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Closing loans, changing lives

National Mortgage Professional
Apr 22, 2007

Forward on reverse: Reverse Mortgage of America declares jumbo independence: A conversation with John NixonAtare E. Agbamu, CRMSreverse mortgage, The Independence Plan, Cash Account Advantage For a decade, Financial Freedom's Cash Account Advantage was the sole jumbo reverse mortgage product in the U.S. market. That changed in October 2006 when Reverse Mortgage of America, a division of Seattle Mortgage Company, introduced The Independence Plan (TIP). In the reverse mortgage arena since 1993 and averaging 60 percent growth over the last four years, Bellevue, Wash.-based Reverse Mortgage of America is the nation's third largest reverse mortgage originator and servicer, with two industry firsts. It is the first reverse mortgage servicer to be rated for Home Equity Conversion Mortgage (HECM) servicing by Standard & Poor's and the first originator/servicer to work with Bank of America, which issued the first HECM Mortgage-Backed Security in 2006. The mind behind Reverse Mortgage of America's steady march in Reverse Land over the last 10 years is its executive vice president and chief operations officer, John Nixon. A director of the National Reverse Mortgage Lenders Association (NRMLA), a former director of the Washington Mortgage Lenders Association and a 32-year veteran of the mortgage lending industry, Nixon held significant management positions at Washington Mutual, Pacific First Federal and Bank of America before coming to Seattle Mortgage Company. I spoke with him about TIP and jumbo reverse mortgages. The following is a transcript of our conversation. Atare E. Agbamu: If any, what are the structural differences between your product [The Independence Plan] and the Cash Account Advantage? John Nixon: There are three big selling differences between the two products: One, our no-partial prepayment restriction is for one year, Financial Freedom's is five years, so the senior has more flexibility with our product than theirs. Two, to have loan fees waived on their product, they require the borrower to withdraw 75 percent of available balance, with a minimum amount of $200,000; on our product, we do not require them to take down any set percentage. We require them to withdraw $200,000 for us to waive their loan fees. That may be significant or not, depending on the senior. A lot of seniors have come to our product because they say, "I don't want to take that down and pay a whole lot of interest when I don't need the money." Three, on third-party charges, Financial Freedom requires them to draw 100 percent of available funds with a minimum loan balance of $275,000; our product just has a loan balance of $275,000; it doesn't require them to draw down 100 percent. Case in point, if somebody had a $2 million property and the maximum principal limit on that would be, let's say, $1.2 million, but they only wanted to draw $500,000, we would waive their loan fees and contribute (in California) to cover their third-party charges. Financial Freedom, in the same scenario, will require them to draw the entire $1.2 million. AA: Those were the key distinctions that came to mind when I studied both products. Flexibility for older adults is important. To compete over the next several months, Financial Freedom can recalibrate their product to match yours. So what is your next game plan? JN: Well, we are building our distribution system and refining our software. We are only rolled out in Oregon, Washington and California. We'll focus on rolling out our product across the relevant parts of the United States. We'll go to the East Coast and Florida, the Southwest and West Coast. Simultaneously, we'll be working with the investment community to see what other product innovations we think seniors might want. Demand exists for fixed-rate products. There are circumstances when the senior doesn't want to borrow all the money available. There is less risk to us and to our investors. We should be willing to offer them a lower interest rate. That should be coming out in the next six months. We'll have a lot more pricing options up and down based on how much money somebody actually wants. Let's say a program maximum would allow someone to withdraw 55 percent of the value of their home. If they agree to go to 45 percent, that reduces the risk profile of the loan substantially. We should, therefore, be able to offer them a lower interest rate. AA: Ultimately, this game will boil down to distribution clout and customer service. JN: Correct. If we make the assumption that the secondary market is an efficient marketplace (and I would make that assumption over time), we have to get enough products and enough volume out there, so that we can go to the marketplace on a consistent basis. Right now, there haven't been enough products generated to create an active, knowledgeable investor market. In the case of Financial Freedom, I believe it took them three years to go out with their first major offering. It took them 18 months to go out with their second. If you are not going out to the marketplace more frequently, you have to go out and re-educate the entire investor community all over again. As we create more interest and generate more volume, it feeds on itself. The more we go to the marketplace, the more visibility the product has and the more understanding the investment community has of the product, we will then create an efficient market over time. Once we do that; just like the forward market, we will find that everybody has pretty close to the same price. Once everybody has the same price, then it is going to come down to distribution channels, customer service, software programs, product offerings, ease of use to the consumer and what the counseling networks feel about your product. AA: You're correct. You expect a full national roll out by the end of first quarter, right? JN: I'm not saying national rollout; that really says I am going to the 15 states. When you look at where the product has good chance of gaining good market penetration, you are probably down to 12 to 15 states. AA: Do you have distribution channels in those states right now? JN: Yes, I do. Our footprint is nationwide right now. Atare E. Agbamu, CRMS formed ThinkReverse LLC, a Twin Cities-based training/consulting firm to help originators address demographic change via reverse mortgages. A specialist with Credo Mortgage, Atare is the first to propose reverse mortgages as risk-management tools for forward originators. Besides marketing, originating and researching reverse mortgages since 2001, Atare has authored more than 70 articles and a book on reverse mortgages. He may be reached at (612) 203-9434 or e-mail [email protected]
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