VOLUME 4.1, WINTER 2001
A D V I S O R
The Reverse Mortgage Industry
in 2000 and the Year Ahead
By Darryl Hicks
nother year has come and gone in the reverse mortgage industry. It’s
time, once again, to reflect on the triumphs of the past year, learn
from the mistakes, and peer at the crystal ball to hear what forecast-
ers predict for the year ahead.
HECM PRODUCTION FALLS
The past year was tough on reverse mortgage lenders in terms of volume.
After four consecutive years of gains (FY99, 7,982 loans; FY98, 7,898 loans;
FY97, 5,192 loans; FY96, 2,314 loans), total annual originations of federally
insured reverse mortgages — the FHA Home Equity Conversion Mortgage —
slipped in the federal fiscal year (2000) ending September 30, 2000.
YEAR IN REVIEW, continued on page 10
Challenges for 2001
A quarterly publication of the National Reverse Mortgage Lenders Association
t NRMLA’s Annual meeting, speaker Jeff Taylor, a consultant with
Wells Fargo Home Mortgage, Inc., identified five “market challenges”
that lenders need to “recognize and address head-on” in 2001 to
generate more reverse mortgage loans:
Marketing message. Lenders, and Fannie Mae, have spent countless
hours, and money to market reverse mortgages. Yet less than 7,000
loans were closed last year. Lenders, Taylor added, continue to “strug-
gle” over what the perfect sales
pitch should be to market reverse INSIDE THIS ISSUE
Message from the President .......2
Senior reluctance to debt. Borrower Profile .........................3
Seniors who suffered through the
NRMLA News .............................4
Great Depression are very reluc-
tant to accumulate new mortgage Privacy Regulations, A Top
Priority for Banks ......................5
debt. Their Baby Boomer children,
on the other hand, will be more Using Brokers ............................5
receptive to obtaining a reverse Cooperative Housing Units
mortgage — Taylor predicts 8 in Now Eligible for HECMS ............6
10 — because they are more com-
fortable with debt. Roundup ....................................8
CHALLENGES, continued on page 9
A Message from the President NRMLA members placed orders for thousands more of
our booklets to distribute through their own channels
We have a lot to be encouraged about for the
Much Was Gained in 2000; future. Texas is now open and operating. Pent-up
But More Challenges Lie Ahead demand promises healthy volume there. The new
By Peter Bell housing law signed by President Clinton in December
offers several opportunities. For example, the ability
n 2000, reverse mortgage to finance cooperatives, something that HUD should
lenders obtained a restruc- be able to implement relatively quickly, should help
turing of HUD’s origination boost volume in some markets, particularly New
fee guidelines intended to York City and Chicago.
make the business more self- The confluence of higher FHA mortgage limits,
sustaining, Texas opened its appreciated home values, and lower interest rates
doors, and major legislation should render the streamlined refi provision an effec-
enhancing reverse mortgages tive tool for generating business and providing more
was passed by Congress. Yet, assistance to existing reverse mortgage clients. And,
Peter Bell reverse mortgage volume the long-term care provision in the new statute could
declined from the year before. have promising implications — once HUD properly
Granted, the impact of the legislative changes implements it.
and the opening of Texas are yet to be felt and the NRMLA’s agenda for the year will focus on build-
past year brought unanticipated setbacks to growth. ing awareness — and increasing consumer accep-
From late summer through the start of the new fed- tance — of reverse mortgages.
eral fiscal year on October 1, HUD’s inability to
PRESIDENT, continued on page 14
insure new loans had a disruptive impact on the
market. Fannie Mae’s abrupt curtailment of the equi-
ty share feature on its Home Keeper loan consider- The National Reverse Mortgage Lenders
ably diminished the appeal of that product. Association is a national trade association that
But the bottom line is that reverse mortgages provides education, advocacy, and referral ser-
continued to suffer from lack of consumer awareness vices to firms that are involved in the reverse
in 2000. “You can’t have volume without aware- mortgage industry.
ness!” NRMLA Founding Chairman Jeff Taylor told Chairman
the audience at our recent Annual Meeting. And FINANCIAL FREEDOM SENIOR FUNDING CORP.
right he is.
Building consumer awareness is absolutely the President
essential ingredient for our growth. It is to that objec- DWORBELL, INC., WASHINGTON, DC
tive that much of NRMLA’s energy will be directed in Director of Communications
2001. The recent launch of our Consumer Education
Program is encouraging. In the 10 weeks since its Reverse Mortgage Advisor
launch, thousands of consumers have requested Editor:
copies of our new Consumer Guide to Reverse
Mortgages. Their requests were generated by news
coverage in hundreds of newspapers around the
country — the result of our media outreach campaign. Office
1625 Massachusetts Avenue, NW, Suite 601
Washington, DC 20036-2244
A reverse mortgage is a unique loan that enables senior Tel: 202-939-1760, Fax: 202-265-4435
Web site: http://www.reversemortgage.org
homeowners (62+) to convert part of the equity in their
homes into tax-free income without having to sell the home,
Reverse Mortgage Advisor is published quarterly as an information
give up title, or take on a new monthly mortgage payment. service for NRMLA members. The subscription price is included
in membership dues.
2 Reverse Mortgage Advisor Winter 2001
NRMLA BOARD OF DIRECTORS BORROWER PROFILE
Financial Freedom Senior Funding Corp.
Irvine, CA OA K H A R B O R , WA S H I N G T O N
VICE CHAIRMAN f you ask Harriet Dailey, 72, why she got
Wells Fargo Home Mortgage, Inc.
a reverse mortgage two years ago, the
answer is pretty simple: she wanted to
Joe Morris reduce her daily work load, so she could
enjoy life more.
