RSaffer,

On so many levels what you say is true.

The trouble with what you propose is that you are asking FHA to accept more risk. We are dealing with two different government agencies and the secondary market. FHA has nothing to do with that market and borrowers will need to compensate FHA for accepting more risk, IF FHA is willing to accept it.

It was nice we had the lock for as long as we did but we may never have it again in a practical way. Things change. We are transitioning through that change. I wish you the best in trying to getting either the lock back or a reasonable substitute. Good luck.

Old timer,

Thank you very much, I appreciate you. You are right, those who have not been around long do not get it. You have a good day.

Best regards,

John A. Smaldone

John,

Well said to say the least. This program has changed and is being destroyed almost overnight by people that are incompetent enough to actually think theey are helping.

“It was supposed to be a program that did not have the characteristics of the forward mortgage world, it was meant to be a non-competitive regulated product and it was meant to give our seniors a way to improve the quality of their lives.

We have turned this product into another mortgage product that has the characteristics of the forward lending world. We have predatory lending, fraud, bate and switch and you name it. I blame government, I blame government because they did not police this product through their quazi governmental agencies the way they should have..”


Those that have not been around very long do not get it.

Live pricing, margin increases?? All this and the 625,500 limit is only temporary. What happens if it goes back to 417K at the end of the year.

Does anyone know if any progress is being made in keeping the new limit permanent?

Good evening,

I want to thank all of you that liked and commented on the release. This actually came out over the Associated Press. If you go back up to the top of the page where the article starts, you will see a link a link. The link is in blue and has the same name as the heading of the news story. If you click on it, you will go into the entire article. You will also see a story about a 71 year old handy-caped widow who tried to get relief from a reverse mortgage. She was approved, however, she was 5 months late on her mortgage payments and heading into foreclosure.

If you read the entire release and read this woman's story, it is sad. You will see what happened to her because FNMA dropped the BOMB with out any warning. What you will read is happening all over the country to people like this handy-caped woman.

Something has to be done to get the ear of those that are in power. Our industry is slowly eroding, we have more so called experts interfering and changing things daily. We need to take a breather, analyze all that has been done to the Reverse Mortgage industry over the past year and bring it back to what it was intended to be. The Reverse Mortgage industry was intended to be a regulated program by HUD for seniors. A program whereby seniors could take a portion of their equity out of their homes with out worrying about ever making a payment again for the rest of their lives, as long as they lived in their home. It was supposed to be a program that did not have the characteristics of the forward mortgage world, it was meant to be a non-competitive regulated product and it was meant to give our seniors a way to improve the quality of their lives.

We have turned this product into another mortgage product that has the characteristics of the forward lending world. We have predatory lending, fraud, bate and switch and you name it. I blame government, I blame government because they did not police this product through their quazi governmental agencies the way they should have. We now are in an industry that true Reverse Mortgage professionals don't understand, it is against their principles and values. Instead of being able to concentrate on educating them selves, spending the proper time with the borrower and doing what they did 4 or 5 years ago, they now are in a battle zone. The battle zone is fighting and scraping to compete with the next guy on the street fighting to get his or her customer. They are trying to figure out live pricing. They are worried about having to lock the loan in because if they don't, they will lose a lot of money. What about the bait and switch we are forced to do.

Lets say you have a loan in process, a HECM Libor 275 with a $30 servicing fee. When you took the loan it was paying a premium of 0.78, you are now a few days from getting it out of underwriting. Guess what, a HECM Libor 275 with a $30 service fee is now in negative territory. The loan is at a discount of 075% instead of a premium. The loan has a pay off of an existing loan of $210,000, closing costs of $19,000 and the borrower wants $25,000 at closing. This totals a UPB of $254,000 times .75% equals $1,905.00. Now you are facing not only no premium gain like you thought you would have but $1,905 that must be deducted from the origination fee. What do you do? Most companies will re-disclose at a higher margin and a good chance show a $35 servicing fee. It was not supposed to be this way in the Reverse Mortgage business. The senior is suffering and so are the companies and the loan officers. Mainly the senior is the one suffering the most, they are going to face another fleecing.

What has happened? Almost overnight we are destroying a program that we have struggled to make a success since 1989. The objective was to make this a tremendous benefit to our seniors. A program with simplicity to it and one with no surprises at the end. Why do we always take away from our seniors. These are the people that fought in battles to preserve our freedom, they are pioneers who struggled and worked so hard to give us a country to be proud to live in. We just hang them out to dry. This is wrong, our system is wrong, we must do something to preserve this program and roll it back in time.

Please read the entire release, I would appreciate it.

