New Product Could Springboard Reverse Mortgages Into the Mainstream

Armed with a new product, there was a sense of optimism over the panelists during the National Reverse Mortgage Lenders Association annual conference in New Orleans.

Jeff Lewis, Chairman of Generation Mortgage told RMD during the conference he believes the industry will grow by 30% during fiscal year 2011.  “We’re going to grow like crazy being able to provide more choices to borrowers,” he said.  “We all know there is a need for our product and the HECM Saver should help bring in different kinds of clients.”

During a panel discussing the new HECM Saver, Vicki Bott, Deputy Assistant Secretary for HUD said the agency believes the Saver will be very popular, but its up to lenders to educate consumers so they understand which product is best for their situation.

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“Don’t see the HECM Saver as a temporary product because it can be re-financed in the future,” she said.  “If you’re selling it as a short term product it can disrupt the secondary market.”

Without any data on how the HECM Saver performs, investors remain cautious about how quickly the loan could pay off and whether it’s a “stepping stone” to refinance into the HECM Standard.  However, as long as the industry puts the interest of borrowers first, the combination of the Saver and Standard “has the potential to springboard the industry into the mainstream,” said David Fontanilla, Trader at Knight Capital Group.

The company is holding HECM Saver loans on its balance sheet until it can figure out what the market looks like said Fontanilla.

“This has always been a small industry but we also aspire to get that acceptance of the mainstream,” he said.  “We’re on the cusp of that and if we make the right choices for the borrower, the rest will come together.”

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  • Okay, I am not sure if I am being Cynical or Critical here (sorry to The_Cynic and The_Critic), but folks, from a counselor’s perspective, can we not be quite so giddy over the Saver HECMs? Especially when the word “refinance” is used anywhere in the same ten minutes? I can tell you that I would never recommend a Saver HECM as a stepping stone to a Standard HECM. If you want more money, take the Standard and be done with it. Any salesperson selling it as a stepping stone is not doing either their clients or the industry a favor, but is actually hurting both.

    The Saver HECM has its place (which does not yet seem to be Massachusetts, but that is another story) and may be the best choice for some clients, but as an industry, which really does include the counselors on the periphery, we need to be sure that the Saver HECM is not used as a stepping stone. That leads right into the worst fears of the consumer advocates and tracks the same methods used by sub-prime lenders to strip the equity from homes to place in their own pockets.

    Frank J. Kautz, II
    Staff Attorney

    Community Service Network, Inc.
    52 Broadway
    Stoneham, MA 02180
    (781) 438-1977
    (781) 438-6037 fax
    FrankKautz@csninc.org –work
    Frank@Kautzlaw.com –private

  • Okay, I am not sure if I am being Cynical or Critical here (sorry to The_Cynic and The_Critic), but folks, from a counselor’s perspective, can we not be quite so giddy over the Saver HECMs? Especially when the word “refinance” is used anywhere in the same ten minutes? I can tell you that I would never recommend a Saver HECM as a stepping stone to a Standard HECM. If you want more money, take the Standard and be done with it. Any salesperson selling it as a stepping stone is not doing either their clients or the industry a favor, but is actually hurting both.

    The Saver HECM has its place (which does not yet seem to be Massachusetts, but that is another story) and may be the best choice for some clients, but as an industry, which really does include the counselors on the periphery, we need to be sure that the Saver HECM is not used as a stepping stone. That leads right into the worst fears of the consumer advocates and tracks the same methods used by sub-prime lenders to strip the equity from homes to place in their own pockets.

    Frank J. Kautz, II
    Staff Attorney

    Community Service Network, Inc.
    52 Broadway
    Stoneham, MA 02180
    (781) 438-1977
    (781) 438-6037 fax
    FrankKautz@csninc.org –work
    Frank@Kautzlaw.com –private

    • Thank you very much for your honest opinion regarding this matter.

      Our nation has been experiencing the worst economy since the “Great Depression”; and, moreover, the economists are still not convinced that we have seen the “worst” part of the crisis. Of utmost importance regarding the Reverse Mortgage, the refinance may not be available to the consumer in the future——-many people with a Reverse Mortgage have not been able to refinance their “deflated” personal residence with the 25%+ decrease in the fair market value of the underlying real estate. The reverse mortgage loan lenders have during the economic crisis, in fact, drastically changed the underwriting requirements for a reverse mortgage, including higher interest rates, closing costs, lower principal amounts, using FICO scores, requiring evidence of adequate income for payment of taxes and insurance. As such, the idea of financing a Reverse Mortgage in the worst real estate market in years, with the advice by a loan officer of the availability of “refinancing” at a later date, is, in my opinion, another attempt to have the banks and mortgage lenders showing their “greed” and taking advantage of the senior citizens in the Nation.

