with what is available for them to buy. Those are much higher

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Interestingly, in the traditional mortgage market, there are a couple of things working for people that are not present in our market: One, they have much larger loan limits on government loans. Unfortunately for us, we don’t have the

reversereview.com

benefit of the same limits. Two, there are many large banks who believe that making jumbo mortgage loans at rates where they could not resell the loans, but where they still make reasonable ROE [return on equity], is a good subsidy to provide to their large consumer businesses. That explains the availability of money at off market rates for people with jumbos in the traditional forward space. It is a very large market, and it has a lot of other connections in terms of the other products and services they want to purvey to those clients. But I think it will be some time before they are available in our market.

JML: There are two things that have to happen to allow a jumbo market to come back. First, housing needs to bottom. Apparently, I am a bull because I believe housing could bottom within six months. Second, spreads on existing assets have to normalize. They have to get back to a level where we can issue 350, 400, 450 [margins] over jumbo to a customer and be able to get par for it. We are so far away from it right now that it is hard to imagine when the spreads will narrow. Even if there were no concerns about future housing price declines, the rate issue is just a killer. AEA: The spreads, right?

The other critical issue we have today is that Wall Street has basically disappeared. There is no securitization market. And as an industry, our volumes [reverse] are so small that we are really not worth anybody’s attention from the standpoint of even purchasing our government loans or Ginnie Maes. So, we are in a world where Fannie Mae knows they are the only game in town. They have been reducing their level of aggressiveness in the last several weeks. We very much appreciate that Fannie Mae has been acting as a bellwether for our industry. AEA: You said we are not going to have jumbos for years. That is a little disturbing. How many years are we talking about?

JML: Yes, the spreads. The spreads that are out there …. We have to remember that portfolios of uninsured reverse mortgages will always have a lower rate of return than the stated coupon [rate]. So, when we were making loans that were 350 [margin] over on a stated rate, we knew some people would move out of their homes when their houses were still covering the loan. And that some percentage, by definition, would live long enough that they would cause you to not earn the full coupon. Their houses will no longer satisfy the balances when the loan matures. So, everyone’s estimate of how many losses there might be would be different, but everybody would say that a portfolio of jumbo reverse mortgages would always have a lower return than the stated coupon. And my guess is that most of the loans

»

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If you’re an FHA-approved lender, call 1-866-359-3817 to start the conversation. Mortgage financing provided by MetLife Home Loans, a Division of MetLife Bank, N.A., Equal Housing Lender. © 2009 METLIFE, INC. L0209017257[exp0210][All States][DC] PEANUTS © United Feature Syndicate, Inc.

March 2009

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THE GROWING NUMBER OF POTENTIAL CUSTOMERS THAT WE HAVE IS GROWING AND GROWING. I THINK IT MEANS OUR INDUSTRY IS GOING TO CONTINUE TO GROW RAPIDLY

we are making on the assumptions we had, if they were 350 over stated, we probably thought might earn 200/225 over net of the losses that will take place in the portfolio. In a world where triple-A bonds could be issued at very low spreads, 200 over was a good enough starting point in terms of the overall yield. They were securitize-able and they were securitized. But nowadays, when you think of what that expected return would need to be to starting out in order to have enough raw materials [loans are raw materials for Wall Street’s securitization factories] to work with in the investor community, I can’t even begin to imagine what that number is --- 500, 600, 800? I don’t know what that number is. It is many, many, many points wider than where we were before. AEA: We are still talking near term. You talked about the overhang and the size of existing portfolios of reversemortgage-backed securities. What is the size of the overhang in dollars? JML: The overhang is in the mortgage market in general. The issue is not that there are too many reverse mortgages around. We are a tiny, tiny, tiny subset of the mortgage market. And we price off the rest of the mortgage market. If you are a mortgage investor, you are going to segment different parts of the market, and demand returns depending on what segment you are in. We would be considered an offthe-run, illiquid segment with small volume. So that already puts a little bit more yield in there. AEA: Our products, though, have some very good investment characteristics that make them more attractive than forward mortgage-backed securities, right? JML: They are extremely different. At the end of the day, returns are returns. As we love to say in the bond market, “There is no such thing as a good or bad bond, only a good or bad price.” Reverse mortgages have a lot of characteristics that are unusual relative to traditional loans that make them a little bit difficult to sell. They also have a lot of characteristics that, when people understand them, make them attractive. It is a mixed bag. I don’t think it is safe to say it is all good.

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The lack of current interest [cash flow?] is a big deal because most investors are basically match-funding when they buy these kinds of assets, and they have to pay interest when they purchase something. Whether they have to pay interest on a deposit or a debt instrument or whatever, they have to pay when they buy. So if they buy an instrument that accrues rather than pays interest; that creates problems. The offset to that, of course, is that these loans do repay for a variety of reasons. And when you look at a portfolio of reverse mortgages, they actually have a fair amount of cash flow and can service some kind of liability. But it takes a lot of work and analysis to really understand that. AEA: Isn’t that an opportunity for those of you in the secondary market who have done your homework? JML: Yes. AEA: Let’s look at long-term. What do you see long-term for our market? JML: Long-term? We obviously have a set of circumstances where our product is going to become part of the mainstream. When we started Generation three years ago, I would still say, we were talking about a fringe financial instrument. And I feel that with the necessity that is out there in the world with respect to people’s needs for funds, the fact that other retirement assets have been decimated by what is taking place in the capital markets, the need is as acute as it has ever been in our industry. Every year, more new seniors pass through the turnstiles and join the ranks. That trend is in place, and there is nothing that can be done to change that. And most importantly for our product, I think the level of satisfaction that our customers have had has been off the charts. It has been very, very positive. A lot of the misperceptions and misconceptions that people had about the product, that might have made them hesitate in the past have really been put aside. The combination of all those things is a really good value proposition for the customer.

reversereview.com

And the number of potential customers that we have is growing and growing. I think it means our industry is going to continue to grow rapidly. I wouldn’t be surprise to see that 2009 calendar year is 40-50 percent higher than 2008 calendar year as far as unit volume. AEA: We also talked about the HECM loan limit. It has gone up a bit under HERA (Housing and Economic Recovery Act of 2008). Why do you believe it hasn’t gone up enough? JML: I am a free-markets guy. I don’t want the government to do everything for everybody. I’d prefer that the markets should take care of as many things as possible. But the fact is that, as I have described, the jumbo market is unlikely to function in the near future. In the interim, it would have made more sense for us to have the kinds of loan limits that the traditional mortgage market has. It was our view that that was the intention of the housing bill that was passed in the fall (HERA). The intention of that bill was to make the HECM limits one and the same as the Freddie Mac limits. It was a complicated piece of legislation that was put together pretty quickly. The language in the bill left an opening. The bill said the HECM limit – “will not exceed”-the Freddie Mac limit. That made it sound that it could be anywhere between the Freddie Mac limit and one dollar, and that it is up to HUD to decide what that number is. I think

a lot of constitutional scholars will tell you that there was undue delegation by the legislative branch to the executive if the limit was really that open-ended. Many of the legislators who voted on that bill believed that what that language meant was that the HECM limit will be the same as the Freddie Mac limit There was this discussion that took place behind closed doors with Republican Senators and HUD regulators and other people, which didn’t include us, which somehow decided that a completely random number other than the Freddie Mac limit should be our limit. AEA: And these would be in markets such as California, Florida, and others with high-priced homes, right? JML: It not just in the high-priced areas, it is also in some of the moderately-priced areas where we have people who are still house-rich and otherwise poor. It is not uncommon to find people who are in that situation at all levels of house value. It is not just at the lowest levels. AEA: So what do you think really happened? JML: I can’t speculate, but I can tell you that when we read the bill, we were very happy. We thought that the language was a little strange “…shall not exceed …,” but it still seemed

»

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If you’re an FHA-approved lender, call 1-866-359-3817 to start the conversation. Mortgage financing provided by MetLife Home Loans, a Division of MetLife Bank, N.A., Equal Housing Lender. © 2009 METLIFE, INC. L0209017255[exp0210][All States][DC] PEANUTS © United Feature Syndicate, Inc.

