Linking reverse mortgages to subprime is completely unfounded says executive

NewImage.jpgWith recent reports indicating that property values are leveling off in some areas of the country, Scott Stern, chief executive of Lenders One told Broker Universe he believes things could be turning around for reverse mortgages.

With prices stabilizing, it will make it easier for seniors to determine their equity position in their property and then go ahead and borrow.  Among the causalities in the reverse mortgage business because of the tough economic times are the products that competed with the Federal Housing Administration’s Home Equity Conversion Mortgage.

“My initial sense is this should be a government loan, to insure the safety and the sanctity of the product,” especially because the product relies on the equity that seniors have in their homes, he explained. Therefore there needs to be proper regulation, but he could see a private-label market for reverses if their was appropriate oversight.


Another issue that might be having an impact on volumes is a number of consumer advocates, regulators, and politicians who have tried to link reverse mortgage lending with subprime lending.  “My opinion of that is that it is completely unfounded, when using a regulated reverse mortgage product,” he said. When one is talking about a consumer’s ability to generate income to take care of their living expenses, there needs to be an evaluation of and comparison to, other sources of revenue.

Still, Lenders One is bullish on the future of reverse mortgages as the baby-boomer generation gets older and taking into account his earlier points about stabilizing property values and consumer trust.  “There should be a strong reverse mortgage market in 2010 and 2011,” he said.

While admitting not knowing the answer on how to increase the market penetration of reverse mortgages, Stern had a few thoughts on the subject.  Read them at the link below.

Property Value Improvement Should Help Volume

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  • After reading this article you have to ask yourself if Scott has a handle on the reverse mortgage market, the legislative challenge before us, and the negative changes we face even if HUD receives the HECM appropriation requested. Scott states: “I am bullish on reverse mortgage lending in 2010 and 2011 as compared to 2008 and 2009.” His optimism seems unparalleled in the industry. I hope he’s right and so many of us who are just wondering how many years it will be before seeing volume at 2008 levels are wrong.

    One wonders if Scott did the interview to shore up the troops or what his motivation was. It was an odd interview.

  • Good for you Scott Stern.

    The unfounded adverse publicity is spreading panic through out the industry but more so to our senior citizens. To think we are depicted as the next sub-prime industry. This has turned out to be a media field day with no justification behind it. The reverse mortgage industry has done so much good for our seniors over the years. The future need is even greater. Sure, the reverse mortgage has costs involved in it. The MIP is probably the largest single cost. However, if this is explained in detail and the senior understand the costs involved, it is still a great program for our seniors as long as it still achieves the goals they are looking for.

    Senators like Clair McCaskill is obsessed with destroying the program. She thinks by eliminating the originator of the product is going to cure what predatory lending is occurring out their. She and politicians like her are so much out in left field that they are the the one's who are the predators. They are scaring seniors out of reverse mortgages, which are driving them to other alternatives that are a risk to them.

    Some how we need to be heard, we, the professionals in the industry. The loan officers and people that are devoting their lives to seniors. We get very little recognition for the good we do and how many seniors are smiling today because of our love and devotion to them and our industry. We are the majority, the predator in sheep's clothing is the minority. The majority must start taking an active vocal roll in defending the reverse mortgage.

    John A. Smaldone

    • John,

      I generally concur; however, I do not understand why people like Scott are not speaking out about the injustice our seniors will endure if the HECM program does not get the meager subsidy which has been requested. After all, all it is a bookkeeping entry unless the OMB projections turn out to be correct (or worse understated) and there is no other surplus to pay off the predicted net losses.

      The problem with our industry is our size. May total endorsements were less than 5,000. If full-time originators averaged1 loan endorsed last month that means there are less than 5,000 full-time originators. Those who support operations full-time are far less than half that number.

      I live directly across the street from a Community College with an enrollment exceeding 27,000 students with waiting lists for most traditional academic courses. Three miles down the road is the largest state university in California with well over 37,000. And I live in a hamlet of LA County with a population of less than 500,000. We have over 16,000 high school students and many more in other grades.

      The point is, this hamlet has a small voice in county, state, and national politics. Our industry is much smaller yet. This is why every full-time member of our industry must actively speak out to their national representatives about the importance of our program. If we don't speak out who will? To believe that the MBA will do the job was proven wrong last year in the appropriations process. AARP is not going to spend its political capital if we won't.

      While NRMLA does a great job in our behalf, they are small. They are in fact asking for our help. So the question is, in the midst of this downturn and slowdown in activity with maybe 2-3 loans per month at most by the vast majority of our originators, why aren't we investing the time and expending the energy to at least speak out? NOW is the time.

      I know you agree and do speak out but we need all originators to do their part to put a personal message in front of their representatives. It is horrible to read originators complain about how little NRMLA achieves. That is because those who complain are not taking up the banner to speak to their representatives about the program, what is needed, and why it is so important to our seniors to have this program blossom.

      Collectively our voices are stronger than our leaders by themselves. It is time that we follow the request of NRMLA and do our small part to get Congress to appropriate the $250 million subsidy and agree that the annual rate for ongoing MIP can be increased to 1.25%.

      I just got off my soap box and wish you a good afternoon.

      • James,

        You were not on a soap box. What you said was very interesting and right on target. I am infuriated like you are. You are right, we need all originators to do their part to put a personal message in front of their representatives. We have been to quiet of a group, we must change our philosophy and get off our duffs and start doing something about what is happening.

        It is pretty late in the game but we need to start forming committees to take action with our legislators. Another approach may be with Peter Bell/NRMLA. See if we can form a stronger lobbyist group made up of us who know the business and have the passion for it. You made a lot of sense in what you said, I think you and I have said similar things in the past. We also need to start getting ourselves in the media. We need to change this perception of the reverse mortgage industry being the replacement for the sub-prime industry. I will be willing to participate in anything that can turn this down hill roll we seem to be on.

        We are no different than what has taken place in our great nation. The people sat back for years, complaining but doing nothing. We have done the same thing, now look at what is happening to our country and to our industry. I have said this many times, we that are the professionals in the industry are going to suffer a great deal more than what we have experienced over the past 18 months. However, the senior citizen we have serviced with pride and devotion will suffer the most!

        Thank you James for your, as usual, logical statement packed with good old common sense.

        My best,

        John A. Smaldone

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