Have a good evening.

John A. Smaldone

Dear Critic,
I very much appreciate your analysis of some of the potential problems with the reverse mortgage program. I don't think it would surprise anyone that our Government may have miscalculated mortality rates. But my concern remains that the credibility of this program, especially because we're dealing with seniors and their families, rests on our ability to produce a document that gives a clear and accurate disclosure. What will hurt this program is leaving information with potential clients that is most likely to be wrong. Our credibility with the potential client is extremely important, especially with the constant negative press that we unfortunately experience. This lack of a lock on the expected rate has given fodder to the naysayers of this program. In fact, the Orlando Sentinel published an article a couple of days ago with the heading "Beware Reverse Mortgages," which talked about exactly that. I am not suggesting locking in a low rate or a low margin. I am simply suggesting locking in ANY reasonable rate that will guarantee an outcome. The entire FHA HECM program was not thrown into turmoil just a couple of months ago when this was the common practice and a disclosure lock was included in the application packages. If MIP collections prove not to be sufficient to cover short sale claims in the short run, the shortfall will certainly be made up over time.

Beth,

I know you are aware of this but these are two entirely different issues.

While the margin issue produces doubt in the minds of borrowers about HECM originator integrity, an extended rescission period would most likely mean seniors would be less averse to our products. The real trouble with the passage of extended rescission periods is that banks would no longer find it profitable to provide HECMs.

Rayna,

Although a few of us do not believe that the assumptions used in calculating the HECM proceeds which may have been logically sound in the past are as sound today.

For example, more women than men have HECMs and HECMs utilize unisex mortality tables. First not only are the tables outdated but they are weighted in such a manner as to produce negative effects to FHA. If women outlive men and if there are more women who are the youngest borrowers than there are men, this means the average longevity of the youngest HECM borrowers will exceed the longevity reflected in the unisex mortality tables. If woman today are living on average longer than women were at the time that the unisex mortality tables were being developed, again, the average longevity of the youngest HECM borrowers will exceed the longevity reflected in the unisex mortality tables. These two combined mean that the size of the proceeds are already in excess of what the program is designed to handle.

Your idea will throw the entire HECM FHA insurance program into total turmoil. I will top your suggestion, why not just use 5.5% as the expected interest rate and forget about it!!! Seniors would like that even better. Or why not have the proceeds computed with a 1.0% margin and allow bankers to use the margin Fannie Mae or any other investor requires as the margin for the interest rate to be charged on the note?

This is not the forward market. Every significant factor was considered when creating the HECM program so as to provide a program that was based solely on the value of the home, the age of the youngest borrower, and the applicable interest rates. If the proceeds are too great, either the MIP costs will have to rise to compensate for it or the program is doomed for failure. While I admire your care for a few seniors, is it worthwhile to benefit them at the expense of the entire program in the future? The viability of this program is a delicate balance of various factors and to cause one to go off without other compensating adjustments would tear away the very foundations of the HECM program as it is currently designed and operating.

The Fannie Mae margin changes and uncertainty it provides will have an even larger negative impact if longer a rescission period is implemented such as the 10-days proposed in MN. The 30-day rescission proposed in CA is impossible as it is.

Ms. Lewis (and others),

After 2003, our industry began taking off. In my humble opinion, it is the expected interest rate lock that should be credited to a large degree for a vast majority of that growth. You make the cry for seniors and that needs to be heard but not so much by the readers of RMD as by our Congressmen. I personally congratulate Mr. Smaldone for furthering that process.

I remember the effects of one letter that came from the widow of a steelworker in one Congressional session. At the time of the hearings, the company her husband had worked for was being pillaged by its corporate officers. The issue was whether or not Congress would allow the company to unwind its promise to pay health benefits to its production employees and their spouses for life from its general assets. The company needed to pay preferred dividends or there was the possibility of forced bankruptcy at a delicate point in its “alleged” turn around unless that obligation was terminated.

The Representative who represented the widow’s district stood to his feet and read her letter. It went something like this. She started by apologizing for having used the company’s money to care for her cancer treatment. She then stated that her pension would not be enough but somehow God could supply the means to help her get by. She just wanted other parents to have the opportunities for their families and children in particular that working at the factory had provided her family. She recognized that she and her husband could have done more to save up for this day and she did not want the company and its employees to suffer any more for her family’s excesses. She said she would give up her medical care if that would make any difference. To say the least at the end of the reading of this letter, there was hardly one dry eye in that room including those of the company execs. I guess you know which way that legislation went.