March 2009

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to indicate that the intention of it was to give us those limits. When they did the temporary limit increase in the traditional market a few months earlier, we were specifically excluded by the language in the bill from that increase. Again, I don’t understand the reason for that, but we were. So, I thought it was pretty clear by the fact that we were not excluded, that we were meant to be included. The intention was to give us the Freddie limit. I am hopeful that at some point in the next administration, some folks will take a look at this and realize that, perhaps, a mistake was made. Often in our industry, Atare, especially on the refinancings, we’d see that we are just short on available proceeds to be able to repay the existing debt. We are in a tough time and the appraisals are falling very, very rapidly. AEA: A lot of people have jumped out of the business. We’ve seen some consolidation. Are we going to see people coming into reverse mortgages from the secondary market as the credit situation improves? JML: I think for the time being, institutions aren’t really thinking offensively; they are thinking defensively. In time, people will probably start thinking more strategically. I think it would be a while before you see a lot of entry. It is an industry that is idiosyncratic; it’s different. It requires a lot of commitment. It requires a lot of patience. Right now, I think

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people’s resources and attention spans are stretched by the other things that are happening. AEA: What do you like about HERA and the changes it has brought to reverse mortgages? JML: We are certainly happy to go from a range of $200,000/$362,000 to $417,000. It is an improvement, and it is going to help a lot people. From that perspective, sure, we are happy. We’d have been happier if what was implemented was what was enacted. AEA: Is it possible that part of the reason the government didn’t raise the limit higher is the presumption that most people who have those kinds of homes don’t need cash? JML: It is not true. And as I said, your proceeds are not the limit. If the limit is $417,000, your proceeds are a percentage of that based on your age and interest rates at the time. So, roughly speaking, a 70-year-old might be looking at a maximum, if their house is worth $417,000 or over, something like $250,000. So when you are talking of people having a mortgage obligation over $250,000 that doesn’t necessarily make that person a rich person. AEA: You are right. Let’s talk about your company. What is going on at Generation? JML: We are growing very rapidly at Generation. We are a national company. I guess we are the most significant independent company left in the industry. Everybody else is pretty much part of a larger company. I think our reputation for service and for taking care of our clients is really our best asset. There is a wonderful culture in the company, and we are very pleased to have survived the worst of the turmoil. [Now] we are looking forward to being a market leader in this industry as we come out of this turmoil. AEA: You hired Jack Kemp as your spokesperson. Is he still your spokesperson? JML: He is. Unfortunately, there was a press release out of his office today [January 7, 2009]. He’s not really our spokesperson; he is an investor in our company. He’s not a pitch guy like these other companies have. Secretary Kemp is having some health-related issues right now, and our thoughts are with him and his wonderful family as they work through them. AEA: He’s good man. He was HUD Secretary when the program started. The opening quotation in my recent book came from his words in the first guide to HECM in

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1989. He’s definitely part of reverse mortgage history in this country.

AEA: What advice do you have for new entrants into this business?

whom we deal. Make sure you understand your moral obligation in this arena when all your customers are retirees and senior citizens. In the industry to date, my competitors generally have maintained very high standards with respect to how they have serviced our client base. I’d be very disappointed if people who didn’t understand that culture of commitment to clients got into our industry and mess that up.

JML: My advice would be to make sure you understand the instrument. It is a complicated instrument. Make sure you understand all your obligations in the regulatory framework. It is a highly-regulated and highly-protected customer with

*Author’s Note: At press time, the Obama’s stimulus law contains language that raised the HECM national loan limit to $625,000 for 2009, bringing it in line with forward mortgage FHA limit.

JML: That’s true. He is a giant in the fight for affordable housing in this country.

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MAKE SURE YOU UNDERSTAND YOUR MORAL OBLIGATION IN THIS ARENA WHEN ALL YOUR CUSTOMERS ARE RETIREES AND SENIOR CITIZENS

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Technology. Training. Support. All from one reverse mortgage partner.

If you’re an FHA-approved lender, call 1-866-359-3817 to start the conversation. Mortgage financing provided by MetLife Home Loans, a Division of MetLife Bank, N.A., Equal Housing Lender. © 2009 METLIFE, INC. L0209017256[exp0210][All States][DC] PEANUTS © United Feature Syndicate, Inc.

March 2009

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Reverse Lenders Transition to Mandatory Live Pricing Technology Solutions That Could Save Your Business Brad Thompson To remain competitive in today’s market, reverse mortgage lenders are feeling the pressure to embrace the new mandatory live pricing requirements recently introduced by Fannie Mae. With private investor purchasing and proprietary portfolio products going away, lenders will find it difficult to ignore Fannie Mae’s new pricing requirements; however, incorporating the new mandatory live pricing and delivery requirements into their pricing strategy opens lenders up to exposure, and increases the risk and challenge of correctly pricing and delivering loans.

Enterprise Lending Solutions can significantly reduce this risk by providing Reverse Lenders with advanced technology, commitment tracking, business workflow and industry knowledge and expertise that provides a comprehensive and streamlined approach to mandatory live pricing and delivery. A solution that puts reverse lenders in a position to minimize risk, optimize market opportunities, while competitively pricing reverse loans to the broker base.

As companies start to adopt this new business model, one that reflects the already familiar forward secondary market commitment and delivery process, many lenders will find themselves behind the curve when it comes to the ability, knowledge base or technological infrastructure to support this new process.

As stated in the August 1st, 2008 Reverse Mortgage Lender Letter 2008-2 “Effective November 3, 2008, Fannie Mae will accept for purchase closed-end, fully drawn fixed rate HECM’s that comply with all relevant Housing and Urban Development regulations and guidance.”

Market Drivers Impacting Reverse Lending Pricing

Starting in November of 2008 Fannie Mae announced it was eliminating the need to

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2009 reverse mortgage lenders are forced to radically change from a fixed pricing basis and move to a mandatory live commitment and delivery method of pricing and selling loans. The majority of reverse lenders simply do not have the technology or expertise required to properly price, track or deliver these commitments in order to secure the required margins and stay competitive in this space.

convey pricing every 60 days through forward negotiated commitments in favor of the new mandatory live pricing model. “Fannie Mae’s new eCommitting process introduces “live pricing” for reverse lenders with commitment periods from as few as two to as many as 90 days. Lenders will obtain a reverse mortgage price via the eCommitting application for the current business day by selecting the following: • Reverse mortgage product • Net margin (ARMs) or pass through rate (fixed-rate) • Commitment period, and • Commitment amount in dollars (based upon unpaid principle balance at time of loan closing). Fannie Mae’s eCommitting will generate a commitment number and expiration date and will lock-in the price for the chosen parameters. Lenders will be obligated to deliver a loan (or set of loans/pool) with the specific parameters input at commitment (e.g. reverse mortgage product, net margin/pass through rate, commitment period, and commitment amount).” This now introduces mandatory pricing and pairoff, over delivery, and extension requirements that reverse lenders must adhere to. According to Fannie Mae in the August 1st, 2008 Reverse Mortgage Lender Letter 2008-2 regarding reverse mortgage ARM’s: “In order to give Lenders time to adjust to the new live pricing process for reverse mortgage ARM’s, which includes mandatory commitments, Fannie Mae will not initially enforce the standard pair-off and over delivery requirements typically associated with mandatory committing, and extensions will not be available. Fannie Mae will provide Lenders with 30 days prior notice of their plans to begin enforcing their standard pair-off fee, over delivery and extension requirements for reverse ARM’s. Fannie Mae will monitor all commitment activity and performance during this initial period which began January 1st, 2009 with a target date of April 1, 2009.”

E

nterprise Lending Solutions can significantly reduce this risk by providing Reverse Lenders with advanced technology, commitment tracking, business workflow and industry knowledge

The Challenges of Mandatory Live Pricing Mandatory live pricing is changing the face of reverse lending. It is critical that lenders gain an understanding of the process and the risks associated with effectively managing their commitments and deliveries. Overall, profitability and success will only be achieved with a thorough understanding of the mandatory margin and rate lock process, pairoffs, over-delivery, and commitment extensions as well as the risks associated with the nondelivery of prior commitments. Lack of Experience The shift to mandatory live pricing is a dramatic change to the way lenders who specialize in reverse mortgages do business. The move to mandatory live pricing clearly demonstrates that the reverse mortgage industry is transitioning itself to the secondary market that currently exists on the forward side of the mortgage industry. This significant change impacts the entire business model of reverse lenders and requires knowledge and expertise that most reverse lenders simply do not have on staff at the current time. There is also a lack of experience by many of the technology vendors in the reverse mortgage space who have solely focused on the reverse mortgage side of the business. While this may have been viewed at one time as a competitive advantage, it is now a significant limitation.

“For fixed-rate HECM’s, the standard pair-off, over-delivery and extension requirements and fees applicable to whole loan commitments per the Selling Guide will apply as of November 3, 2008.” To finish out 2008 many lenders took one last 60-day forward commitment and locked in their pricing for the remainder of the year. Now, in

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By enacting a live pricing process and participating in a secondary market modeled after the forward world which now includes mandatory pricing and pair–offs, over-delivery and commitment extensions, there are now potentially millions of dollars at stake for gain or loss depending on how effectively these commitments are handled by reverse lenders.

