Forward on Reverse: Dipping Your Toe in Reverse Waters Through the Broker-In Program: Part OneAtare E. Agbamu, CRMSReverse Mortgages,Elderly,Wells Fargo,Jeff S. Taylor,Interview
The following is Part One of an interview with Jeff S.
Taylor, CMB. Jeff runs Wells Fargo's reverse mortgage operations
and is a pioneer in the industry. Through his company, Wendover
Funding Inc., he helped build one of the first servicing platforms
and correspondent programs in the reverse mortgage industry. A
Certified Mortgage Banker (CMB) with more than 30 years of mortgage
industry experience, Jeff Taylor was the driving force behind the
founding of the National Reverse Mortgage Lenders Association
(NRMLA) and served as its chair for a couple terms.
Reverse mortgage expert and The Mortgage Press
columnist, Atare E. Agbamu, CRMS, spoke with Mr. Taylor
recently about Wells Fargo's Broker-In Program, which allows FHA
and non-FHA mortgage brokers and lenders to sample the reverse
mortgage waters while earning some income. Mr. Taylor also touched
on reverse mortgage history and how mortgage brokers can use
reverse mortgages to separate themselves in a competitive and
post-refinance marketplace.
The Mortgage Press: Wells Fargo is not normally
associated with reverse mortgages, but you are, in fact, a major
retail force in reverse mortgage origination in the nation. How
long has Wells Fargo been doing reverse mortgages and
why?
Jeff S. Taylor: We actually started in 1991,
and we were one of the original FHA lenders that was selected in a
program lottery for the original reverse mortgage pilot program,
run by Directors Mortgage Corporation in California. They were the
largest FHA lender in California, subsequently acquired by Norwest
Mortgage, and Norwest continued that program. It was primarily
handled in California, but when Wells Fargo merged with Norwest,
the program expanded nationally and has been expanding rapidly for
the past two years. We've been in the reverse business since day
one.
TMP: That's a part of your corporate history that is not
commonly recognized. Maybe there is a need to discuss that history
more?
JST: It's very interesting, because the program
had very minimal beginnings. Only 50 lenders were selected in a
lottery, during the original pilot, to create 50 loans each, for a
total of 2,500 loans. That was the only insurance authority that
the U.S. Department of Housing and Urban Development had in the
original project.
TMP: And you said that was in 1990, right?
JST: Yes, 1990 was the program for the project,
and in 1991, we closed our first loan. Then, after we reached 2,500
loans (the pilot project limit), which took a considerable amount
of time, because we didn't have many lenders involved, HUD obtained
additional insurance authority to insure more than 2,500 loans.
Then, in 1997, the program (the HUD/FHA Home Equity Conversion
Mortgage or HECM) became permanent.
TMP: Boy! It sounded more like a pretty exclusive club
at the beginning.
JST: It was. These lenders all had to be
trained to originate these loans. Remember, this was a brand new
program, and there were no ground rules. There was a HUD mortgagee
letter that described the program, a handbook outlined by FHA and
all lenders had to be approved by Fannie Mae. FHA was going to
insure the loan and guarantee the senior lifetime income. You will
never owe more than the value of your house, but you still need an
investor for the product. Fannie Mae stepped up to the plate and
built the program to purchase the FHA-insured loans. So, the lender
had to be Fannie-Mae-approved and FHA-approved.
TMP: How many reverse mortgage originators do you
currently employ?
JST: Currently, we have in excess of 325
specialists and more than 11,000 home mortgage consultants in
America. And those home mortgage consultants are all aware of the
reverse mortgage program and that Wells Fargo is the leading retail
originator. When they visit with adult children, seniors or those
with inquiries, they refer them to a specialist who can handle
their needs.
TMP: So, is there a relationship between the forward
side and the reverse side?
JST: Absolutely! And that's our whole business
model. We are leveraging 1,200-plus mortgage stores and all of our
banking partners' facilities in America.
TMP: Isn't there a danger that some lenders might
approach this with a forward-mortgage mentality, where the reverse
mortgage process is slower than forward mortgages?