Would some of the stories of the seniors you are dealing with have any less impact? Especially when there are ways to avoid this problem and Fannie Mae never addressed and still does not appear to be addressing them as to HECMs? There needs to be a waiver issued by Congress on the Fannie Mae mandate when it comes to HECMs or some type of program put into place that will permit a lock system to exist. Why aren’t alternatives being seriously explored?

Some see this as nothing more than whining while others only see the hurt and deep disappointment that comes to seniors’ eyes when their hopes are dashed before their eyes. As one in the latter categoy, action is needed and needed now.

The interest rate is the interest rate. What it's going to be, it's going to be. There could, however, be a lock on the expected rate which doesn't affect the ongoing interest rate at all. It merely would guarantee that the available funds at closing do not change except for the usual variables. Maybe I have it wrong but as a CSA and loan advisor, I still think my job is to help seniors and I feel awful when I have to tell them that it's not going to work after all.

R M Broker,

As to the lock, who do you propose takes the hit on the difference between the interest rate that investors expect and the interest rate on the loan? Remember you are only seeing part of the process. The post closing aspect adds even more days.

Fannie Mae is under a Congressional mandate to reduce their portfolio. All HECMs do is increase it!! HECMs provide absolutely no liquidity to the buyer until it is due. Fannie Mae has to act in its own best interest.

Since when is HUD the problem? This is a Fannie Mae and lender problem. As a broker should you take the hit for any loss, should the lender, or should Fannie Mae? Until you get passed that what is there really to talk about?

I echo Ranya's concern and Raymond's excellent question. How can we make seniors pay for counseling and an appraisal, sign all the documents, and so many people do so much work, only to find out that the rate in effect at closing prevents them from getting a Reverse Mortgage -- when we could have known that at Step One? (Appraisals create enough of a risk these days). It certainly makes it look like I'm doing a "bait and switch" and I don't like being put in this position!

I think most people are missing the big picture. We are all lucky to have jobs right now. The secondary markets are frozen. No one is lending money, yet we are all still working. We still get to originate reverse mortgages with Government (be it taxpayer) money. Fannie Mae could stop buying reverse mortgages and we could all change careers. Think of the luxuries we have all experienced in the last six months. Can anyone claim they have not made more money from the increases to 417K and 625.5K? I am in CA so perhaps much of you did not experience the boom we have experienced here. I am thankful that I had the opportunity to originate a lot of loans. If you grew your business by selling CMT 225's last year and getting two points on the back end, well, time to re-tool your business. I never participated in that and will still eat a negative eigth of a point to get my borrower the best product.

If you ask me, I would say the worst is yet to come and we should enjoy 2009 as a year we all kept making money. Some of you have made a lot of money.

I understand the increase in margin which will help reverse mortgages be more attractive to investors. But the lock feature is imperative for seniors, for all the reasons stated. Asking seniors to pay for counseling, pay for an appraisal and not know if the loan will close is a lot to ask when most seniors are short of cash. I ask, "if a forward loan rate can be locked in at application so the customer knows what funds will be available, why does the reverse product not have the same benefit?" Float the note rate but the expected rate NEEDS to be locked.

I was in this industry before 2003 and I do not see a difference now. We cannot lock in the amount of proceeds until just prior to loan closing. Locking in the index is useful but only locking in half of the equation is only somewhat better than not locking in anything. We need to be able to lock a margin at application. That is all we need. The problem, this lock must come without a charge to borrowers (not allowed) or to brokers (not feasible). So it would have to float down or the borrower will just move to another lender in the case of interest rate reductions. It gets complicated but I believe that it could be worked out with FannieMae and HUD. It does not take that long to process a loan these days so a 60 day margin lock will work fine. Other investors would follow if it becomes the industry standard and they can make enough on the margin.

We wouldn't be in this mess if the locks were honored - how can they get away with not honoring the locks?

Rob H and Rayna,

Just be happy you were not in this industry before 2003. In those days no one knew what a senior would get. There was no expected interest rate lock; it was a mess. In very few cases would a HECM borrower get what they were originally shown. Imagine explaining that situation to seniors.

FF customers experienced the same potential in the summer of 2006 because FF could not close loans in the required 60 day lock period so HUD mercifully raised the number of days to 120.

This is not the first time we have seen this situation in our industry. The sad thing is, it is a government agency that is forcing us into it AGAIN. Fannie Mae is proving it is no friend to needy seniors. Why won't they even try?

matt,

There were a lot of other ways Fannie Mae could have approached the problem but can they? The ugly truth is, Fannie Mae is living with the excesses of their policies during the period of greed in the "rock and roll" days of the subprime era.