Financial Freedom Senior Funding Corp.
Atlanta, GA Ms. Dailey taught kindergarten through
12th grade for 32 years, the last 10 as a senior high school English
George Q. Conover
teacher in her hometown of San Jose, CA. Then, in 1990, she retired and
Financial Freedom Senior Funding Corp. moved to Oak Harbor, WA, which is situated on Whidbey Island.
Owings Mills, MD
“It’s the largest island in the U.S.,” she said. “It’s in Puget Sound about
Sarah Fiske Hulbert
an hour north of Seattle.”
SECRETARY After retiring from teaching, Ms. Dailey soon recognized that her
Seattle Mortgage Company
small pension, plus Social Security, wouldn’t be enough to cover her
daily living expenses. So she took a job with a local agency that provides
––––– in-home care assistance to persons who have trouble functioning on
Laurance H. Friedman
Senior Homeowners Financial “I mostly helped prepare meals, did general housekeeping, assisted in
bathing and dressing, and played checkers with them if there was nothing
New York, NY
else to do,” she said. “I’d usually spend about 2-8 hours a day at each
Nelson Locke persons home. It was very rewarding work.”
America’s Senior Financial Services, Inc.
On the other hand, working 40-plus hours a week to support herself
Miami Shores, FL
eventually started taking its toll. “At times, there was a lot of heavy
Patrick J. McEnerney patient lifting involved with my job, which was difficult to deal with
Alliance Mortgage Company
sometimes,” Ms. Dailey noted.
Then, in 1998, she read in a senior journal that a speaker was coming
Dennis Pigg, Sr. to town to give a lecture on reverse mortgages, so “I decided to go hear
Safeway Mortgage, Inc.
what he had to say.”
Not long after, she applied for a reverse mortgage with Seattle
Kevin Silo Mortgage Company, Seattle, WA. Ms. Dailey qualified for a $108,000 FHA
Hartford Life Insurance Company
Home Equity Conversion Mortgage. She has a 1,600 square foot, two-
bedroom, two- bath “rambler” home that sits on a half-acre site.
Sian Owen She paid off her existing first mortgage and set up the reverse mort-
Canadian Home Income Plan
Toronto, Canada gage so that she would receive $684 a month for the next 12 years. She
also has a $10,000 line of credit, which she uses sparingly.
“The line of credit has really helped me out of a lot of holes,” says
Jeffrey S. Taylor
Wells Fargo Home Mortgage, Inc.. Ms. Dailey. “It’s so nice because the little money that I do spend gets
Greensboro, NC replenished because of the interest that I earn. It’s a really neat thing.”
Ms. Dailey has used her credit line to help pave part of her driveway
Peter H. Bell and to help repair her car, to name a few projects.
More importantly, the fixed monthly payments that she receives have
Washington, DC enabled her to slowly cut back on her work schedule. “I’ve gradually
BORROWER PROFILE, continued on page 7
Reverse Mortgage Advisor Winter 2001 3
NRMLA News pers. Bell has also been interviewed, and forthcoming
articles are expected from, the Associated Press,
Kansas City Star, and Individual Investor magazine
MAHONEY RE-ELECTED NRMLA CHAIRMAN
(a Dow Jones publication). Additional interviews
Jim Mahoney was re-elected Chairman of the
have been scheduled with other newspapers and
National Reverse Mortgage Lenders Association at the
group’s recent 2000 Annual Meeting in Dallas, TX.
As part of the campaign, River Communications
Mahoney, CEO of Financial Freedom Senior
will be developing and distributing periodic press
Funding Corp., Irvine, CA, was first elected chairman
releases that highlight different uses and benefits
of NRMLA in November 1999 and will serve a second
of reverse mortgages. The first release, “Is Mom’s
Home Ready for Winter?,” was distributed the week
Mahoney was elected at the 2000 Annual Meeting
of November 6 and sparked publicity in several
along with the following officers: Vice Chairmen
Roger Reynolds, Wells Fargo Home Mortgage, Inc.,
River Communications is currently working on a
Hemet, CA, and Joseph Morris, Financial Freedom
release that will discuss how seniors can use the
Senior Funding Corp., Atlanta; Treasurer George
proceeds from a reverse mortgage to pay for health
Conover, Financial Freedom Senior Funding Corp.,
related services, such as drug prescriptions, long-
Owings Mills, MD; and Secretary Sarah Fiske Hulbert,
term care insurance, and in-home care. The release
Seattle Mortgage Company, Seattle, WA.
will be accompanied by a companion brochure for
consumers developed by River Communications
NRMLA CONSUMER EDUCATION CAMPAIGN
NRMLA distributed two complimentary copies
NRMLA’s nationwide consumer education program
of its consumer guide to all Association members.
to promote awareness of reverse mortgages among
Additional copies may be ordered through bulk
senior citizens, their adult children, the general
purchase orders for a fee. To order, contact
public, and the news media is fostering substantial
NRMLA’s Darryl Hicks, 202-939-1784, e-mail
More than 1,100 copies of The NRMLA Consumer
Guide to Reverse Mortgages have been distributed to
consumers requesting it. NRMLA is typically handling
20-25 e-mail and telephone requests daily for the
free booklet. The NRMLA
Seniors ask for the booklet after reading a news- Consumer Guide
paper or magazine article about reverse mortgages. to Reverse Mortgages
River Communications, an Irvington, NY public National Reverse Mortgage Lenders Association:
relations firm retained by NRMLA to help plan and Helping senior homeowners enjoy a comfortable retirement.
execute the consumer education and media outreach
campaign, has already arranged numerous interviews
of NRMLA President Peter Bell with newspapers and
national magazines to discuss the benefits of reverse
mortgages. Those interviews have generated stories
on reverse mortgages that reach massive numbers of
consumers each week.
