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].