Those vendors are experiencing the same learning curve as reverse lenders when trying reversereview.com

than the maximum delivery amount, although we will authorize only one over delivery per commitment. This may occur when a consumer lowers their down payment or when a mortgage is substituted to prevent or reduce a pair-off fee. Whole loan prices at commitment and at over delivery are used to determine if an over delivery fee will be due.”

to understand the nuances and complexities of mandatory pricing, which includes tracking, delivering commitments, pair-offs, over-delivery, and extension commitments. Introducing new functionality into an already existing technology platform can be difficult, tedious and time consuming for technology vendors as well as invasive and potentially destructive for those lenders trying to implement it. New Business Paradigm Before the change to live pricing, Fannie Mae only priced reverse mortgages in 60-day forward negotiated commitments based upon reverse mortgage delivery. Fannie Mae now allows lenders to obtain reverse mortgage commitments ranging from 2 to 90 days. Lenders will now need to distribute daily rate sheets with loan-by-loan margins. The proper tracking and delivery of these commitments, while managing the lender’s pipeline, is vital to the success and sustainability of the organization. This includes the managing and tracking of the lender’s pipeline to evaluate loan margins, best deals “best fit”, and slotting loans daily to effectively meet mandatory delivery commitments. In addition, lenders must be able to manage fall-out in real time within their pipelines. Once again success and profitability will be determined by a lender’s ability to effectively manage this new process, implement automation and utilize business rules and pipeline management to meet mandatory commitments.

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andatory live pricing that is not done correctly exposes lenders to heightened risk and the potential for fee increases with Fannie Mae

Fannie Mae also states “Commitment Extensions are calculated based on the outstanding commitment amount at a flat per diem cost that does not fluctuate with market movements. Since the cost per day to extend does not change, it is recommended that you take the minimum number of days necessary to deliver a commitment. There is no refund on additional days extended, but not used. A commitment may be extended for up to a maximum of 30 days from the original expiration date.” Managing and tracking the pipeline for fall-outs, slotting loans, delivery and making the correct commitments in real time is not a knowledge base or automation technology that most reverse lenders have at this time, which will ultimately prove to be very costly if lenders remain idle. The Solution: True Enterprise Lending Solutions To overcome the new requirements and lack of expertise for reverse lenders to engage in mandatory live pricing strategies, lenders are turning to true Enterprise Lending Solutions. At their core, true Enterprise Lending Solutions reduce risk while achieving an improved return for correctly tracking and delivering loan commitments. With true Enterprise Lending Solutions, reverse lenders can successfully meet the requirements to engage in live pricing, and significantly improve their commitment tracking and delivery success rate by incorporating comprehensive technology and data analytics to address these challenges. Technologies employed include comprehensive pipeline and commitment tracking as well as effective rules-based analysis, automated workflow, extensive real time management tools and comprehensive vendor experience with commitment tracking, delivery and secondary marketing activities.

Risk Exposure (Potential Fee Increases) Mandatory live pricing that is not done correctly exposes lenders to heightened risk and the potential for fee increases with Fannie Mae. For example, as stated by Fannie Mae, “Pair-offs are used to repurchase all or part of a mandatory delivery commitment when customers are unable to deliver the committed dollar amount. Whole loan prices captured at commitment and again at pair-off are used to determine if a pairoff fee will be due, and the amount of pair off.” “Over Deliveries- occasionally, a lender will be faced with an extenuating circumstance that may justify our allowing them to deliver more

On-demand rules-based analysis needs to posses the ability to look at the existing pipeline, March 2009

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Greater Accuracy: In dealing with mandatory live pricing the stakes are already high to mitigate risk, eliminate costly mistakes and reduce loss severity. That is why the accuracy, validity and speed at which lenders can access, analyze and feel confident in the accuracy of the data in their pipeline, and commitment obligations is absolutely vital.

daily loan margins, current commitments, pools and status of lender defined criteria to effectively track all pricing and locking activity. Automated workflow is central to true Enterprise Lending Solutions. The solution should ensure both data and document driven workflow. Automated messaging, document generation and distribution, task queuing with auto-resolution and real time management monitoring and visibility in functionality that should be offered as standard with any true enterprise solution. Fully integrated document imaging and tracking combined with industry knowledge and expertise will lead to a more streamlined approach. The technology provider should have extensive forward and reverse expertise. As the reverse mortgage industry is transitioning itself to the secondary market model that exists in the forward business, reverse lenders can no longer rely on technology vendors whose experience is limited solely to the reverse side of the business. Reverse lenders need to engage and interact now more than ever, with a vendor that has the knowledge and experience to help guide them through this significant change in reverse lending. Important Benefits A number of significant benefits emerge when advanced technology automation, data analytics, real time commitment tracking, pipeline monitoring and extensive industry knowledge are combined to form a comprehensive true Enterprise Lending Solution including: Enhanced Consistency: True Enterprise Lending Solutions create a comprehensive and streamlined approach that creates greater consistency in commitment tracking and delivery. This is even more critical in today’s challenging market as lenders are tasked with doing more with less. Add on the additional pressure of live pricing and without consistent approach, lenders are sure to make costly mistakes.

Gain Expert Advice: With heightened risk exposure, potential for increase in fees to Fannie Mae, having a partner that delivers comprehensive knowledge and understanding of both the forward and reverse lending channels is imperative. Engaging in mandatory live pricing without the proper understanding and technology tools is simply not prudent.

t

he technology provider should have extensive forward and reverse expertise

What to look for in a True Enterprise Lending Solution When looking for a true Enterprise Lending Solution provider, be sure to consider the following requirements: Extensive Commitment Tracking: When incorporating advanced technology, data analytics and extensive industry knowledge to live pricing strategies, lenders will gain maximum pipeline tracking options to deal with these new requirements. This will provide greater flexibility in dealing with the current and ever changing market conditions.

Real Time Information: Provides lenders with the right information at the right time to make informed decisions. Decisions that take into account all of the variables (net margin, pass through rate, commitment period, commitment amount, etc) involved with mandatory live pricing to successfully track, commit and delivery loans profitably.

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Confidence: Enterprise Lending solutions that provide reverse lenders with enhanced consistency, real time information, greater accuracy and expert advice from a trusted and knowledgeable partner allows reverse lenders to feel confident knowing their commitment tracking and delivery is taken care of. What Reverse Lenders Need in an Enterprise Lending Solution • Extensive Commitment Tracking • Superior Technology on One Comprehensive Platform • Pooling & Delivery Capabilities • Data-Driven Workflow Automation • Pipeline Management Tools • Advanced Electronic Document Management & Imaging • Extensive Forward & Reverse Knowledge & Support

Superior Technology on One Comprehensive Platform: Seek a solution that provides full reversereview.com

annotates documents. This creates an electronic audit trail, eliminates re-keying of data and ensure greater data quality and consistency.

end-to-end loan management functionality for both forward and reverse lending which includes commitment tracking, pipeline management, automated decisioning, business rules management, product and pricing, data driven workflow automation as well as electronic document management. Pooling and Delivery Capabilities: Maximizing pipeline value while also taking advantage of investor requirements for specified pools has always been a secondary marketing challenge whether forward or reverse. Utilize a powerful rules engine that models business processes within a rigorous optimization analysis. These rules can incorporate eligibility and aggregation constraints, as well as expected pay-ups, to achieve optimal loan slotting. Utilize a variety of loan delivery vehicles— security and cash, specified pools, etc. Data Driven Workflow Automation: Having one centralized location for maintaining rules, security, products, and workflow are key to workflow automation. This eliminates problems of synchronizing multiple systems, thus reducing the time required to add products, change processes, and adapt to the competitive landscape. It also provides the ability to quickly and easily access data required by your customers. The solution should offer sophisticated data driven workflow automation (powered by a robust Rules Engine) including auto-resolution capabilities that greatly improve efficiencies, mitigate the need for additional training and deliver a significant increase in employee productivity and customer service. Pipeline Management Tools: Being able to view your pipeline in real time to determine your current market position, tracking your commitment period and amount of commitments is vital. Effective pipeline management tools also allow for fall-out tracking to ensure that commitments are properly met. Managing your pipeline to avoid unnecessary fees and or additional steps such as pair-offs, over-delivery and commitment extensions is critical to the future success of reverse lenders.

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s reverse lenders transition to mandatory live pricing, there are technology solutions and solution providers that could save your business

Extensive Forward & Reverse Knowledge & Support: Find a company that will partner with you for the long-term. One that understands the full spectrum of industry issues in both forward and reverse as well as offer the best mix of solutions to meet the needs of your business. The company should provide consulting, technology implementation, training, support and in depth industry expertise. Experience and expertise in dealing with mandatory live pricing on the forward side provides great insight, best practices and proven solutions that are ready for market now. Don’t risk working with a reverse vendor that is learning the ropes along with you, your business is too important to take that type of risk. The move to mandatory live pricing clearly illustrates that the reverse mortgage industry is transitioning to the secondary market-pricing model that currently exists on the forward side. This includes the ability to effectively: price, lock, commit, deliver, and track all of this secondary market activity for reverse lenders. This presents opportunities to deliver more competitive pricing and increased margins, but it also significantly increases risk and loss severity when commitments are not tracked and delivered correctly. Traditional thinking and looking to familiar sources (current reverse vendors) that focus solely on the reverse business is not the answer when trying to deal with this dramatic change in how reverse mortgages are priced. Enterprise Lending Solutions that deliver both forward and reverse automation for commitment tracking and delivery, backed by experts who have been producing mandatory live pricing solutions to lenders nationwide for many years, is the most prudent direction to go. As reverse lenders transition to mandatory live pricing, there are technology solutions and solution providers that could save your business. The time for reverse lenders to embrace Enterprise Lending Solutions that handle both forward and reverse mortgages is now. Your business simply cannot afford to not handle mandatory live pricing correctly.