Articles have appeared recently in Barron’s
Magazine, the Dallas Morning News, the Los Angeles
Times, Kiplinger’s Magazine (for its February retire-
ment report), American Banker (a banking trade
publication), the Chicago Tribune, and other newspa-
4 Reverse Mortgage Advisor Winter 2001
Privacy Regulations a Top Reverse Mortgage
Lenders Begin Using
Priority for Banks, Survey Finds Brokers to Expand
Reach of HECM
major concern for banks and other lending institutions is the impact
of new privacy rules that will take effect July 1, 2001, and what Program
steps companies should take to become fully compliant. By Darryl Hicks
The Gramm-Leach-Bliley Act (Public Law 106-102) requires lenders to
provide upfront disclosures to new loan applicants that explains how that oan brokers often are referred
borrower’s personal information may be shared among other ancillary to as the workhorses of the
service providers, including telemarketing firms, insurance companies, mortgage industry, since they
brokerage firms, travel agencies, and the like. routinely originate more than half
The privacy rules will impact federally chartered banks, credit unions, of all home purchase mortgages
mortgage companies and other lending institutions that make reverse and refinanced loans every year.
mortgages, home purchase loans, home equity loans, and various other According to the National
loan products. Some states are introducing their own privacy bills that Association of Mortgage Brokers, the
would impact state-chartered institutions. U.S. has more than 20,000 licensed
A recent survey, commissioned by RSM McGladrey, Inc., a national brokers who originate over one-half
accounting, tax, and consulting firm based in Minneapolis, MN, found that of all residential loans. Yet the impact
the majority of community banks polled are taking measures to implement of brokers in the reverse mortgage
new privacy rules. However, bank officers surveyed said they have ongoing area has always been limited.
concerns, mostly procedural, about how to handle the anticipated privacy Part of the problem lay with HUD,
regulations. which, until this past summer, had
When asked what the biggest challenge facing their bank will be when never provided clear guidance to the
dealing with the new privacy law, 27 percent of respondents said notifica- lending community on the role that
tion, disclosure, and communication with customers. Paperwork and brokers could play in the federal
understanding the requirements of the regulation shared second place Home Equity Conversion Mortgage
at 19 percent. Additional responses included: expenses involved with (HECM) program. In FHA Mortgagee
compliance (14 percent); time involved with compliance (11 percent); Letter 2000-10, HUD said the origi-
staff training (11 percent); and waiting to see how state and federal nation fee for HECMs must include
requirements will be implemented (11 percent). “the full amount of any mortgage
Bankers Systems, Inc., a national compliance company based in St. broker fee or loan correspondent
Cloud, MN, said a recent analysis of 1,800 financial institutions indicates fee.” This was the first explicit offi-
that more than 30 percent share customer data with non-affiliates. At cial statement from HUD that bro-
least one-third also indicated they will conduct their first mailing of ker’s may collect a fee under the
privacy disclosures in January 2001. HECM program. Before, the general
Bankers Systems said that understanding and complying with the view was that brokers couldn’t par-
applicable privacy regulations is proving to be more complicated than ticipate in the program and get paid
many financial institutions first thought. Lenders that do business in unless they were an FHA-approved
multiple states, for example, are facing additional complexities because correspondent.
of existing and pending state regulation. Since HUD clarified that brokers
To ensure compliance with federal privacy regulations, RSM may participate in the HECM pro-
McGladrey, Inc. and Bankers System recommend that lenders take the gram, at least two reverse mortgage
following steps: lenders have moved to take advan-
tage of the ruling.
Convene a Privacy Team. Privacy regulation will affect every area of Wells Fargo Home Mortgage,
a bank. All department managers should be members of the privacy Inc., Hemet, CA, and Senior
team. That team should have a leader, or director of privacy. Homeowners Financial Services,
PRIVACY, continued on page 13 HECM, continued on page 12
Reverse Mortgage Advisor Winter 2001 5
WHAT IS COOPERATIVE HOUSING?
Cooperative Housing Housing cooperatives are formed by people who
Units Now Eligible for join to own and control the building in which they live.
Tenants usually form a corporation, which owns
HECMs Under New Law or leases the housing project, including all land,
dwelling units, and common areas. The tenants own
ntil now, a senior citizen living in a housing stock in the corporation. By virtue of their stock own-
cooperative has been excluded from getting a ership, the tenants are entitled to occupy a specific
reverse mortgage. dwelling unit.
But not any more. The cooperative corporation is the legal owner of
On December 27, President Clinton signed into law the property. As such, the corporation is responsible
the American Homeownership and for meeting its financial obligations,
Economic Opportunity Act of 2000 including mortgage payments, real
(Public Law 106-569), which permits ON DECEMBER 27, property taxes, and management and
federally insured reverse mortgages on maintenance costs. The cooperative
cooperative housing units. Until now, passes on these costs to the tenant-
the FHA Home Equity Conversion SIGNED INTO LAW stockholders, who pay a single
Mortgage (HECM) has been restricted THE AMERICAN monthly fee or carrying charge to
to owners of single-family homes and the cooperative. The tenants get tax
condominiums. benefits in return.
