Interview With Ken Scholen, Insight Into HUD’s Reverse Mortgage Product

image National Mortgage Professional Magazine published a great interview with Ken Scholen, the “godfather” of the reverse mortgage industry.  Atare Agbamu sat down with the man responsible for the first reverse mortgage R&D project and discusses the state of the industry and the history of the product. 

During the interview, Scholen provides some great insight into the program, specifically in regards to the health of the industry.  Scholen said that:

It’s not enough to assert that the predators only operate on the fringes of the market or that the loan product per se is no the problem.  The reality is that the predators wield an enormous influence over the public image of the product and the market and, therefore, the health of the industry. 

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I agree with what he is saying but he follows it up with:

So the health of the industry is directly tied to the safety of the consumer, and halfway measures to restrain the predators will only result in halfway protection for consumers and the industry

It’s the first I’ve heard of anyone suggesting that the health of the industry is tied to the safety of the consumer, but I think he could be right.  

He also brings up counseling and says that:

A strong HECM counseling program can be a major factor in protecting consumers and the industry.  But all the efforts to strengthen the program will mean little unless an independent source of reliable and adequate funding can be created to support it.

Amen to that, lets just hope that the new counseling protocols are funded accordingly.  At the end of the interview, Scholen talks about the opportunity he sees from lower cost reverse mortgage products. 

Loan costs are a serious barrier to market growth.  Consumers who would be willing to accept lesser loan benefits of various types in exchange for much lower costs are the major untapped segment of the reverse mortgage market. 

I couldn’t agree more and Meg Burns, Director of the Office of Single Family Program Development at HUD said that a HECM "mini" is under development at the MBA’s Reverse Mortgage Conference in San Diego. 

Part 1 & Part 2 of the interview. Nice work Atare. 

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  • The early achievements of Mr. Scholen are well documented and deserve the genuine gratitude of our entire industry. Some of his actions and recommendations of late, however, have been disappointing and not nearly as positive.

    The article is a message that Mr. Scholen is sending to our industry. As usual Mr. Abgamu snags a great interview. It is important that we not only read but examine what it is Mr. Scholen is instructing us. Mr. Abgamu rarely gets it wrong.

    First, what damages this industry the most is not actual fraud or crimes against seniors but rather the perception that something is inherently wrong with the program. Facts either strengthen perceptions or change them. As we get older, perceptions take on more of a permanent nature that not even facts easily change. This is why we need to continually fight for a better perception of our industry among seniors and their advisors. We must be both diligent and vigilant.

    Mr. Scholen argues for stronger protections for consumers yet he provides no clear picture of the supposed flaws or even any evidence as to the predators couching at the fringes of our industry, ready to strike. He fails to state or describe who these predators are so that we can take appropriate action. He does not provide any suggestions about what protections are needed. The statements of Mr. Scholen only add to the perception that “something is wrong with reverse mortgages” but what?

    Yes, Mr. Scholen believes in lower HECM costs but which ones? In the AARP study titled “Reverse Mortgages: Niche Product or Mainstream Solution?” and dated December 2007, Mr. Scholen and two co-authors strongly appeal for lower costs. The one cost they point out as being overinflated is origination fees and recommended (Recommendation 2) that it be lowered substantially. This report is located at:

    http://assets.aarp.org/rgcenter/consume/2007_22

    Even though Congress did not go as low as advocated, it was AARP that pleaded for and got a lower origination fee structure into the Housing and Economic Recovery Act of 2008 or HERA (P.L. 110-289). It is also true that the study advocated lower MIP but only if it could be lowered without actuarially hurting the program. The study never made the case that MIP should be lowered just origination fees.

    Yes, when Mr. Scholen speaks we should listen but should we blindly follow? The industry owes a lot to Mr. Scholen for his prior work but the industry also needs to pay attention to what he is pitching now. We may not fundamentally agree with some of what he has to say.

    As a colleague of mine who knows Mr. Scholen and appreciates his long-time friendship has stated on more than one occasion: “Remember Jim when it comes to Ken he is a consumer advocate first. You may not like what he says or does at times but that is just what consumer advocates do.” His statement is very, very accurate and true.

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