JST: It is. I think that is also why we haven't
had more forward mortgage lenders approach the business. First, you
have to be an approved FHA lender and demonstrate to FHA that you
know how to complete these loans. You have to be
Fannie-Mae-approved to sell the loan to Fannie Mae, and Fannie Mae
conducts a rather arduous process, because you have to be able to
demonstrate that you know how to originate the loan. You have a
staff that's knowledgeable about the program and, in the case of
servicing the loans, you must possess the capability to service
these loans according to Fannie Mae and FHA standards. But, it is
backward. One of the things that holds the rest of the industry
back is that there is no common servicing system like there is in
the forward world. That's one of the impediments to entering the
reverse business. You have to have the ability to service these
loans if you want to be a full-service lender.
TMP: That means there are many hurdles to scale in order
to do these things.
JST: Absolutely. It's a time commitment; it is
an expense commitment. Also, a lender trying to enter the business
has to weigh how many loans they think they can do against what
they think the commitment is going to be. And while reverse
mortgages are being discussed more and Web sites are being created,
participating lenders will increase. With the past two refinance
booms we've had, (forward) lenders, basically, have had no time.
And they really have not viewed the reverse mortgage product as
something they can process with their forward mortgage mentality,
as you've mentioned.
TMP: That's probably a good thing for the reverse
mortgage industry, don't you think?
JST: Well, it is and it's very specialized. We
joke about the fact that, in reverse mortgages, we do everything
backward, but in many respects, we do. We don't expect payment. We
(lenders) make the payments! So, the servicing process is
different. The reporting process to the investor is different and
the customer service is totally different. We find that it would be
very beneficial if you have people dealing with our customer base
who have been gerontologically trained, because our average
customer is a 75- to 77-year-old widow. And many of them have a
hearing impairment; many of them want you to slow down when you
speak to them. And, in many cases, throughout my years at Wendover,
working on the servicing side, we have many of our senior customers
call up just to talk to somebody and say, "Hi, I have a new
grandbaby." Now, that's a totally different world from the hustle
and bustle of the forward world where you don't want to talk to the
customer for 1.2 minutes, because it is going to drive up the cost
of your servicing. They are different mentalities.
TMP: It seems to me that reverse mortgages are about 80
percent social service and 20 percent financing.
JST: Well, I wouldn't use the term
“social service.” I would say it is 95 percent
education and awareness and five percent action, because it may not
necessarily be a social service type of program. Everybody is
created equal if you have home equity. But everybody is not going
to use their home equity for the same thing. Some may use it to
offset medical expenses or some may use it simply to supplement
their social security income, to do things, travel or whatever. I
wouldn't call it a social program. That's my opinion. And it is
really not driven by interest rates; it is driven by a change in
their specific financial needs, most commonly, the loss of a loved
one. In the case of my mother, she had a reverse mortgage. When my
father passed away, she immediately took a 50 percent pay cut and
she lost her social security, which is what happens. And she had a
house payment that she continues to make.
TMP: You have a program for non-FHA mortgage brokers
called Broker-In. What is it? And why do you think mortgage brokers
should pay attention to reverse mortgages?
JST: I want to draw reference from history. As
you are aware, I started a company, called Wendover Funding, in the
mid-80s. In the early 90s, when the reverse mortgage program began
to take off, we had the opportunity to create a contract-servicing
program for the original 50 lenders. According to the rule, the FHA
could insure 50 loans from each of the 50 lenders, for a total of
2,500 loans. We realized that since we were in the contract
sub-servicing business, no lender would have a servicing system.
So, we built one.
We effectively worked with HUD and Fannie Mae to market our
services to these original 50 lenders, which then eventually became
100, 200, et cetera. What we learned is that one of the drawbacks
to getting into the reverse mortgage program in the early days was
that every state had a different set of documents and every lender
would approach it differently. Some would spend a large amount of
money to get involved; others would basically wind up making a loan
or two and quit. There is a commitment. You must have the people
who understand the program. You have to commit time and money. We
developed one of the first correspondent programs in America for
reverse mortgages. In many cases, we allowed brokers who were not
FHA approved to use our license, originate the loan and sell it to
us. We, in turn, sold it to Fannie Mae and insured it.