HUD must issue guidance on the ECONOMIC OPPORTUNITY The stockholders are responsi-
new change, however, before lenders ACT OF 2000 (PUBLIC LAW ble for creating bylaws, which spell
can start making HECMs on co-op out each individual member’s
106-569), WHICH PERMITS
units. This could take several months, relationship and obligations to the
since HUD has a new Secretary and FEDERALLY INSURED cooperative.
will be getting new senior staff. In Housing cooperatives generally
REVERSE MORTGAGES ON
addition, Fannie Mae must amend its come in any number of physical
guidelines and documents before COOPERATIVE HOUSING forms: single-family homes, duplexes,
lenders can sell HECM co-op loans to UNITS. UNTIL NOW, THE townhouses, garden apartments,
the company. mid- and high-rise apartments,
FHA HOME EQUITY
“We’re aware of the new law and fraternity houses, dormitories, rural
how it impacts both cooperatives and CONVERSION MORTGAGE communities, walk-ups, land subdivi-
reverse mortgage lenders,” said Frank (HECM) HAS BEEN sions with sites and utilities, and
Pilk, a marketing specialist with mobile homes.
RESTRICTED TO OWNERS
Fannie Mae. Once the new HUD staff
is in place, he added, Fannie Mae will OF SINGLE-FAMILY HOMES URBAN AREA PHENOMENON
start working with the Department to AND CONDOMINIUMS. According to the National
develop appropriate guidelines. Association of Housing Cooperatives
Fannie Mae already has some (NAHC), an industry group based in
experience dealing with cooperatives. The govern- Washington, DC, there are more than 1.5 million
ment-sponsored enterprise launched a pilot program cooperative housing units in the U.S. today. However,
two years ago in California to determine the mar- it is primarily an urban type of product.
ketability of using its Home Keeper reverse mortgage According to NAHC Executive Director Doug Kleine,
product on cooperative housing. Fannie Mae has more than one-half of all cooperative housing is in
purchased more than 30 loans to date under the New York City, although Washington, DC, Chicago and
initiative. But it’s unclear whether the company will other smaller cities also have large numbers of units.
expand the pilot to other parts of the country or to “For a lot of seniors, co-ops are a neat place to
the entire nation.
6 Reverse Mortgage Advisor Winter 2001
live — as they grow older they choose to age BORROWER PROFILE, continued from page 3
in place, rather than leave for a nursing home,”
reduced my hours,” she said, “so that I’m working
Some cooperative units, depending on where
roughly 15 hours a week” Now, with more free time,
they’re located, are bringing a pretty penny on the
Ms. Dailey is taking a more leisurely approach to life
on Whidbey Island, including playing bridge, a life-
“Coops that were built in the 1950s in Queens
and Brooklyn are selling for $150,000-$200,000,”
“The reverse mortgage has literally saved this little
old lady’s life,” she said. RMA
FANNIE MAE PILOT PROGRAM
Four companies agreed to participate in Fannie
Mae’s pilot program for cooperatives: Financial
Freedom Senior Funding Corporation, Irvine, CA; FHA Home Equity Conversion Mortgages
GMAC Mortgage Corp., Horsham, PA; Seattle
Mortgage Company, Seattle, WA; and Quaker City
Federal Savings and Loan Association, Woodland (1992-PRESENT), ORIGINATIONS BY STATE
Hills, CA. [Note: GMAC stopped making reverse mort-
State Total HECMS
gages two years ago.]
Financial Freedom has originated the lion’s share
(1) California ..............................................8,518
of the loans made under the co-op pilot.
Commenting on the possible use of reverse mort- (2) New York..............................................5,310
gages with co-op units, Tom Scabareti, marketing
(3) Illinois ...................................................3,483
director at Financial Freedom, said: “This is a new
opportunity for lenders to explore. But there are (4) Pennsylvania ........................................3,225
hoops you have to jump through to make a reverse (5) New Jersey............................................3,056
mortgage work in this instance.”
(6) Florida ..................................................2,837
He noted, for example, that before a senior can
get a reverse mortgage, the lender must make sure (7) Colorado ...............................................2,770
the cooperative’s bylaws permit the physical property
(8) Washington ..........................................2,539
to be encumbered by a reverse mortgage.
Kleine advises lenders wishing to work with the (9) Virginia .................................................2,078
board of directors of a co-op to develop a “recogni-
(10) Ohio ....................................................1,786
tion agreement.” He said this is “a standard document
that affirms the co-op’s willingness to work with (11) Michigan.............................................1,535
lenders, recognizes the lender’s rights, and honors (12) Utah ....................................................1,519
the lender’s security interests.”
The security for a reverse mortgage on a co-op
unit is the resident’s share in the co-op corporation. (14) Connecticut ........................................1,489
“The share is a hybrid type of property,” Kleine
(15) Maryland ............................................1,382
noted. “In most states, the share is personal property
insofar as buying and selling, so closing and other Total .........................................................43,021
transaction costs are less than for real property
Source: HUD/Mortgage Bankers Association of America
transactions. Yet federal tax and banking laws give
real estate attributes to co-op share, so that a resident * The top 15 states accounted for more than 71 percent of all HECM
reverse mortgages insured since 1992.
can deduct interest and property taxes, and the lender
counts a share loan as part of its real estate secured
Reverse Mortgage Advisor Winter 2001 7
Legislative/Regulatory President George W. Bush.
