I’m a Reverse Mortgage Originator and Damn It, People Like Me
Friday, 27 August 2010 11:06
I have been a salesman all of my life and I’ve been in financial services for over 15 years. I have been required to pass many background checks, fingerprint checks, have credit reviews, and audits. As a result, everything you would ever want to know about me can be found on the internet. I have a U4, an MU4, and my life's history is available online with the NMLS and the NASD. Basically, I am who I say I am, and I have never done a client wrong. My family, friends, and customers respect how hard I work and I display the evidence of my compliance on the walls of my office, as well as on every website, business card, and advertisement I produce.
I had spent two years searching for a career that would allow me to use my considerable experience to make a positive difference in the lives of my clients and secure my family's future when I entered the reverse mortgage business almost a decade ago. During that time, there were many avenues I investigated and eventually ruled out because I could see a potential conflict of interest or I had a bad feeling about the industry in general. I finally chose the reverse mortgage industry because, unlike traditional mortgages, I could see a true net benefit for every client and I would be doing business with people who would honor a handshake promise and appreciate a job well done.
Years ago, it was not easy to make a living in the reverse mortgage business. The transactions would be capped by lending limits based on median home prices and public awareness was at an absolute minimum. There were no lender premiums and no fixed rate products and almost no support from the government or related industries. Customers were few and far between and the country was just waking up to the possibility that reverse mortgages might be a good idea, but they were skeptical. We were on our own and some customers proceeded with a hint of blind faith, so we persevered and delivered on our promises. I knew it would only be a matter of time before it really caught on.
Competition, like free markets, is healthy for the evolution of an industry and we are certainly seeing our share of it. The growth of the reverse mortgage program has blossomed in the last few years, only to contract under the pressure of the housing value crisis and multiple layers of new regulation. More and more homeowners need reverse mortgages and they are inquiring or attempting to qualify, while fewer and fewer loans are actually closing due to additional barriers to entry, such as tougher qualifying ratios. The industry is consolidating and will continue to do so with the coming collapse of the traditional mortgage broker, as new financial regulations force originators to have banking ties.
The new regulations have not been good for reverse mortgages and it’s getting harder to be in this business. We are a public relations nightmare because we sell a financial service to seniors. Potential borrowers used to balk at closing costs but are now facing other issues like bad press, lower proceeds, higher insurance premiums, and the government imposed gambling on appraisals thanks to the HVCC. Industry veterans are scrambling to roll out new compliance with RESPA, NMLS and even Red Flag policies. Counseling has taken a turn for the worse and counselors are now killing another measurable percentage of reverse mortgage transactions. Do we really need all of this because a homeowner, age 62, wants to do a home equity loan with deferred interest?
This is where the big disconnect exists. In the court of public opinions, reverse mortgages do not stand a chance. It is estimated that a mere 75,000 of these loans will close by year end, but high profile politicians and journalists have weighed in with their opinions and convinced millions, for the most part, that reverse mortgages are not so good. They get it dead wrong and disseminate information either by design or out of ignorance. This information encourages lawmakers to tighten up lending laws and over-regulate the industry. The good news is that reverse mortgages have been noticed, but the bad news is that lawmakers look at reverse mortgages like they are the underbelly of an even more sinister industry.
So how is it that I spent so much time and effort choosing a noble career and working diligently to provide a much-needed service only to end up on the worst of the worst list? There are far too many of us doing a lot of good in the world to allow this to happen, yet reverse mortgages have become an easy target, sure to get attention and ruffle feathers. It seems as if there is an irresistible urge to publish reverse mortgage smears in major publications. What they don’t realize is that we are a group of trained professionals that (for the most part) practice good morals and ethics. Furthermore, there are just not enough deals gone bad to warrant the kind of negative attention that reverse mortgages get. It’s kind of like spotting a toupee; you only see the bad ones.
In 2009, there were over 3,000 lenders in the reverse mortgage business. I don’t know how many of them were NRMLA (National Reverse Mortgage Lenders Association) members, but to-date, only two were stripped of the designation as reported by the NRMLA advisory committee. Even if there are a lot more unscrupulous reverse mortgage lenders that have gone undetected, the industry as a whole is too small to hurt this country’s economy or cause another meltdown as some have suggested. In June 2010, the total number of new FHA insured loans topped 150,000 nationwide in one month—only 5,000 of them were reverse mortgages. If all the reverse mortgages defaulted, it would represent just 3% of the total market and, let’s face it, reverse mortgages are difficult to default on. A reverse mortgage may default for reasons that are much different than a traditional mortgage default. Unemployment, rising interest rates, and personal issues like divorce surely don’t make much of a difference in the overall health of reverse mortgage portfolios, but they could devastate traditional mortgages. Since reverse mortgages are not approved based on the borrower’s ability to repay the loan, a different set of factors will affect the future quality of these loans, like shrinking home values and tax defaults. So, it’s my guess that when we finally see home values return to normal, we’ll probably stop hearing about how bad reverse mortgages are and HUD just might start increasing PLFs again.