      Again, congratulations for your e-mail——the public needs to be educated on this subject matter during a time when the senior citizen is trying to live off a CD with 1% interest earnings, a 401K/IRA account balance that has diminished by 25% to 50% of its fair market, the real estate market crash, and on and on.

      Nancy A. da Kay, CPC, QPA, QKA, ASPPA

      • Until 2008, a far too common statement given to borrowers at closing was: “Remember when you need more money two or three years from now, with home values rising and lending limits going up almost as quickly, call us because while we cannot promise we will, we should have the additional financing you need at that time.” I do not want to paint the picture that the majority of originators of that era made such statements but a significant minority did (or in some cases left out the part of not promising). I have heard several very successful originators during that era lament that the situation is not the same today. They seem to have missed the point that you cannot promise such things to borrowers. One said right after such a lament: “I hate picking up the phone nowadays because I am afraid it is some disgruntled borrower who has used up all of their available line of credit and needs more money. Then they remind me what I told them.” Our industry is still wrestling with some of its errors of the past and it will continue doing so.

        For those borrowers who have only had limited resources throughout their adult life, it is a huge temptation to spend and “get the things others have owned all along.” With no encouragement at all, many will burn right through their Saver and later a Standard, while proclaiming that they have their spending under control and are using their funds judiciously. That is what some have labelled “lottery winner fever.”

        Some refinancing up cannot be stopped but we as an industry must not induce such behavior or we will find even more opposition from groups like Consumer Union based on credible anecdotes instead of the discredited nonsense they recently presented to Ms. Elizabeth Warren and the CFPB.

        The lessons of the last few years have toned down some of the problematic claims of the past. Let us hope that we will not see these errors so readily repeated in the future.

    • Great point Frank. HECM Saver is a tool to reach customers that otherwise would not be interested in HECM Standard. If we limit ourselves to the short term thinking of ‘stepping stone’ strategy, we’ve missed the boat and taken a step backwards in credibility as an industry.

  • I love all of this free press (thanks, Frank).

    As stated before, a 30% increase in endorsements seems a little high for this fiscal year while the nearly 5% drop predicted by HUD seems overly pessimistic. While it would be helpful to see a small reduction in Standard endorsements with an overall volume increase in endorsements of over 25%, such is the nature of wishful foretelling — very, very wishful.

    Over the last year, HUD has been talking about who should be first to present HECMs to prospects in different ways to different audiences. On one hand you have Peter Bell, Barbara Stucki, several counselors, and several members of FHA staff proclaiming that counseling should come BEFORE application and lender consultation about HECMs. Then there is Vicki Bott and other HUD staff addressing what is the far more common situaion of the originator providing the first information and presentation to the borrower. If we did things in the order that Peter and Barbara insisted were the right order to provide information to a borrower, very few of us would ever retain prospects. Who wants to have a prospect feel as if we as originators are nonreponsive and pushing them to counseling?

    I do not believe it is the responsibility of the lender or the counselor alone to provide the information the borrower needs to make the right decision. It is a matter of both working together to help the consumer understand their options. I have found that no matter what is presented it is rare for the consumer to retain all of what he/she hears during their first presentation . Then suddenly during the second presentation the prospect picks up most of what he/she needs to know for making the right decision.

    What used to be a recognized partnership of lenders working together with counselors and vice versa, seems to have evaporated in the eyes of HUD staff. We need to cultivate that relationship not see it neglected and lost. HUD needs to encourage it, not ignore it.

    • I have to admit, as a counselor, by and large I prefer it when my client has seen a lender’s agent prior to counseling. It means that they generally have meaningful questions, they already know the absolute basics, and they have an idea of why they want a reverse mortgage. It also means, as a counselor, that most of the people that I see who will ultimately not take a reverse mortgage because they are too scared or resistant, are already weeded out. In addition, if the lender has given someone bad information (unfortunately, it does happen), I have a chance to correct it. Further, I get to do what HUD tells me to do when it comes to suggesting that the client speak to more than one lender. If the lenders see the clients after counseling, then there is far more likelihood that they will sign the client up on the spot, thereby not giving the client the chance to see another lender or work at negotiating better terms with a lender.

      I can see where some of the folks who wish clients to see counselors first come from, but I find the current model far better. To be honest, there are not enough counselors out there to see the tire-kickers first, nor are counselors really paid enough to do that. If we tried to switch to that model, you will find HECM sales dropping off big time as the people who most need them are more and more discouraged because of misinformation and delays.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      FrankKautz@csninc.org –work
      Frank@Kautzlaw.com –private

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