In 1962, at age 15, Martinez fled Cuba. Alone and
Roundup speaking no English, he was taken in by foster fami-
lies until he was reunited with his family in Orlando
HECM PROGRAM AMENDMENTS ENACTED in 1966. Martinez graduated from Florida State
Reverse mortgage lenders received a late holiday University College of Law in 1973.
gift on December 27 when President Clinton signed It’s not clear yet what impact Martinez will have
into law a federal housing bill (H.R. 5640, Public Law as HUD Secretary because he has had little involve-
106-569) that makes numerous changes to the FHA ment in housing prior to now. Mr. Martinez, formerly
Home Equity Conversion Mortgage program. a personal injury lawyer, has been County Chairman
The American Homeownership and Economic for the past two years. He is described as a dynamic
Opportunity Act of 2000 revises the HECM program and likeable individual who relies heavily on his
to: (1) Authorize HUD to cut the upfront FHA mort- staff. Accordingly, the selections for FHA
gage insurance premium (MIP) that borrowers must Commissioner, Deputy Assistant Secretaries, and
pay when they refinance a HECM: (2) Waive the Special Assistants will be key. So far, no names have
mandatory counseling requirement for borrowers emerged for those positions.
when they refinance their HECM, provided certain
conditions are met; (3) Permit HUD to waive the CONGRESSIONAL COMMITTEES CHANGE
upfront MIP charged to HECM borrowers who use the As a result of the fall elections, the make-up of
loan proceeds to pay for qualified long-term care the new 107th Congress that convened in January
insurance coverage (use of a portion of proceeds to has changed, as well as the leadership of the House
pay off existing mortgage debt and to finance the and Senate committees.
HECM closing costs are allowed); (4) Require HUD to The House Banking Committee, which writes
conduct a study within 180 days of the fiscal impact housing and banking legislation, was renamed the
of reducing the FHA insurance premium for HECM Financial Services Committee after House GOP lead-
refinancings, and the impact of establishing a single ers voted to transfer jurisdiction of securities and
national loan limit for the HECM program; and (5) insurance matters from the Commerce Committee
Allow reverse mortgages to be made on cooperative to Banking. Rep. Michael Oxley (R-OH), a senior
housing units. Until now, reverse mortgages have member of the Commerce Committee, was named
been restricted to owners of owner-occupied housing chairman of the Financial Services Committee. He
units, including one-family homes and condomini- succeeds Rep. James Leach (R-IA), who stepped
ums. (See p. 6 for article on co-op change.) down because of GOP-imposed term limits for
The counseling requirement may be waived for committee chairmen.
borrowers who refinance if they received their origi- The House Banking Committee’s Housing and
nal HECM within the past five years, the lender has Community Opportunity Subcommittee also has a
provided them with a disclosure telling them how new chairman, Rep. Marge Roukema (R-NJ). Former
much it would cost to refinance and how large of an chairman Rick Lazio (R-NY) was defeated in his bid
increase they would see in their loan amount, and if for a Senate seat.
the increase in the principal amount of the mortgage In the Senate, Sen. Phil Gramm (R-TX) continues
will exceed the cost of refinancing by a certain as chairman of the Senate Banking, Housing and
amount to be set by HUD. Urban Affairs Committee, and Sen. Wayne Allard
The law directs HUD to issue a final rule within (R-CO) as chairman of the committee’s Housing and
180 days to implement the refinancing amendments. Transportation Subcommittee.
Republicans and Democrats each control 50 seats
MARTINEZ CONFIRMED AS HUD SECRETARY in the Senate, with Vice President Dick Cheney vot-
Mel Martinez, chairman of Orange County, FL, ing as tiebreaker. In the House, the Republicans saw
has been confirmed by the U.S. Senate as the new their edge over Democrats shrink to 221-212, with
Secretary of Housing and Urban Development under two independents. RMA
8 Reverse Mortgage Advisor Winter 2001
CHALLENGES, continued from page 1
Misperceptions about product. Taylor said family estate in the process, according to Taylor.
there still are people who view the reverse mort- He said lenders should explain to the prospective
gage as “that program where the government borrower’s children that a reverse mortgage will
takes your home” and are therefore reluctant to save them from having to dip into their own
apply for a loan. In reality, the borrower will savings at some point to financially support
never, under any circumstances, be forced to their parents.
leave their home, provided they continue paying
their real estate taxes and insurance payments. Desire to leave property to children. Some
Nor will the lender or government ever own the seniors feel it’s their duty to leave the family home
title to the borrower’s home. A lender should to their adult children after they pass away or move
adequately explain both of these misconceptions into a nursing home. In reality, most Baby Boomers
upfront to every prospective borrower that walks have a primary residence and, in some circum-
in the door. stances, a vacation home and are not interested in
inheriting their parent’s place. “Their view is ‘mom’s
Sabotage by adult children. There are plenty home is 60 years old and it needs repairs,’ so
of children who want to see their parent(s) live they’re not going to be interested in inheriting it
better lives but not if they are going to lose the when she passes away,” Taylor noted. RMA
Top Originators of
FHA Home Equity Conversion Mortgages, FY 2000
LENDER F Y 2 0 0 0 VO L U M E F Y 1 9 9 9 VO L U M E
(1) Unity Mortgage, Atlanta, GA 1 1,498 1,096
(2) Financial Freedom Funding Corporation 2 796 685
(3) Norwest Mortgage, Inc. 3 783 881
(4) Wells Fargo Home Mortgage, Inc. 340 0
(5) BNY Mortgage Company LLC 329 304
(6) GMAC Mortgage Corp. 4 326 445
(7) Senior Income Reverse Mortgage 201 352
(8) Seattle Mortgage Company 199 294
(9) Seniors First Mortgage Company, LLC 177 154
(10) America’s Senior Financial Services, Inc. 166 134
1 Merged with Financial Freedom Senior Funding Corp. in November 2000.
2 Merged with Unity Mortgage Corp. in November 2000.
3 Acquired by Wells Fargo Home Mortgage, Inc. in a merger.
4 No longer originates reverse mortgages.
Reverse Mortgage Advisor Winter 2001 9
YEAR IN REVIEW, continued from page 1
According to HUD, lenders originated 6,664 HECMs tice, even though reverse mortgages haven’t been
in FY 2000, down 16 percent from 7,982 loans in involved, likely contributed to the decision to end the
FY 1999. Equity Share option.