Advanced Electronic Document Management & Imaging: Look for a solution that can capture any document from anywhere, utilizes Optical Character Recognition (OCR), efficiently indexes and stores documents, automates events, actions and data analysis, retrieves specific documents for specific tasks and views and March 2009

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Here is your own 4 Day marketing plan Getting back to the Basics Sam Collins

Technology is great. As a matter of fact I think you need to embrace it fully, if not your future success may be endangered. However, before venturing into the realm of the unknown, you should consider revisiting the known. Yes, we all need to be and become better at the basics. Fundamentally, the basics of a good sound marketing plan and strategy are the same and will never change. However, being known that all things are equal, few of us really follow and stick to a basic marketing plan. We’re still early into the year, so it’s not too late to get on track with the basics. Considering the current state of the economy we need to consider maximizing every dollar we spend. Once we’ve spent those dollars we need to insure our marketing investment pays off. Simply stated, “What you choose to attract, you will.” This is where many problems for reverse mortgage loan officers begin; they don’t plan specifically how they want to attract senior prospects. So instead of enjoying the benefits of great senior client relationships, reverse mortgage marketers can get headaches and frustrations due to a lack of success and poor lead generation. Planning is the foundation from which you should build your senior reverse mortgage marketing approach. The planning process helps you yield decisions on how to best compete. If you take the time to properly plan you can avoid many of the common mistakes loan officers make in creating an overall marketing strategy. Here are some of the important questions you want to ask: Do you have specific planning tools, which are designed, and monitor to: - Estimate the daily number of originations needed to achieve your financial goals? - Estimate the number of senior relationships needed to reach your daily origination goal? In other words, how many senior prospects do you need to speak with on a monthly basis to yield the results you want?

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- Have you established a marketing budget based on your actual expenses that calculate your true senior prospect acquisition costs? In other words, do you know your true lead costs and what it takes to give you the touches you need to be successful? - Have you reviewed closed loans to uncover senior marketing data that improves the quality of your mortgage marketing messages? - Profile the ideal senior prospect based on demographics, values and behaviors, this approach will reveal what works best in your market. Once this is determined, you will have a better handle on your senior profile and how best to craft a message to them. If you don’t have the proper planning tools in place, you’re like a ship’s captain in the middle of the ocean with no GPS. You don’t know where you’re going, you have no idea where you are when you arrive, and upon returning, don’t know where you’ve been. Do you have a system that works and creates results? Today an automated system is essential for you to develop your strategy. It can also help you stand out from the competition and get you noticed by your senior clients, otherwise you’re invisible to them. You want an approach that establishes familiarity and fosters trust, which are the building blocks for attracting seniors to your business. Are you properly positioned to get all you can from your investment, which includes both your time and money?

reversereview.com

A position is a place in your senior’s mind. You want to use positioning as a communication tool to reach targeted seniors in an information-overloaded market space. By narrowing your focus, you can build a position as a specialist in your senior’s mind. This specialization will increase the chances of your message cutting through the communications jungle. Instead of competing with every competitor in your town, you’re creating a niche specialty in which you can become recognized as the senior reverse mortgage expert. Once you’ve achieved expert status, you will have other professionals seeking you out.

You bet, my photos are professional looking, clear, and unmistakably first class. Our informational brochure was designed by a graphics design professional and printed by a professional print house, customized with our personal, and company contact information. You also have complete control over how your image is perceived, what it communicates and how it can even influence the outcome in your seniors mind. Do you have a professional presentation folder? Do you have a professional company logo design? If not, these resources are easily accessible and available in your marketing area. Rolling Forward for the remainder of the year… Why not start off by keeping a record of what you do daily and how your marketing is completed in a proper Sequence?

When Alice (Alice in Wonderland) asks the Cheshire cat which path to take, he responds, “If you don’t care where you’re going, it doesn’t make a difference which path you take.” This is quite a profound statement. If you don’t invest resources, like time, energy and money, into enhancing your position, then you’ll be perceived as coming from a multi-headed creature - speaking from many mouths, saying nothing and going absolutely nowhere. Of course this is what you don’t want to do. Now is the time to beef up your investment. Why? Because when times get tough, the first thing most marketers do is cut their marketing budgets. This week please do the following: make sure you collect all of the mail delivered to your home. Compare your mail delivery for the next 4 weeks. Next, count the pieces you receive from week to week. I would almost wager you will see the direct mail deliveries decline over a 4 week test. What does this mean to you? Opportunity! Yes, now the mail is less cluttered and your piece has a chance to get opened. Have you developed and practiced your professional presentation? Often, it’s the marketing materials you give to your senior prospects that give them a first impression of you. Perceptions are formed beginning with the quality of your marketing materials that promote your services. Packaging of your marketing materials is your opportunity to build a brand identity with your senior that they’ll trust. If you’re out of sight, you’re out of mind. Most of us are visually attracted. Remember the phrase, “Never judge a book by its cover.” In the real world, I’m sure you’ve figured out that your cover is always judged with lightning speed. For example, I spent 2 hours with a photographer who did a photo of me, costing $250. Was it worth the money?

What is a sequence? In the context of senior marketing, “Sequence” is one of the most important parts of your marketing and the one many originators fail to do when connecting the dots. Your marketing sequences move your senior client from one stage of the origination process to the next stage. These stages are done in a logical and predictive manner. You need to think logically how your senior client subconsciously perceives these sequences from their perspectives and write them down in the proper order. Your goal in marketing sequences is to get the senior client moving forward by providing information in an understandable and educational manner to move them toward expressing an interest in speaking with you about a reverse mortgage. However, this is easier said than done, since our timing and our senior client’s timing are often on different schedules. Without sequences, many originators ‘Give Up” too soon. Giving up too soon allows competitors to take your business. Remember, once you capture a potential senior prospect, your cost has already been incurred. Using sequence marketing will produce the most results and yield you the highest income and profits over the longest period of time. Finally, here is the simplest way to get started. Start from the beginning. Do one thing at time, but do something. We all have great ideas and the best intentions, but most of us never follow through with them. Make a note on your calendar to start your 4 day marketing plan today and get back to the basics. Good Luck!

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In our last segment outlining a successful reverse mortgage training program for your company, we reviewed important points such as setting the proper tone for training, creating enthusiasm and giving loan officers a sense of where they stand by providing historical perspective, marketplace insight, and information about the senior demographic. Since the reverse mortgage is an educational sale, product knowledge is very important. The best reverse mortgage training will combine sales technique with product knowledge. The technique should be developed, refined and reinforced throughout the training by role playing, modeling and reiteration. The goal is to have the technique become second nature to the loan officers. Our goal should be to cultivate a customer for life. Satisfied customers are the most significant source of referrals. In this fashion, one excellent loan transaction can bring about many others. This will only happen if our client perceives real value in having dealt with us. Remember, we are already paid and expected to do a good job. Where all the rest comes in is when we are perceived to do an excellent job, above and beyond and well worthy of praise. Building perceived value should always be a consideration in our sales process. We should never miss an opportunity to do so. Neither should we miss an opportunity to set the expectation for referrals. The way your client can best express their appreciation for a job well done is to speak glowingly of you! A basic fact of sales psychology is that the borrower is primarily concerned with meeting their own needs and satisfying their own desires. Our sales process is all about communicating to the borrower in a way that is meaningful. It should speak directly to them about their wants and needs. They should hear loud and clear that the reverse mortgage could provide a meaningful solution for them in their unique situation. For a full appreciation of this, discuss with your students exactly what should be happening during an initial sales call. The first part of your sale is a fact finding mission! You want to not only obtain the simple qualifying information about the borrower but also understand the borrower’s unique sit-

uation so you can best structure a loan to meet their needs. Be extremely attentive to each borrower. A good loan officer is truly interested in their clients and will use active listening to encourage borrowers to speak about themselves. It is the listening, not the talking that is important. Many reverse loan officers will use a pre-qualifying sheet to gather initial information during an interview. Train your loan officers to use this tool as a prompt to help borrowers be forthcoming with information. This provides for a deep understanding as to what is meaningful to the client. While pre-qualification sheets often ask information about the home, mortgage and borrower, make sure your loan officers know how to ask open ended questions and listen strategically. Remind them that we need to help borrowers clarify their situations. If a client is responding to your ad, it’s because they have a hope that the reverse mortgage may meet a need they have. In fact, it may meet many needs. Use simple conversation openers such as: “In a perfect world, what would you hope this would accomplish for you?” Another question could be: “What is it that most interests you about this product?” Make sure to elaborate and take notes. It is these details that will later allow you to structure the reverse mortgage in a way that uniquely addresses their situation. An important point to remember here is that consumers don’t want to be manipulated and often avoid making a phone call for that very reason. When you have the opportunity to speak to someone brave enough to call and get information on what might be valuable to them, avoid immediately trying to sell them a bill of goods. Be polite and respectfully answer their questions even if sometimes it is with a question of your own! You are here to help them learn about the opportunity that exists with the reverse mortgage product and make their own decisions about whether or not it is right for them. This can’t be accomplished without a complete understanding of the borrower’s situation and you need to get that far. Avoid making any kind of promises even if you know a client is well qualified. Initially speak only in general terms