Well, what we learned was the old 80-to-20 percent rule. Eighty
percent of our volume came from 20 percent of our correspondents.
And we heard, repeatedly, how they were excited at the beginning.
Lenders spent their $1,200-$1,500 to participate in the program,
which gave them a set of documents, et cetera. We taught them how
to perform the loan. After the first couple of loans, they will
either lose the person they had trained or the volume would not be
what they were anticipating or they had lower interest rates and
refinances that would take over.
So, at Wells Fargo, I decided that I wanted to offer an
opportunity for lenders to at least participate in what I would
call the reverse mortgage phenomenon stage, meaning, answering the
question, "I've heard about it, but what is it?" without them
having to spend too much time and money before they were able to
determine that the program might work for them in their community.
So, we developed the Broker-In Program, which gives them the
opportunity to participate in the process and be able to answer
questions for their customers, whether they are adult children or
seniors, themselves, help make the broker aware of the program
features and benefits and provide them an opportunity to earn
income without an excess of upfront investment, to at least sample
the water first to see if this is a program they want to commit
to.
TMP: So, your program at Wells Fargo was the first
Broker-In Program in the reverse mortgage business?
JST: Yes, this program was the first of this
nature. Let me distinguish it from a correspondent program. We do
not offer a correspondent program; we are focusing on the broker
program, because we believe that there are a number of mortgage
brokers (a mortgage broker, in this case, could be a bank, savings
and loan, credit union or mortgage company), who simply have
customers who inquire about it. And so, we refer to them as a
mortgage broker, and they would 'broker-in' the loan to us. And the
way we structure it, we want to be in full compliance with RESPA
laws. There are specific duties that a broker must complete, and I
would like to outline them.
First of all, they would identify the customer. We provide them
with a reverse mortgage sales guide for the Broker-in Program and
teach them how to pre-qualify for age and residence. Of course, the
minimum age is 62 under this program. They will then prepare a
request for a reverse mortgage quote summary, which we will assist
them with. They will discuss the process of getting a reverse
mortgage with their customer, advise the customer of the costs and
personal benefits of reverse mortgages and inform them how their
current needs may be met. We ask them to obtain an applicant
assistance agreement, signed by the customer, which allows Wells
Fargo to compensate the brokers of 25 percent of the allowable
origination fee. I want to stress that this is 25 percent of what
we are allowed to earn; this is not an extra fee. That's very
important. And finally, after the customer goes through those
steps, they will then direct them to the local counseling agencies
to obtain the HUD-required reverse mortgage educational session and
certificate. Once that is done, the customer would then return to
the broker. The broker would contact Wells Fargo, and one of our
reverse mortgage specialist would take the loan application to be
processed as a Wells Fargo loan, closed in the name of Wells Fargo,
and upon closing, the broker would receive 25 percent of the
origination fee charged.
TMP: And this fee is on the HUD-1, right?
JST: On the HUD-1. That's correct.
TMP: And also, who sets this 25 percent? Is it Wells
Fargo or HUD?
JST: This would be an HUD rule.
TMP: So, the rule specifically says 25
percent?
JST: Well, the rule says, and this is an
industry standard, that what you are paying them has to be
commensurate with what they are doing. So, that's why we've settled
at 25 percent. A good example: On a $150,000 home value, the
origination fee allowed by HUD would be two percent or $3,000. In
this case, the broker would earn $750 for assisting the senior,
making them aware of the program, working with Wells Fargo, the
leading retail originator of this product, helping to satisfy the
senior need. And in my opinion, the broker has been of service to
the community, has been of service to the senior, and was able to
earn income without tons of investment, initially.
Atare E. Agbamu, CRMS, is a reverse mortgage specialist and
director of training at Inver Grove Heights, Minn.-based Credo Mortgage. Atare's reverse
mortgage interviews have been webcast on Mortgage Mag Live!, and he
currently serves on the boards of Little Brothers - Friends of
the Elderly in the Twin Cities and nationally. He can be
reached by phone at (651) 389-1105 or e-mail
[email protected].