Some lenders fared better than others in 2000.
Unity Mortgage Corp., Atlanta, GA, saw its HECM TEXAS FINALLY OPENS ITS DOORS
production increase by 37 percent to 1,498 loans — the In a major piece of good news, HUD in early
most of any lender. November gave the go-ahead for lenders to begin
After Unity, the top HECM originators by volume in FY originating HECMs in Texas, after spending more
2000 were Financial Freedom Senior Funding Corp., than a year developing lending guidelines and loan
Norwest Mortgage Inc., Wells Fargo Home Mortgage Inc., documents to satisfy the state’s particular — and dif-
BNY Mortgage Company LLC, GMAC Mortgage Corp., ferent — legal requirements.
Senior Income Reverse Mortgage, The green light was given by FHA
Seattle Mortgage Company, Seniors Mortgagee Letter 00-39, released
First Mortgage Company LLC, and November 6, which provided instruc-
America’s Seniors Financial Services tions to lenders on making HECMs in
Inc. (For specific volume for Top 10 origi- CONSECUTIVE YEARS OF Texas and contained loan documents
nators, see chart on p. 9.) GAINS, TOTAL ANNUAL and disclosures that lenders must
Reverse mortgage consultant furnish to borrowers at closing. The
Jeff Taylor, in a November speech at letter supplemented an earlier mort-
NRMLA’s 2000 Annual Conference in FEDERALLY INSURED gagee letter (00-34).
Dallas, said HUD’s inability to insure REVERSE MORTGAGES — Fannie Mae, the nation’s largest
additional HECM loans from July investor in reverse mortgages, issued
THE FHA HOME EQUITY
through September had a “huge” a separate letter to its lenders
adverse impact on HECM volume in CONVERSION MORTGAGE announcing it would start purchasing
2000. HUD was unable to endorse HECMs and Fannie Mae Home
— SLIPPED IN THE
HECMs for FHA insurance during this Keeper loans made in Texas. Until
period because it ran out of budget FEDERAL FISCAL this time, Texas had been the only
credit subsidies. YEAR (2000) ENDING state in the nation where HECMs and
Taylor also said a continuing lack Home Keeper loans weren’t available.
SEPTEMBER 30, 2000.
of consumer awareness about reverse The opening of the Texas market was
mortgages, despite more positive triggered in November 1999 when
media coverage from national and voters approved a ballot question to
local newspapers, continues to hurt lenders. “You can’t amend the state’s constitution to permit reverse
have volume without awareness,” he noted mortgages. Only reverse mortgages with lump sum
Taylor predicted a modest increase in HECM volume or monthly income payment options are permitted,
in 2001, to about 7,000 HECMs. however. Reverse mortgages with a line of credit are
In a related development, Fannie Mae somewhat still prohibited.
diminished the appeal of its Home Keeper reverse Lenders started accepting loan applications in
mortgage product when it eliminated the “Equity early December, and the first HECM in the state was
Share” option for the loan. This option enabled borrow- funded on January 2, 2001. Lenders may only distrib-
ers to get a larger Home Keeper loan in exchange for ute reverse mortgage proceeds to Texas borrowers
giving up a share of the future value of their home. on the first business day of every month, according to
The Equity Share option reportedly had been cho- state regulations, although they can take applications
sen by most Home Keeper borrowers in the past. But anytime.
extensive media stories in 2000 on predatory lending The Reverse Mortgage Advisor interviewed three
combined with state and local crackdowns on the prac- wholesale lenders — Seattle Mortgage Corp.,
10 Reverse Mortgage Advisor Winter 2001
Financial Freedom Senior Funding Corp., and The limit for years had been $1,800 per loan on
Senior Homeowners Financial Services — in addition the portion of proceeds from a HECM that could be
to Wells Fargo Home Mortgage, to find out how many used to finance closing costs.
loans each company has closed so far in Texas. In FHA Mortgagee Letter 00-10, HUD raised the
As of early January, Seattle Mortgage had funded ceiling on the origination fee to the greater of $2,000
eight loans; Senior Homeowners, four; Financial or 2 percent of the maximum claim amount, to put it
Freedom, two; and Wells Fargo, zero. But each com- in line with Fannie Mae’s limit on its Home Keeper
pany reported “dozens” of loans in their pipeline ready product. The new HECM ceiling, however, is an all
for funding in either February or March. inclusive cap that also includes any fees paid to loan
correspondents or brokers.
QUESTION IN TEXAS Reverse mortgage lenders had long contended
Because of the newness of reverse mortgages in that the origination fee limit for HECMs had been too
Texas and the state’s particular legal requirements low and deterred new lenders from participating in
and practices, there continue to be some operational the program.
questions. In a related development, President Clinton in
Some lenders have asked whether a Texas reverse late December signed a bill that authorizes a reduc-
mortgage may be used to pay off and/or refinance an tion in the cost to refinance existing HECMs and
existing home equity loan (HEL) made under the 1997 calls for a study of a single national loan limit. (See
amendments to the state constitution. article on p. 8.)
The answer, according to Washington, DC attorney
Jim Milano, of the law firm Weiner, Brodsky, Sidman & INDUSTRY CONSOLIDATION CONTINUES
Kider, PC, is “no.” He said a home equity loan may not The reverse mortgage industry saw further con-
be paid off or refinanced with a HECM or Fannie Mae solidation in 2000 as well.
