The Last Word: The Perfect Storm
Friday, 01 May 2009 16:01
A sequence of rare and unusual events that
individually would be less devastati ng in their impact, but taken
together create unforeseen results. Much like the crew of the
Andrea Gail in Sebasti an Junger’s 1997 bestseller, The Perfect
Storm, seemingly disconnected events have combined creati ng
historical changes and sweeping regulati on for the reverse
mortgage industry. A term once only used by meteorologists is
now part of the American lexicon describing the current state
of our economy, regulati on and banking system. Where did this
begin and what can we as reverse mortgage originators do to ride
out stormy waters in the future?
Storm Clouds Unheeded
One could pen volumes describing the origins of this economic
storm. Risky lending practi ces, arti fi cial ti nkering with interest
rates by the Fed infl ati ng housing values, the reckless avarice of
both lenders and consumers in the last ten years, are where we
should have seen the storm clouds beginning to form. Ironically
for those who’ve been in the reverse business for some ti me we
could refer to that same period as the “salad days” of reverse
mortgages with increasing property values, HECM refi nances,
steady margins and reasonable interest rate changes and litt le if
any revisions in the rules of the road. It was a ti me of simplicity
and idealism. If you’ve been originati ng and breathing in the last
year you know those days are behind us like the shoreline of a
distant country.
Now the headwinds of a recent patchwork of seemingly “goodintenti
oned” but draconian state legislati on and monthly changes
to the rules for HECMs press against us. However, before we curse
the wind we must be mindful of why lawmakers are scruti nizing
reverse mortgages and also admit we as an industry are somewhat
culpable having failed to police our own eff ecti vely.
First, we are one of the only federally-supervised and guaranteed
loan programs that is a negati ve amorti zati on loan in it’s purest sense
with an increasing loan balance and decreasing equity. Second, we
are heirs for others bad behavior presently inheriti ng legislati on
and protecti ons resulti ng from the abuses of sub-prime loans and
predatory lending now that the proverbial horse is already out of
the barn. Third, we are bearing the brunt of pent up frustrati on and
anger of regulators for an industry that failed some of its borrowers.
In additi on, we are working with a protected class, the senior citi zen.
The Outlook
Now is the ti me to look beyond our current challenges and ask the
questi on, what’s on the horizon for the reverse mortgage industry?
Will it be smooth sailing or do treacherous waters remain to be
navigated? I would venture to say both.
Once property values have stabilized and lawmakers have sati sfi ed
themselves that borrowers are suffi ciently protected, we may return
to some sense of normalcy. In additi on, we have the fi rst wave of
baby-boomers hitti ng the shore who are either ill prepared or injured
by the markets and are prime candidates for the HECM. I cannot
overstate the demographic potenti al that lies ahead for our industry
and some of this potenti al will be diminished by the conti nuing
pressures of falling property values and interest rates that must
increase in the future. The American public is beginning to see their
home as a “reti rement asset” and how a reverse mortgage can tap
into a wealth of assets.
Must we navigate through treacherous waters in the future? In short
yes. The reverse mortgage industry must look forward to make sure
our acti ons today do not jeopardize the viability of the program in
the future. How so? We have a considerable problem lying just under
the water of HECMs originated in 2005-2007. A larger percentage of
these loans will result in claims against the FHA insurance fund as
home values plummet and interest rates increase. With this in mind
I am glad FHA did not decrease their upfront or monthly charges.
Someti mes the captain is bett er to be right than popular. Bett er to
pay now than lose in the end. In additi on we must demonstrate
our ability to police our own industry or conti nue to suff er endless
protecti ve legislati on that in the end will hurt the senior borrower.
Weathering The Storm
Don’t be a victi m, be informed, become a student of the business. Plug
into news and media sources such as The Reverse Review, Reverse
Mortgage Daily and NRMLA. Embrace the professional designati on for
a reverse originator and seek to broaden your experti se of reti rement
and fi nancial issues. Market smarter to communiti es least aff ected
by falling home values, seek out referral partners relentlessly, keep
marketi ng and don’t hunker down in the safety of the harbor waiti ng
for the storm to blow over.
In one of my favorite scenes in the movie Forrest Gump, Forrest
decides to push out to catch shrimp risking it all during a storm, than
to ti e down his boat with the competi ng vessels in the relati ve safety
of the harbor. He and Lieutenant Dan ride out the gale while their
competi tors fi nd themselves destroyed in the process. Guess who
had a record season that year? Those who endure to the end will
reap the rewards. Surround yourself with positi ve people, make your
voice heard in the industry and run your business like the captain of a
ship with unwavering confi dence and deliberate calculati on. If you’ve
found yourself in the harbor, now is the ti me to push out again for
open waters though they may be stormy for years to come.
The Perfect
Storm
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