Creating a World Class Reverse Mortgage Training Program PART TWO Jacqueline Del Priore 34

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about the product, for example, you may want to say: “A reverse mortgage could provide lifetime payments for qualified buyers. A reverse mortgage will satisfy the current mortgage, eliminating that payment. Because the reverse mortgage does not require a payment, the borrower will not have to make a payment for as long as they live in the home.” Let the borrower imagine how this might be of value to them and let them be engaged with you to see if this could possibly happen for them. If you disclose the borrower’s benefit upfront, they will have no reason to speak further with you and will go off on their own to contemplate the value in the information without your assistance. You will have done a disservice both to yourself and the customer! The reverse mortgage can sound too good to be true creating, an underlying need to be cautious. It is sometimes good to introduce a negative point, such as; “The HECM isn’t well suited for everyone. My job is to help you determine if and how it can best work for you.” It is almost always beneficial to pause between the information gathering part of the sales process and the benefit presentation. This pause will help to create value in the service you are providing. After having an initial meeting or phone call with a borrower, thank them and promise to get back to them after making a careful analysis of their situation. At times, this suggestion will be met with resistance. Explain why time is needed and the importance of being thorough in not overlooking a benefit to them. This could mean calling them back in an hour, or meeting them later in their home. It activates the powerful rule of reciprocity. If a borrower feels you are working on their behalf, they are more likely to work with you. It also helps to create anticipation and excitement about our product. In the information gathering stage the borrower is defining what they need. In doing so, they create a mental wish list. When we create a pause, we afford them the opportunity to experience what that wish list represents to them. For example, in contemplating the possibility of receiving an extra $500 a month, they begin to taste the experience of what that money could mean to them. They begin to dream about doing the things they could be doing if they had that money. In a very real way, the pause is building a value proposition in dealing with you. In the interim, your work will include not only calculating their benefit, but structuring it in a way that best suits their needs. The documents you create will illustrate this structure. More importantly, you will begin to structure your sales presentation by outlining all the benefits to the borrower that the loan provides and what each benefit means to the borrower. While the sales presentation will hold the answers to the borrower’s questions, a general explanation as to how the principal loan limit is determined will have to do at first. When we last left off in product training, your loan officers could explain all components of the principal limit calculation. Explaining the structure and function as it pertains specifically to the borrower is best left to the second part of the sales process which is the actual presentation. Once the motivation for the sale has been completely uncovered, and there is a benefit to the borrower in proceeding with the mortgage, the transaction can move into the sales presentation phase.

THE INDUSTRY STANDARD SINCE 1995 The Industry Standard is not just a slogan. Six of the top 10 reverse mortgage originators use Ibis Software for their websites, retail and wholesale businesses. Those lenders are using:

Ibis RMO:

Loan origination modules include CRM, Quick Quote, Proposal, Application, Underwriting, Documents, Closing, Pipeline Reports, and Cost Templates. Plus Broker and Correspondent Management. Full state specific application and closing packages can be stored, printed, and emailed.

Ibis Quick Quote:

Bilingual consumer calculators, already in use at: • www.rmaarp.com • • www.wellsrm.com • and many other websites Ibis also provides:

Ibis RMA:

A complete counseling package for HUD-Approved reverse counselors. For more information, visit

www.ReverseMortgageHomePage.com

Or call (800) 566-5077

You will want your loan officers to understand how the available principal loan limit is distributed. It is important to provide them with an overview of how this is technically achieved. Break out

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your reverse software and illustrate how simply the principal loan limit is calculated. While use of this tool is best taught in workshops, a general overview will serve to remove any anxiety about this procedure upfront. Many of your older reverse mortgage loan officers are less adept with technology. It will put their mind at ease to see how easily the calculator can be navigated and how thoroughly it provides solutions. When I do the overview in training, I hear my students breathe a deep sigh of relief. Their math phobia will magically disappear. Your overview of the reverse mortgage calculator will reinforce the information needed to obtain a principal limit calculation and identify documents that will later be discussed in detail with the client. These include the Loan Comparison Form, the Good Faith Estimate and the Loan Amortization Schedule. This is where they can be viewed, edited and printed. Don’t go into great detail. The message you want to convey is that information can be obtained at the touch of a button. Here is where you will first introduce structuring the loan as a solution to best meet the borrower’s needs. The calculator is a valuable sales tool. We want our loan officers to be hung up solutions rather than numbers. To do so, you must take your overview to the next level which would be using your reverse software to illustrate the different options for principal limit distribution. As you do so, be sure to point out the benefit to the borrower in each ‘solution’. Remember the first benefit to the borrower is that the mortgage they currently have will be paid off with the proceeds of the reverse mortgage. This will create cash flow equal to the amount of their current monthly principal and interest payment. Get

into the habit of emphasizing this in every illustration. This often is lost in translation. The costs of the mortgage can be financed, eliminating the need for the borrower to come up with any money to facilitate the transaction. This is also often overlooked and needs to be underscored. After paying off the mortgage and loan costs, the remaining proceeds can be taken in a lump sum distribution available once the rescission period has passed. Question your group as to when this would be a good idea. They will begin to identify scenarios where a lump sum distribution is a good solution such as when all the money is needed for a specific purpose like buying a business or a vacation home. Point out that the money begins accruing interest the day after it is disbursed. Show how the balance begins on the Loan Amortization Schedule. There is nothing left for future draws. Show how there is no credit line available. Lump sum distributions are not available until after the rescission period. Be explicit about this so that borrowers do not expect a check at closing and are not disappointed. If the borrower has no immediate need for the remaining money, show how it is best placed in the credit line. Speak about the benefits of this as the money will not be accruing interest until used. Here is your opportunity to speak about the credit line growth and the best way to illustrate this is by going to the Amortization Schedule. Explain that the principal limit which is available to the borrower is always growing at the current interest rate plus a half. While this is best seen in the credit line structure on the Loan Amortization Schedule, it is present within all structures. While the credit line structure lets the growth be immediately available to the borrower, the expected growth is what allows for payments projected in other structures. I’d like to caution anyone training the principal limit growth aspect of the HECM to be certain to say that more credit becomes available. This is not earned interest like money in the bank. Loan officers will have a tendency to state that the credit line earns interest which is misleading and creates problems down the road. I can’t tell you how many times I’ve heard, that borrowers upon satisfying their loans, will call the servicing company looking for their earned interest! Another important point to drive home at this juncture is that for an adjustable HECM, the Amortization Schedule is showing the loan balance and credit line growth based on the initial interest rate the day they are prepared. In actuality, the interest rate will change monthly and therefore the balance and credit line growth on the disclosures are estimates. It is very good for the loan officers to see how draws on the credit line will reduce credit available and increase the loan balance. Be sure to illustrate this in your overview. Discuss scenarios where showing this to a client could be beneficial. Move through the different options, explaining if the money is not taken, a tenure option is offered. Make sure to reinforce all the benefits of the tenure option. Question the group as to which scenarios are well suited to tenure

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options. Show that if they don’t need as much, the tenure option can be lessened, creating a credit line. Explain that the addition of the credit line has created what is called a modified tenure scenario. What if the tenure options are not sufficient? Show how the term option works. The calculator will let us propose a payment which is greater than tenure and calculate how long it will allow us to receive this payment. Show this term scenario on the amortization schedule. Create a term scenario that is dictated such as $1,000 monthly for three years. Let your example leave a remainder in the credit line. Explain that the calculator will let you propose an amount for a specific term and if there is a remainder, will create a credit line. The term together with the credit line is a ‘modified term scenario’. Make sure to mention that a partial lump sum is an option always available with all structures when the entire amount is not taken. Finding something that the borrower can do right away with a partial lump sum can create enthusiasm to close quickly! In your grand list of HECM benefits, don’t forget to list payment flexibility as one of the unique and important ones. Just as our lives and needs can change in the future, the HECM has the ability to change with us. The way the unused principal limit is distributed can be changed at will by contacting the servicing agent. Be sure to mention the small fee that is charged. This is a simple yet important fact and

helps to close deals. It is a relief to the senior to know that a decision made today doesn’t have to stay that way for the rest of their lives, making the decision less weighty. As part of a comprehensive training program, workshops utilizing typical scenarios for each loan structure can be conducted ensuring that the loan officers have a good knowledge of how to illustrate and explain different distribution methods and when they are best utilized. Make sure your loan officers understand the mechanics of how the borrower will actually receive or request future draws or scheduled payments. The better the loan meets the needs of the borrower, the more value is perceived in taking the loan. We have a better chance of doing business by customizing our loans to exactly suit the needs of our borrowers and explaining both verbally and in writing how the loan does so! Many agents in the market place don’t take the time to even explain how the money can be made available much less tailor the loan to the client’s needs. Once structured, the loan can be further refined during the presentation should new information arise. In demonstrating the Loan Amortization Schedule, there will inevitably be a discussion of home appreciation as this is prevalent in each instance. Explain that the 4% appreciation is an example used and the home appreciation may be more or less. A very important, highly misunderstood component of the home equity conversion mortgage is that unused principal loan limit is guaranteed to be available to the