Home Keeper loan. Milano conferred with other Near year-end, Financial Freedom Senior
lawyers in Texas before forwarding his opinion to Funding Corp., Irvine, CA, completed its merger with
NRMLA and other lender clients. Unity Mortgage Corp., Atlanta, GA.
“It’s an issue that lenders need to be aware of The transaction created the nation’s largest
going forward,” Milano told the Reverse Mortgage reverse mortgage origination company. The com-
Advisor in a recent interview. bined firm offers FHA HECM reverse mortgages,
An elderly couple, with an outstanding HEL, can Fannie Mae Home Keeper loans, and proprietary
only get a reverse mortgage if they first pay off the jumbo reverse mortgages, and also services more
outstanding loan. Although this opinion certainly than 12,000 reverse mortgages.
could impact some couples, it “shouldn’t be too big an The merger follows earlier acquisitions by
issue,” according to Milano, because home equity Financial Freedom.
lending was only made legal in Texas three years ago. The year also saw Senior Homeowners Financial
“And since home equity lending never really Services., Inc., Ft. Lauderdale, FL, acquire the
caught on in Texas (because of onerous fee restric- wholesale reverse mortgage production operation
tions imposed by the state constitution), common of Wendover Financial Services Corp., Greensboro,
sense suggests that not many seniors currently have NC. Senior Homeowners offers both HECM and
outstanding loans,” he added. Fannie Mae Home Keeper loans and services reverse
ORIGINATION FEE INCREASED
Reverse mortgage lenders got another bit of good AARP UNVEILING PILOT COUNSELING PROGRAM
news in March when HUD increased the origination Ken Scholen, of AARP, told the NRMLA conference
fee for the HECM program, following extensive efforts about several new initiatives the senior advocacy
by NRMLA and its members. group will continue or begin in 2001.
YEAR IN REVIEW, continued on page 12
Reverse Mortgage Advisor Winter 2001 11
YEAR IN REVIEW, continued from page 11 HECM, continued from page 5
Scholen said AARP is instituting a three-part Inc. (SHFS), Ft. Lauderdale, FL, each have created innov-
“pilot” program in select parts of the country to ative programs to attract more brokers to the reverse
increase consumer awareness about reverse mortgage business.
The pilot includes: (1) targeted consumer out- WELLS FARGO PROGRAM
reach; (2) the creation of a new toll-free 800 num- Wells Fargo launched a “broker/lender assistance” pro-
ber for consumers to call if they have general gram at the beginning of 2001, while SHFS introduced a
questions about reverse mortgages or would like similar program a few weeks earlier.
to find out how large a loan they may qualify for; “Our intention is to work with institutions — small
and (3) the introduction of telephone counseling brokers all the way up to banks and credit unions — who
with HUD-approved counselors. are morally and ethically capable of assisting seniors in
The pilot is being conducted in only a few getting a reverse mortgage,” said Jeffrey Moulton, marketing
large states — Scholen cited New York, Texas, manager at Wells Fargo Home Mortgage, Inc.
and California — but could be expanded to other The broker or lender doesn’t have to be FHA-
areas later if initial results prove successful. approved, simply licensed in their particular state. “We’ll
Scholen said 32 counselors currently are provide all the necessary training to make sure they
signed up to provide the telephone counseling. understand how the reverse mortgage programs work,”
“These 32 people scored the highest on the exam Moulton added.
that we gave within the past year, so they know The companies initiating such broker programs hope
what they’re doing,” he said, referring to the new to generate increased reverse mortgage loan volume
uniform certification examination for reverse down the road. The initial goal, however, is to expose a
mortgage counselors that was finalized last year wider audience of real estate professionals to reverse
under a group effort in which NRMLA participated. mortgage lending, according to Washington, DC attorney
Scholen said the 32 counselors will use new James Brodsky, of Weiner, Brodsky, Sidman & Kider.
software developed jointly by Fannie Mae and Brodsky and his firm have assisted lenders in com-
Financial Freedom Senior Funding Corp. to pro- pleting the necessary legal work, and in meeting HUD
vide new types of information to consumers who and Fannie Mae requirements, to get the programs up
call. “The software will allow counselors to enter and running.
specific credit line draws, and see how that plays “This is also good for seniors,” Brodsky said, “because
out in certain amortizations,” he explained. “More it enables them to get advice about reverse mortgages
importantly, counselors will be able to answer the from a greater number of resources. A by-product of this
three basic questions asked most often by con- entire effort is that lenders should be able to originate
sumers: What do I get? What do I pay? and What more loans.”
am I going to have left over? And it will answer
them very simply on a side-by-side basis.” SHFS PROGRAM, ROLE OF BROKERS
The software will automatically update inter- Both Wells Fargo and SHFS run their individual pro-
est rates and HECM loan limits as well. grams similarly.
Scholen also reported that AARP will be The primary role of the broker, according to SHFS
adding a reverse mortgage calculator to its Chairman Dick Gangel, is to act as a “representative” of
Web site (http://www.aarp.org) and a link the borrower, rather than as a lender, in order to get the
from its Web site to NRMLA’s site (http://www. best deal for the borrower. As such, the broker does not
reversemortgage.org) so that seniors can obtain have to work exclusively with either Wells Fargo or, in
additional information on reverse mortgages, and SHFS’ case, one of the company’s loan correspondents.
locate a lender in their state. He didn’t specify The broker can answer the consumer’s questions
when these actions will occur. RMA about reverse mortgages, arrange for mandatory counsel-
ing, set up the appraisal, and perform other functions.