In the meantime, I still need to do my job and that means I have to fight the uphill battle of a bad reputation. Some people lack the confidence they need to help themselves and I try my best to make them comfortable so they do not miss an opportunity. These are the folks that have been poisoned by the media, a neighbor or a family member that comes from that other bunch: the reverse mortgage advice squad. This is the group that was infected by the misinformation and bogus loan scenarios published in major news publications. These individuals are okay with borrowing $100,000, $200,000, or more from a home equity line of credit, as long as it’s not a reverse mortgage. They also believe that once homeowners reach the age of 62, they will need to be more closely watched and regulated and cannot be in charge of their own financial decisions. The problem is that they are only regulating reverse mortgages for this group. There is no limitation for 62 year old investors transferring billions in IRA accounts into stocks, gold, or other commodities. There certainly is no counseling required and the lack of state and federal supervision and control of these ventures is astronomical. This lack is because they don’t need to be supervised and controlled; they are capable of making their own decisions and usually are very conservative. So why, then, are some saying the use of reverse mortgage proceeds needs to be regulated? You can’t argue that you would save the economy from meltdown or seniors from losing their homes, because you would have to regulate the use of proceeds from all home equity loans to do that. People need reverse mortgages for all kinds of reasons. It’s ridiculous to think we should tell them what they can and can’t do with their own money.
I talk to people who are losing their homes every day. Some are on their 3rd loan modification, have serious health problems, debt problems, and emotional distress, and they look to me for answers. I talk to others who would like to turn the equity in their homes into investments, second homes, college tuition, and other viable ideas that they perceive will enhance their existence or make their lives better in some way. They are a good bunch of people and I enjoy serving them—I am motivated to move mountains to help them. I don’t sell investments, but if they want to invest the money or use it to pay bills, it should be up to them. Too many seniors have read something that stopped them from proceeding with the program or know someone who advised against it and that has stifled their ability to get the help they need.
I am working with a young lady right now who is 73. Her mortgage payment and car payment will drain her savings within a few months, but her brother talked her out of the reverse mortgage. He did not offer any financial assistance, but his advice trumped that of the counselor and mine as well. When her money is all gone later this year, I have a feeling she might call me again. Unfortunately, if home values continue to slide as they have been here in Arizona, she will not qualify for the loan anymore and she will lose any future potential equity, her place of residence, and all of her savings will be gone. Is this punishment for living beyond her means? Well, I hear that a lot. Many people would never take the time to think about the health challenges she has faced and the financial assistance she’s given to others in need over the years. The one thing that got her in trouble was a line of credit from Bank of America. Where was her big brother back then? Why didn’t he stop her from over-leveraging with the bank that provided the money, no counseling, and little to no qualifying? If she didn’t have that extra mortgage payment every month, she might have a chance. Why didn’t Bank of America do a reverse mortgage with her back then? That’s a really good question, isn’t it? When she calls me this winter to try to get the reverse mortgage because she has nowhere to turn, chances are I will not be able to help her and she will lose her home. The system let her decide for herself to do a home equity loan with her bank, but now it’s stopping her from fixing an even greater problem because someone has uttered the words “reverse mortgage.”
Over the years I have had to defend this program and myself much more than I can remember. I have been accused of terrible things like taking advantage of seniors or trying to steal their homes. These accusers have no idea how hard I work to help my clients. In addition to these accusations, I am also part of that motley crew called mortgage brokers and that will raise eyebrows in any room these days. After hundreds of reverse mortgages, I’ve never had even one customer regret it. Here is what my customers say:
“I really didn’t know what to expect, but the reverse mortgage literally saved my life.”
“Now that I have the reverse mortgage, I don’t understand why everyone doesn’t consider one.”
“I wish we would have done the reverse mortgage a long time ago.”
I have fond memories of many people I’ve helped over the years and I am thankful to have had the opportunity to meet them and work with them. I have written about them often in my blog, but it seems there is a lack of interest in the good stories. Many of them remain my good friends years after their loans have closed. I still hear from them, from time to time, when they have a question or a referral. They are a small group, but I know I’ve made their lives better and that the benefits will last them a lifetime. I feel good about being in the reverse mortgage business, even with all of the criticism; I know my customers appreciate my persistence. I hope I have made a difference, for the good of the industry.
.gif)