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borrower whether or not appreciation actually takes place. Along with interest charges, the monthly service fees and mortgage insurance premiums are part of the unpaid principal balance as illustrated on the same schedule. Here is a good opportunity to discuss each. The monthly service fee is not unique to the reverse mortgage. What is unique is that it is separately disclosed. In the forward mortgage world, it would simply be combined in the interest rate. Explain that our fee is regulated and limited by the federal government and has a legitimate purpose. While all HECM participants will initially be charged 2% of the maximum claim amount for their mortgage insurance, the monthly expense will be commensurate with what they actually use. The half percent is assessed only to the unpaid principal balance each month. Here is where we can remind the borrower that this is an important cost because it provides the important and unique non-recourse feature, insuring their payments, protecting other assets and assuring that neither they nor their heirs will ever owe more than the appraised value at the time of repayment (the balance will need to be paid in full if the property is to be retained). Gross closing costs should be disclosed and discussed. These will be evident on both the Comparison Form and the Amortization Schedule. It’s not necessary to go through a good faith estimate until application. You can set the stage for the application by assuring them that they will later be provided with a detailed list of all fees and have the opportunity to discuss each one when you discuss the loan disclosures with them. You will want your customers to fully digest the

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Some loan officers will use these documents as tools for discussion, others will just discuss. The bottom line is that the loan officer should be taking each fact about the loan and matching it to how it directly meets that borrower’s need during an effective sales presentation. Encourage loan officers to uncover every aspect of the loan and to paint a vivid, descriptive picture of how it will benefit the borrower. Leave no benefit undiscovered and sell that loan in a way that truly speaks to them. At this point, the borrower will be asking where to sign! This will be the subject of our next discussion. Available in our February issue, Part one of this article outlines an introduction to creating a world class reverse mortgage training program. This segment is available at www.reversereview.com.

“Atare Agbamu is one of only a handful of people in the reverse mortgage arena who possesses a commanding understanding of the reverse mortgage industry. As an originator, he has hands-on experience educating seniors and their advisors. As author of the “Forward on Reverse” column in The Mortgage Press since 2002, Atare Agbamu communicates nationally with the housing finance community, bringing the unique insights and experience of an ardent reverse mortgage expert into a wider business context. “This book combines Atare’s keen insights and know-how with extensive research to create a first of its kind resource for the reverse mortgage industry. It offers a comprehensive overview of the industry plus detailed information on marketing and originating reverse mortgages. “Present and future reverse mortgage professionals and senior advisors will profit from decades of experience skillfully woven into this book. If you plan to succeed in this industry, this book is the place to start.” —Sarah F. Hulbert, President, Senior Financial Corporation and former four-term Co-Chair of NRMLA’s Board of Directors

Only

49.95

$

benefit of the loan before possibly becoming immersed in a conversation about individual closing costs. Another line item for discussion on the Loan Comparison Form is the servicing fee set aside. This is often misconstrued as an actual cost to the borrower. It is really important that this is properly explained to the sales staff. The servicing fee set aside simply reduces the credit available to the borrower. It is a precaution for the lender to preserve additional equity in the home, to provide for the loan balance and to include servicing fees charged monthly throughout the life of the loan. Be sure all your loan officers are able to answer questions regarding the servicing fee set aside.

Think Reverse! Table of Contents Part I: The new pillar of retirement security

Part II: Marketing reverse mortgages: It’s all about education

Part III: Originating reverse mortgages

reversereview.com

Part IV: Enhancing freedom: The essence of reverse mortgages

Part V: A new frontier in mortgage lending

This column is a new addition to The Reverse Review, so allow me to tell you a little bit about who I am. I currently serve as Executive Vice President of the Reverse Mortgage Servicing Department at Celink. I’ve worked at Celink for more than 10 years alongside my father, John LaRose, a great role model and mentor in business and in life. I’m a Certified Senior Advisor, an active member of the National Reverse Mortgage Lender’s Association (NRMLA) and currently serve on the NRMLA Servicing and Technology Committees. Okay, enough about me. Here’s the thinking behind the need for this column. While daily servicing activities can be challenging and frustrating, it is also incredibly rewarding to be a vital part of an industry that has helped so many people retain the integrity of their homes, solve financial dilemmas, and age gracefully in the place of their choice. The goal of this monthly column is to provide lenders with insight into the servicing aspect of the reverse mortgage product. The most important outcome for this column is to provide you with assurance and trust that your borrowers are well taken care of, long after the loan is closed. Knowledge of the servicing function is indispensable for anyone originating reverse mortgage loans. If each lender is able to communicate effectively on servicing-related issues before the loan is closed, their borrowers are more likely to be satisfied with their overall reverse mortgage experience. For several years, I have had the pleasure of participating as a panelist at several industry conference sessions addressing the important topic: “What Happens after the Loan Closes?” Each panelist is charged with preparing and discussing specific servicing topics, and we are always reminded to “talk fast!” Every session consists of this topic presentation followed by an open question and answer period. We strive to leave ample time at the conclusion of our presentations to field as many questions as possible from audience members. It seems that at every session, no matter how rapidly we conclude our presentations, we find that there never seems to be enough time to answer the multitude of questions coming from the lenders in the room. Since we can’t talk any faster, and questions are going unanswered, this column affords the opportunity for the regular, free-flow of information between the servicing and lending communities. It’s very likely there are questions and concerns that can’t and shouldn’t wait to be addressed until the next conference.

ask the servicer

Ryan LaRose

I have been a regular reader of The Reverse Review, and have always enjoyed Ralph Rosynek’s ‘Ask the Underwriter’ column. Every month he tackles the routine and the notso-routine questions that surround the important activities in loan origination. This column follows that same model. As a servicer of the reverse mortgage product, I have regularly received telephone calls and e-mails from lenders with various questions about servicing. Questions around the servicing function will range from standard questions (When do borrowers receive their first payment?) to those that arise on a case-by-case basis (What happens when the borrowers permanently move from their home?). This ‘Ask the Servicer’ column is being created to “lend” you a hand. (That might be my last attempt at humor.) Every conscientious person in the reverse mortgage industry knows that this product and its borrowers are very “high touch”. On the origination side of the business, we know about the extremely long sales cycle of this product. We regularly hear about the extraordinary lengths that lenders have gone to ensure that their borrowers are treated professionally. I once heard of a lender who halted a closing for several hours to drive their senior customer to the grocery store to pick up a few last minute items she forgot for a dinner party! Once these items were purchased, they drove back to the closing and he assisted her in finishing the paperwork. I want you to know about how the servicing community continues these same extraordinary efforts with your borrowers, long after each loan is closed. There is a delicate balance between developing and enhancing sophisticated “high tech” back-end operations with maintaining “high touch” efforts, defined as picking up each phone call and actively listening to and addressing the borrower’s questions or concerns. That balance is what we, as servicers, strive to achieve for the benefit of the borrower. I truly love servicing the reverse mortgage product for both our clients and their borrowers, and I love answering questions about the servicing functions. As used here, “love” isn’t too strong a word. The best career comes from finding what you love to do, and then finding someone to pay you to do it. In that regard, I am very fortunate. I started out by telling you about me, but this column is not about me. It’s about answering YOUR questions regarding what servicers do with your loans and your borrowers, after the closing has taken place. Please tell me what you are interested in learning more about, and I will do my best to respond to each and every question. Please remember: there is no such thing as a stupid question! No doubt, the question you ask will have been in the minds of other readers as well. I look forward to receiving your inquiries at: [email protected]. If you wish to remain anonymous for my response, just let me know.