12 Reverse Mortgage Advisor Winter 2001
PRIVACY, continued from page 5
But all loans are underwrit- Assess Your Current Information-
ten, processed, and funded sep- Sharing Environment. Banks
arately by Wells Fargo or one of IN FHA MORTGAGEE should survey their entire operation
SHFS’ loan correspondents. for areas where customer informa-
LETTER 2000-10, HUD
“The broker is at all times the tion is shared, or potentially might be
representative of the borrower RAISED THE MAXIMUM shared, with parties outside the bank.
— he or she acts as a facilitator,” Current practices should be scruti-
said Gangel, who described ORIGINATION FEE FOR nized and modified if necessary.
his company’s program in
HECMS AND EXPLICITLY
November at NRMLA’s 2000 Review Your Strategic Plan.
while a loan is being underwrit- ment, the privacy committee needs
ten and processed, the broker FEE MUST INCLUDE “THE
to assess what strategic changes are
remains at the borrower’s side, FULL AMOUNT OF ANY anticipated for the bank that could
he noted. affect or be at cross-purposes with
that’s negotiated with the bor- developing a Web site, a new prod-
OR LOAN CORRESPON-
rower, usually based on the level uct line, or affiliation with a third-
of services provided. The broker DENT FEE.” THIS WAS THE party vendor should be analyzed for
fee may be financed, but it must possible privacy implications.
counted as part of the total origi- FIRST EXPLICIT OFFICIAL
STATEMENT FROM HUD
exceeding $2,000 or 2 percent of Internally. Determine the privacy
the maximum claim amount, THAT BROKER’S MAY policies and procedures in place and
whichever is greater. convert them to policy statements.
Said Brodsky: “There are two COLLECT A FEE UNDER
types of agreements that should Policy Implementation. Because
THE HECM PROGRAM.
tion, one between the broker financial institution, implementation
and the senior loan applicant, will be an institution-wide effort. An
and one between the broker and the lender.” internal policy should be developed
and available for access by every
INITIAL RESPONSE UPBEAT employee.
Although neither company has signed on any brokers, Gangel
told the NRMLA conference that the initial response to the broker Build a Process for Training,
program from his loan correspondents has been encouraging. Modifications, and Auditing.
“When we threw this idea to our correspondent lenders, some of Often policies are written well, but
them jumped on it and have been successful in incorporating it into not implemented or updated.
Gangel said he is hopeful that his broker program will bear fruit subject to regulation, it is also sub-
in the long run. “If you do it wisely, all of a sudden there are hun- ject to examination. Banks should
dreds of extra advisors available to help,” he said. make sure they have an adequate
(Note: To learn more, contact Jeff Moulton, Wells Fargo Home audit program to ensure employees
Gangel, Senior Homeowners Financial Services, 954-747-6800, e-mail and that these policies are reviewed
email@example.com.) RMA and amended, as needed. RMA
Reverse Mortgage Advisor Winter 2001 13
PRESIDENT, continued from page 2
The legislated items give us several important tools to build upon.
However, we must first build relationships with the new leadership at
HUD and with the housing committees in Congress, so that we can work New Members
closely with them to see that the new provisions are implemented sensi-
bly and expeditiously. Outreach to Congressional leaders and the new The National Reverse
management team at HUD will be a vital part of our program this year. Mortgage Lenders
We must continue to strengthen our relationship with AARP which is Association would like to
implementing a three-part pilot program in New York, Texas, and, welcome the following
California to promote reverse mortgages. Their program will consist of new member:
consumer outreach; a new toll-free telephone number for consumer ques-
tions and preliminary reverse mortgage W.R. Starkey Mortgage, LLC
calculations; and a nationwide team of
counselors available via telephone. We BUILDING CONSUMER Headquartered in Dallas, Texas,
look forward to partnering with AARP AWARENESS IS W.R. Starkey Mortgage, LLC
to make their pilot a success.
We must continue to uphold the ABSOLUTELY THE
opened it’s doors in January,
ethical framework that has been set ESSENTIAL INGREDIENT
2000. The company has
in place over the past couple of years
FOR OUR GROWTH.
by NRMLA’s Code of Conduct, Best focused, for the most part, on
Practices Guidelines, and certified IT IS TO THAT
lender list on our Web site, originating first and second
OBJECTIVE THAT MUCH
www.reversemortgage.org. lien mortgage products.
OF NRMLA’S ENERGY
Workshops on incorporating NRMLA’s
Best Practices into your organization’s WILL BE DIRECTED After lenders started originating
operations are being planned for this IN 2001. reverse mortgages in Texas
summer. And we must continue to
work on getting out our message. last December, W.R. Starkey
The underlying theme for our Consumer Education Program is that:
Mortgage took a look at the
A reverse mortgage is a versatile personal financial security
senior loan product and
tool that empowers seniors to meet a wide variety of financial
needs. Whether one wants to supplement income, establish a ultimately decided to expand
financial cushion for unanticipated expenses, manage health
into that business as well.
care needs, pay-off existing mortgages, enhance lifestyle,
make a major purchase, remodel a home, help a family To learn more, contact
member, or contribute to charity, a reverse mortgage is a
Clive Hambrook, the company’s
sensible option that should be explored.
primary delegate to NRMLA,
From that departure point, our Consumer Education program will
highlight examples of how beneficial a reverse mortgage can be under 512-329-9040, e-mail,
many different circumstances. Through suggested uses, real life consumer
profiles, and background information, NRMLA will be educating prospec-
tive clients about how a reverse mortgage might work for them. Web site:
If we pursue this course, remain consistent with the values established
in forming NRMLA, and stay “on message,” 2001 should be a year of http://www.wrstarkey.com.
healthy growth. I look forward to writing my year-end review and outlook
at this time next year. RMA
14 Reverse Mortgage Advisor Winter 2001