Archive for July, 2010

FIT for Reverse Mortgage Lenders, part 1

Wednesday, July 28th, 2010

 

 FIT Is All about Questions

 

It is a new day in HECM counseling (and lending) in America.

Beginning in September 2010, HUD is mandating a series of extra questions HECM counselors must ask reverse mortgage prospects during the mandatory counseling session before the loan application interview with a lender. These questions and processes are packaged as Financial Interview Tool or FIT.

Along with FIT, HUD is also requiring HECM counselors to do a benefits audit for seniors, using a national online resource called BenefitsCheckUp (BCU). Across the country, there are public and private benefit programs for seniors with limited means. For those who qualify, these programs could supplement reverse mortgage cash or render it unnecessary altogether, preserving it for when it is really needed.

National Council on Aging (NCOA), a HUD HECM counseling intermediary since 2007, created these innovations, results of its extensive experience exclusively serving seniors.

Lending, including reverse mortgage lending, is over-weighted in left-brain skills and processes and severely under-weighted in right-brain insights and perspective. The FIT questions are designed to correct this structural intellectual imbalance and bring about a more holistic or whole-person approach to HECM counseling (and lending).

The FIT/BCU approach has been used through the NCOA national network since 2007, and NCOA’s data and experience show it has been a success with seniors. Like any good organization attuned to good ideas and best practices, HUD got wind of FIT and BCU, studied them, and adopted them for its own ends: protect seniors and manage its insurance business risks at FHA.

A review of some initial industry participants’ comments suggests there are some misconceptions about FIT (and BCU). With focus on FIT questions and risk-factors, the series I begin with this post will explain these new realities in reverse mortgage lending in the age of Dodd-Frank Act.

We will look at one FIT question and one risk factor at a time and draw lessons that can be applied to HECM lending. Although FIT is a HECM counseling tool, I believe its lessons can help lenders manage reputation, litigation, and financial risks uniquely associated with HECM lending.

What do we intend to achieve with the “FIT for Reverse Mortgage Lenders” series? Here are four goals:

  • Address FIT misconceptions among lenders and originators and promote understanding;
  • Sensitize lenders and originators to some of the soft risks in HECM lending;
  • Promote a holistic or whole-person approach to HECM lending in the era of Dodd-Frank Act;
  • Advance the idea that protecting FHA’s HECM Insurance Fund from losses is the business of every industry participant because, as the insurance fund goes, so goes the industry’s fortunes.

Again, our emphasis in the series will be on FIT questions, because FIT is all about questions, the right questions.

Copyright © 2010, ThinkReverse LLC.  All Rights Reserved.

Reverse Mortgages as National Security Assets

Thursday, July 1st, 2010

 

Reverse mortgages  are national security assets. They are part of the solution to America’s escalating entitlements and mounting national debt.  They are national debt-busters.

A fresh narrative crafted around the above ideas is needed if we are to “build champions” for HECMs and reverse mortgages at a time of deep anxieties about U.S. national debt.

On June 22, White House budget chief, Peter Orszag, resigned, in part, because of frustration over  Congress and the Obama administration’s inaction on our looming national debt crisis.

On June 24, Joint Chiefs of Staff Chairman, Admiral Mike Mullen, called U.S. national debt the biggest threat to our nation’s security. Wait a minute: Admiral Mullen is a military man, and he’s saying that al-Qaeda, the Taliban, Iran, North Korea, and weapons of mass destruction are small potatoes compared to the threat posed by our bloated national balance sheet.

The Admiral’s words reflect concern about the military’s ability to maintain current fighting forces and to modernize weapons systems if the government doesn’t tighten its belt, including at the Pentagon.

Among the world’s developed economies, the U.S. is the only nation without a deficit-fighting plan. Thanks to the financial crisis and the massive rescue, the national debt has gotten even bigger. It is projected to hit 75 percent of GDP by 2015.

The same day Obama’s budget guy quit, British Chancellor of the Exchequer (Treasury Chief), George Osborne, presented a tough deficit-busting budget in Parliament.  Europe is awash in austerity budgets and anti-austerity protests, from the weakest to the strongest economies, from Greece to Germany.

We have been lucky so far because of the renewed strength of the dollar, the world’s reserve currency. The dollar’s current vitality is a function, not of our fiscal health, but of the Euro crisis that stemmed from the Greek sovereign-debt crisis and rumors of similar national debt problems in Spain, Portugal, and other Eurozone countries.

Nervous investors have been piling into the dollar, raising the prices of U.S. treasury and treasury-like assets (HECMs are treasury-like because of the federal credit insurance behind them), and driving down the yield on 10-year U.S. Treasury note to below 3 percent during the week ending July 3rd. Some analysts believe the yield could fall to 2 percent soon.

The Euro-crisis-led flight to the dollar is the reason so much money is chasing HECM-reverse-mortgage-backed securities in the secondary market which, in turn, has led to mouth-watering yield spread premiums and the current price war in the U.S. reverse mortgage industry.

 When the pendulum swings the other way and fears over U.S. national debt cause investors and speculators to hammer the dollar and dollar-denominated assets, there will be some painful re-adjustments in the reverse mortgage industry. This is the context for my suggestion that reverse mortgages should be reframed as national debt-busters.

In his memoirs, The Age of Turbulence, Alan Greenspan argued that private resources must be part of the solution to America’s entitlements-influenced fiscal problems. Home equity is private resource.

The size of U. S. home-equity wealth makes it a strategic financial asset. Assuming zero home price appreciation, “free and clear” home equity controlled by older Americans 62 and older could reach $9 trillion by 2030, according to a June 2007 study by The Hollister Group. At a modest home appreciation of 2.3 percent, free home equity could reach $19 trillion. And at 4.7 percent, the wealth is a staggering $37 trillion, the study said.

In spite of the recent housing bust, which lowered long-term house price growth expectations, the Obama administration’s new housing scorecard (www.hud.gov/scorecard) cites Federal Reserve Board data showing that total home equity has already begun to grow again.

So, reframing reverse mortgages as the key to unlocking this massive private wealth to cushion tight public entitlements dollars and help cut our national debt should be the essence of any reverse mortgage industry communication strategy with policymakers, regulators, and the media.

The 20-year-old ad hoc narrative — reverse mortgages saved grandma from certain financial ruin – is persuasive at the micro-marketing level; but, at the macro-marketing level, it is now insufficient to persuade policymakers genuinely anxious about our escalating entitlements and runaway national debt.

If Admiral Mullen’s assessment (U.S. national debt is the biggest national security threat) is correct, then reverse mortgages, as the keys to prudently unlocking multi-trillion-dollar private home-equity vaults, are national security assets.

 

Copyright © 2010 ThinkReverse LLC/Atare E. Agbamu. All Rights Reserved.