March 2009

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A Whole New “HECM” World How Interest Rate Volatility Can Impact Your Magic Carpet Ride Weiner Brodsky Sidman Kider, pc As reverse mortgage industry participants already know, 2009 has brought greater pricing volatility as the secondary market has contracted and responded to dramatic changes in world financial markets. The good news is that the industry’s traditional investor, Fannie Mae, continues to support the cornerstone product of the industry, the Federal Housing Administration insured Home Equity Conversion Mortgage (“HECM”). However, unlike days of yore, and prior to the shortlived surge of secondary market investors, when Fannie Mae was the sole industry investor and investor pricing rarely changed, lenders and originators must now cope with Fannie Mae’s “live” daily pricing. Effective November 3, 2008, Fannie Mae eliminated 60-day forward negotiated (or “static”) pricing for HECM loans in favor of automated (or “live”) pricing. Under the “live pricing” process, lenders obtain a price for a HECM loan for the current business day, with commitment periods ranging from as few as two to as many as 90 days. In addition, lenders and originators must cope with the availability of new HECM products, including multiple fixed interest rate HECMs and adjustable interest rate HECMs offering different margins. From a macro perspective, these developments reflect the maturation of market forces that ultimately drive innovation and offer seniors more options that better suit their needs. From a micro perspective, they pose challenges to our industry members that create operational hurdles and reputational risk for the reverse mortgage industry as a whole. With that broad view in mind, this article will focus on one of the legal and regulatory issues raised by our new, more “volatile,” pricing landscape. Namely, the operation and disclosure of the so-called HECM principal limit lock. HECM Principal Limit Lock HUD initially announced the operation of a principal limit lock for HECM loans on September 24, 2003, in Mortgagee Letter 2003-16. In a nutshell, operation of the principal limit lock, as announced by HUD, simply sets the expected interest rate used to determine the 40

principal limit (or the initial loan amount) on a HECM loan. As explained in Mortgagee Letter 2003-16, the so-called principal limit “lock” is intended, during a rising interest rate environment, to protect the borrower from erosion in the principal limit between application and closing of the loan. Although this is clearly a praiseworthy goal, in a volatile secondary market, where prices can change daily and, in fact, are changing at a pace not previously experienced in the industry, it is important that lenders and originators manage the risks associated with the operation of the principal limit lock and provide appropriate disclosures to the consumer. Principal Limit 101 To fully understand these issues, it is helpful to take a step back and review the basics on how the principal limit lock works. There are three components under the HECM program that are used in an algorithm to determine the initial principal limit. As pointed out above, the expected interest rate is one of those components, the others are (i) the age of the youngest borrower and (ii) the appraised property value, or FHA limit, whichever is lower (known as the “maximum claim amount”). To clarify, the “expected rate” is not the contract interest rate that lenders use to calculate finance charges that accrue during the term of the loan (although, as discussed below, on a fixed interest rate HECM the expected rate and the contract rate must be the same). Instead, it should be thought of conceptually as a projection of what the average interest rate will be over the life of the loan. For adjustable rate HECM loans, the expected interest rate is equal to an index plus a margin. The index used to calculate the expected interest rate is based on a longer term Treasury or LIBOR based rate, while the contract interest rate is based on a shorter term Treasury or LIBOR based rate. For example, as directed by HUD in Mortgagee Letter 2007-13, lenders offering adjustable rate HECMs utilizing a 1-year or a 1-Month CMT index to calculate the contract interest rate must use the 10-year CMT index as the corresponding index

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for calculating the expected interest rate. Lenders offering adjustable rate HECMs utilizing a 1-year or a 1-Month LIBOR index to calculate the contract interest rate must use the 10-year LIBOR swap index as the corresponding index for calculating the expected interest rate. Finally, if a HECM is offered as a fixed interest rate, HUD has mandated in Mortgagee Letter 2008-08 that the expected rate must be the same as the fixed contract interest rate. Because these three components factored together generate the principal limit, it is clear that a change in any one of the three will impact the principal limit at closing. As you might suspect, there is a directional relationship between each of these factors and the resulting principal limit. As the age of the borrower goes down, generally the principal limit will also decrease since the borrower’s life expectancy is longer and negative amortization accruing under the loan is expected to be greater. As the value of the property increases, generally the principal limit will increase since the value of the collateral that ultimately must retire the loan is greater (subject to the FHA limit). Finally, as the expected interest rate goes up, the principal limit will generally decrease since the amount of negative amortization anticipated over the life of the loan is projected to be higher. Given the foregoing, and putting aside changes in the underlying index or even any change in the offered margin or fixed interest rate, if the appraised value of the property is less than projected by the borrower in his/her application (which is not an uncommon occurrence during a period of declining real estate values), the principal limit available to the borrower at closing will be less than projected at application. Additionally, although the age of the borrower should be readily ascertainable, if the youngest borrower celebrates a birthday between application and closing, the principal limit at closing will be different than was initially projected at application. Each of these instances highlight the fallacy of using the term principal limit “lock” when describing the process of setting the borrower’s expected interest rate, since the projected principal limit provided to the applicant is never truly “locked.” Accordingly, the principal limit “lock” can be more accurately described as principal limit “protection” that lenders offer to HECM borrowers by setting the expected interest rate at the time of application.

as originally provided in Mortgagee Letter 2003-16. In addition, seniors are afforded a “float-down” feature. This simply means that if the expected interest rate at closing is lower than the expected interest rate at application, the senior will generally be provided the lower expected interest and correspondingly an increased principal limit. HUD stated in Mortgagee Letter 2006-22 that lenders may not charge a fee for the principal limit lock nor the float-down feature. Finally, HUD reiterated in Mortgagee Letter 2008-08 that while lenders may extend operation of the principal limit lock on fixed-rate HECMs, offering a true lock of the contract rate and corresponding expected interest rate, they may not charge the consumer a fee for this feature. Although there is currently no requirement under the HECM regulations, HUD’s HECM Handbook or any Mortgagee Letter requiring a disclosure in any particular form, or at all, as a matter of industry practice, most originators and lenders provide a disclosure to the applicant describing how the expected interest rate is set (or “locked”) in determining the initial principal limit of their HECM loan. Whether or not such a disclosure is provided to the consumer, the setting of the expected interest rate must be consistent with Mortgagee Letters

»

Monte Rose

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As set forth in Mortgagee Letters 2006-22 and 200713, HUD provided further clarification and extended operation of the setting of the expected interest rate. HUD explained that the expected interest rate set at application may extend for up to 120 days from the FHA loan case number assignment, rather than 60 days March 2009

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2003-16, 2006-22 and 2007-13, and therefore the 120day expected interest rate protection and “float down” features apply whether or not an initial principal limit “lock” disclosure is provided. Principal Limit & Interest Rate Volatility Now that we understand the mechanics behind the calculation of a principal limit in the HECM world and how it is initially established, let’s turn now to how setting of the expected interest rate used to determine the initial principal limit in a volatile interest rate environment might cause confusion for consumers and potentially expose originators and lenders to legal and regulatory risk. As originators and lenders are aware, current volatility in the reverse mortgage secondary market has made continuing availability of any particular HECM adjustable rate margin, or fixed interest rate, over a period of 120 days problematic. During this interval, unless a lender receives a purchase commitment from its investor, there is a chance that the investor may not even be willing to purchase a HECM with the same margin or fixed interest rate as the lender disclosed to the consumer, or if willing to do so, may only be willing to do so at a reduced price. For this reason, if a lender provides a principal limit disclosure, it is important that

the consumer understand that the so-called principal limit “lock” is not a commitment to make a reverse mortgage at any particular fixed interest rate, adjustable rate margin or at all. In addition, if used, the principal limit disclosure should clarify that the expected interest rate used to set the initial principal limit is protected for 120-days solely in connection with the particular adjustable rate margin or fixed interest rate HECM product for which the consumer applied. If that particular fixed interest rate or adjustable rate margin product is no longer available, or if the consumer elects to change to a different HECM product notwithstanding the continuing availability of the product initially applied for, the lender’s disclosure should clearly inform the consumer that the disclosed expected interest rate, and projected principal limit, will no longer apply. Without clear disclosures, seniors might understandably be confused when their originator or lender advises them that they cannot obtain the initial principal limit they expected. This raises the question of what lenders should be doing in these circumstances. Focusing on a scenario in which the senior changes his or her loan program selection, as discussed above, and assuming no commitment has been made by the lender to the consumer to make a HECM with a particular fixed interest rate, adjustable rate margin, or initial principal limit, the expected rate and initial principal limit provided to the consumer in connection with this change (occurring within the 120day period from the initial application) is governed by Mortgagee Letter 2007-13. There, HUD provides the industry with very specific guidance stating: “If the borrower chooses or is offered an index and/ or margin different from that chosen or offered at application, the Expected Interest Rate used to calculate the Principal Limit shall be the new margin chosen or offered, plus the index as applicable, as of the application date or the date of closing, whichever is lower.” This, among other things, means that if the index used at loan application is based on the Treasury rate, and the borrower later changes to a LIBOR index based loan, the lender must use the applicable LIBOR index to calculate the expected interest rate and set the initial principal limit. If the index at loan application is based on the LIBOR rate and the borrower later changes to a Treasury index based loan, the lender must use the applicable Treasury Index to calculate the expected interest rate and set the initial principal limit. In addition, in cases involving a product change, originators and lenders should consider providing the consumer a new principal limit disclosure (if such a disclosure was provided initially), re-disclosing the projected initial principal limit for the new product