Fannie Mae could have reached out to the reverse mortgage industry and Congress to find another way. The results show that they have not changed. In the past they willingly and knowingly harmed the American public for the sake of their own bonuses now their successors are showing they will do anything Congress mandates in order to save their own necks.

Fannie Mae could have handled this much differently. TARP money could have been used or as a fellow government entity, they could have reached out to FHA to work with it to use some of the HECM MIP reserves to work through this problem. The truth is -- they didn't even try. They are as callous now to the real needs of the American public as they were then. I want to say more but then The Critic would start reminding me about “the hand….”

Rayna,

Last month, I closed two loans like the one you describe.

One owed well over $50K and had more than enough cash to make up the differnce but needed to perserve as much cash as possible to care for a family member.

The other could have come up with far more than he ultimately had to but it was considerably more than we originally projected.

These two just happened to work out. I also have had many others who are just like the ones you describe. I don't like to say it but we can only help those we can help. I wish we could do more but....

Matt, it's not the rising margins, per se. It's the fact that nothing is locked in at the time of application. The borrower needs to know, notwithstanding the uncertainty of the appraisal, at the very least, whether there will be enough money at the end to pay off their existing mortgage if they have one. As to your last comment about seniors being a special class of people, right or wrong, HECMs have made seniors a special class of people. No other mortgage requires counseling certification. As far as I know, the only other financial situation with such a requirement is bankruptcy. However, that was not really the point.

Mr. Smith,

Like you, I am no fan of some of those currently in Congress but who can we work with over the next 18 months? Unless they somehow cannot run for office or retire, the political realities of their districts are that Representatives Frank and Waters will still be in office in 2012. Beyond that these are two of the closest friends our industry has in the House.

Please remember if Senator Colburn (R-OK) had allowed a vote on the FHA Modernization Bill in the Senate in late summer 2007, there would probably be no HERA Cross-Selling provisions, a capped origination fee, and the cap on the number of HECMs that FHA can endorse would have been removed by now. Let's put the blame where it belongs -- ideological Senatorial Republicans who are fundamentally against FHA.

I really don't get your point. Who do you suggest we work with in Congress? Unless you can unseat these two Congressional "leaders" with those who will help our industry more, let's not bite the hands of those....

To be fair,, I don't think that Fannie is gratuituiously raising margins to hurt seniors. They are trying to jump start the secondary market to buy HECMs which is in the best interest of the whole RM industry. Its a shame to see people who need the loan lose conditions to do it because of the rising margin, but everyone is affected by the current economic climate and seniors are no exception. We just need to hope that interest rates on T-Bills get backt their normal benchmarks and much of this problem goes away. Is it really realisitic to have seniors set up as a special class of people who have to be insulated from everything that negatively affects them?

It's unfortunate that we have come so far in overcoming all of the "myths and misconceptions" and bad reputation associated with reverse mortgages in the past only to now have to explain what seems like a "bait and switch" tactic to the senior. Now we're in a situation where a small delay in an appraisal or survey, through not fault of the borrower, can result in a reduced benefit of thousands of dollars, possibly making them unable to continue.

I also agree with Mr. Smaldone's article.I've had several reverse loans that from time of application had their margins raised before closing causing great anxiety with the borrower.Not to mention, greatly reduced amounts available. Now the loan officer has to re-sell the mortgage to the client several times over & hope that by closing date things don't change again!

Seniors need security in knowing what they have applied for & qualified for from the beginning, not this "we won't know until we get to closing"!

I couldn't agree more with Mr. Smaldone's article. It is especially troubling when seniors are trying to pay off a mortgage and don't know whether or not they're going to have to bring money to the table or not. Now it's a crapshoot and if they don't know and we don't know and it's going to be close, it may not be possible to even attempt to move forward unless they have a stockpile of money available -- and I can't remember the last time that happened.

Hopefully someone is going to address this problem. It may be useful in the forward market but the reverse market must be handled differently.

No, Mr. Veale - what we really need is for Barney Frank (D-MA) and Maxine Waters (D-CA) to go home. The thought that either one could do anything constructive to prevent further interference in the reverse mortgage business is laughable.

The sad thing is that with just a little planning and some prudent use of TARP and/or HECM FHA MIP, the impact of this crazy policy change could have been greatly mitigated. This is one of those times when I would love to see Representatives Maxine Waters (D-CA) and Barney Frank (D-MA) grilling Fannie Mae over this draconian change in policy. With Representative John Campbell's (R-CA) background as a fellow CPA from E&Y and a USC MBT grad, maybe he might be willing to introduce such a plan.

Good job, Mr. Smaldone. Please keep us informed on your progress and any help you may need.