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and the remaining period of expected interest rate protection (calculated based on the original application date). In such instances, lenders also should consider providing an updated TALC disclosure, a new HECM comparison worksheet and a new amortization disclosure. NRMLA Best Practice In recognition of the impact a volatile interest rate environment may have on operation of the so-called principal limit lock, the National Reverse Mortgage Lenders Association (NRMLA), through its Compliance Committee, published on February 5, 2009, an industry Best Practice entitled HECM Principal Limit Lock and Disclosure. That document acknowledges the complexity and the risk of managing any principal limit lock commitment made to a senior. The NRMLA Best Practice further emphasizes the need for sound disclosures, and provides model language for use in either a HECM Principal Limit Lock Disclosure, or other disclosures. In addition, NRMLA strongly recommends that its members consult with their counsel on appropriate and required disclosure policy and documentation of their HECM product offerings and hedging strategies. The NRMLA Best Practice Compliance Committee memo is published in the password protected NRMLA Members-only section of NRMLA’s website, at www.nrmlaonline.org, and NRMLA Members are urged to review it in its entirety for the additional guidance it provides to NRMLA Members in this challenging area, including its suggested model disclosure language. As we’ve seen, interest rate volatility can add a little turbulence to the magic carpet ride, but employing a few safeguards as we’ve discussed, starting with good disclosures and re-disclosures when changes occur, can keep you firmly in your seat as you navigate the wonders of a whole new “HECM” world. Due to the generality of this article, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advised based on particular situations. By Joel Schiffman and Fed Kamensky, of the law firm of Weiner Brodsky Sidman Kider, P.C. The law firm serves as General Counsel to the National Reverse Mortgage Lenders Association and advisor to reverse mortgage lenders and industry participants throughout the nation. The firm has offices in Washington, D.C., Newport Beach and Dallas. Additional information can be found at www.wbsk.com or by telephone at 202.628.2000. Messrs. Schiffman and Kamensky can be reached at [email protected] and kamensky@wbsk. com. March 2009

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Press Release

NEWS RELEASE Contact: Edgar Urrutia 714. 250.4158

First American Title Insurance Company Introduces Trusted Reverse Transaction Division —New Division Provides Title, Signing and Settlement Solutions for Reverse Mortgage Lenders— February 5, 2009, SANTA ANA, Calif. First American Title Insurance Company, the largest subsidiary of The First American Corporation (NYSE: FAF) family of companies, today announced the launch of a new division designed to address the title, signing and settlement service needs of reverse mortgage lenders. The Trusted Reverse Transactions division specializes exclusively in closing reverse mortgage loans, providing a single point of contact for nationwide coverage. Reverse mortgage loans allow qualified homeowners who are 62 years or older to benefit from the equity in their homes by borrowing against that equity. The reverse mortgage industry has experienced a continual upward trend in volume since 2001. The settlement for reverse mortgage loans is often complicated because it may involve working with powers of attorney, probates and living trusts. The Trusted Reverse Transactions division’s highly skilled staff members understand all the nuances of reverse mortgages and deliver streamlined products and services with simplified pricing. Carin Bucklin will lead the growth and development of the Trusted Reverse Transactions division in her role as the division’s new director. With more than 15 years of reverse mortgage experience, Bucklin has spoken at annual conferences for the National Reverse Mortgage Lenders Association (NRMLA) and its Learn While-U-Lunch program. Bucklin also has hands-on experience with closing thousands of reverse mortgage transactions. Toni Rossetta has joined First American as the division’s operations manager to oversee the daily activities and performance of the Trusted Reverse Transactions division. Rossetta has been in the title and escrow industry for 27 years, specializing in reverse mortgage for the last seven years. “Reverse mortgage lenders have been asking for a dedicated, one-stop title and closing solution and we are proud to be meeting their needs,” said Patrick E. McLaughlin, president of Lenders Advantage®. “Our team brings a highly developed skill set to this important and specialized segment of the mortgage industry. Combined with advanced technology, streamlined products and the financial strength of First American, we believe the Trusted Reverse Transactions division fulfills a vital need among reverse mortgage lenders and their customers.” The Trusted Reverse Transactions division provides nationwide coverage through its California office; coordinating its services with local First American branches, where required, to provide a seamless solution to national reverse mortgage lenders. In addition to offering a streamlined title insurance product that meets the requirements of a government-insured Home Equity Conversion Mortgage (HECM), the Trusted Reverse Transactions division provides homeowners with convenient signing options, including a fully screened mobile notary for home-based signings or online signing through its secure WebSigning platform. About First American Title Insurance Company First American Title Insurance Company, the largest subsidiary of The First American Corporation (NYSE: FAF), traces its history to 1889. One of the largest title insurers in the nation, the company offers title services through its direct operations and an extensive network of agents throughout the United States and abroad. The company has its headquarters in Santa Ana, Calif. Information about The First American Corporation’s subsidiaries and an archive of its press releases can be found on the Internet at www.firstam.com.

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the last word

“It was the best of times; It was the worst of times…” - David J. Cesario “It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair…” Nostradamus is considered to be one of the world’s greatest “seers of the future”, but not even he could have predicted where we find ourselves in 2009. But in 1859, Charles Dickens’ penned the above opening line to “A Tale of Two Cities” that could easily be confused with a Nostradamian prediction of the financial world we now live in. The beauty of Dickens’ opening is that the eloquently paired contradictions convey the multitude of emotions and realities that can be experienced, all at the same time. The reverse mortgage industry finds itself in situation where vast contradictions appear and it is truly difficult to determine if these are “the best of times or the worst of times.” I think there are empirical data and compelling stories that can be made for each of these realities. Let’s try to determine where we are. The arguments to be made for it being the “worst of times” in the reverse mortgage world include: • Currently limited and potentially shrinking numbers of secondary market delivery sources • Increasing margins charged to borrowers on current products • Depreciating housing values • Financial despair grows as consumers deal with a recession that is beginning to look the beginnings of a depression. • Increasing competition as lenders fight for new revenue streams • The prospect of nationalization of banks that, if enacted, will send further shivers into the financial markets So, it’s clearly the worst of times, isn’t it? Are you ready to call it a day and go apply for a government job in renewal energy research? Not me, not now! While all of the dire issues outlined above are true and weigh on the conscience and psyche of consumers, these same issues are also opportunities for smart business people who can see what is possible: • Limited and shrinking numbers of secondary market delivery sources creates opportunities for new players to enter the market who will face very limited competition. Also, those existing sources can expect to see ever growing market share due to the scarcity of delivery options. • Increasing product margins, in a normal market, would typically equate to increasing revenue opportunities at time of sale into the secondary markets. While we are clearly not in a normal market, we can have confidence in believing there will be some return to

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normalcy in the future and this should increase revenues. • Depreciating housing values give reverse mortgage borrowers a reason to act now, instead of waiting. When a borrower can effectively “lock in” proceeds at today’s values versus uncertain future values is a great reason for someone to apply, today! • Financial despair is a negative market factor that actually forces potential borrowers to look for options to protect their financial well-being. A reverse mortgage truly provides borrowers with tremendous certainty in very uncertain times. • Increasing competition is a good thing! More people will be promoting the reverse mortgage programs, increasing awareness and overall interest and acceptance of the product in the marketplace. With industry estimates pinning reverse mortgage market penetration at around 1%, there is plenty of opportunity for all. • Nationalization of banks is good? Some would say actions of this magnitude will stabilize the financial markets and improve the flow of credit. If that is the outcome, then there may be a silver lining… These reasons alone should make you want to keep your day job in the reverse mortgage world, but there is more good news to enhance “the best of times” argument: • FHA recently raised the HECM national lending limits to $625,000 from $417,000. The high cost areas in the country that were hamstringed by the previous lending limit are now able to realize many new prospects. • HECM for Purchase is now a reality and this expands the opportunity to work with other real estate professionals and consumers who have an enhanced way of obtaining the benefits of a reverse mortgage • New HECM authorization for Co-ops is sure to bring new opportunities to lenders serving these markets • Specialty HECM programs and features are being created to serve borrowers who are “just miss” when it comes to paying off existing liens and those needing to bring funds to closing (i.e. HECM Pathway). • AND JUMBO reverse mortgage products are beginning to reappear. Yes, I said JUMBO Reverse Mortgage Loans are making their way back to the market. In conclusion, I believe we are on the verge of “the best of times” in the reverse mortgage industry. As your company tries to chart a course to insure profitability in this new world, it is important to realize that most of the challenges in your way are really the opportunities you have been waiting for. Be flexible and nibble enough to adapt and take advantage of these opportunities.

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