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Ellie Mae introduces loan-matching system

Jun 11, 2007

Forward on reverseAtare E. Agbamu, CRMSjumbo reverse mortgage product, proprietary product, RESPA Reverse Mortgage of America declares jumbo independence: A conversation with John Nixon Part III 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: As a proprietary product, can non-FHA lenders and brokers originate your product? John Nixon: Yes, they can, but they will have to be approved by us to do that. And what we've found, Atare, is that you really need to have a dedicated, knowledgeable sales force and support staff to properly present reverse mortgage products. When somebody approaches us and says, "I want to offer your product," we have a very extensive process they need to go through to convince us to approve them as a correspondent. They have to come in. We want to see their business plan; we want to see their financial statements; we want to see what the experience level of their staff is. We require them to come to our offices for two days of intensive training. If they don't prove to us that they have a business plan that we think is going to work, that they have the financial wherewithal to sustain their efforts and that they have some experience, we are probably not going to work with those types of people. AA: That's a prudent approach. JN: Well, at the end of the day, we've wasted our time and theirs. If they are not serious, and they are just thinking this is the next greatest thing but they haven't given it a lot of thought and just think it's another mortgage product they can roll out, chances are good that they will fail. We've demonstrated to ourselves time and time again that the traditional mortgage distribution channels don't fully understand the sales process of seniors. If we have a large forward mortgage company, just because they have a large distribution system doesn't mean they are going to be successful with this product. It is more of an education process with the senior, rather than a sales process. The reward time is longer; it is not uncommon for us to work with a senior for three to four months. On the traditional mortgage side, they are used to a reward cycle of 15 to 21 days. That is why we really want to see that they have some dedicated resources to the reverse mortgage product. AA: You're right, except your competition may not be as strict about bringing in people as you are. They could use the third party to bring in the deal and have their people handle the actual origination and processing, and give the third party a percentage of the origination fee. JN: Don't get me wrong. We have the same program. I guess it is semantics, because you asked me if I would allow non-FHA lenders and brokers to originate our product. My answer and all that dialogue I went through are for somebody who is going to be a correspondent and take and process the application. We have the same advisor program that we have on the HECM on this product [TIP]. It says approved correspondents can work with the broker community and offer the product, as long as they meet the proper RESPA [Real Estate Settlement Procedures Act] requirements. All of our existing correspondents and all of our existing branches can reach out to the mass market - meaning the broker community and the mortgage bankers - who don't want to spend the time, but do run into people who are interested in the product. They do have to perform enough duties to qualify under RESPA. Once the senior is interested enough, they hand them over to one of our approved correspondents or branches, and we take it from there. AA: They get a cut of the origination fee, right? What would that be? JN: In most cases, the industry is coming to about 25 percent of the loan origination fee. AA: So, you are using the HECM advisory compensation standard, right? JN: We are at this time. If somebody came and made the case, "I'm doing a lot more," and they can prove it, we can go higher. RESPA says the compensation has to be "commensurate with the duties performed," but 25 percent is the industry standard. AA: That's pretty generous for the defined function of an advisor. JN: It is. However, with the reverse mortgage product, the advisor may be working with the senior for several months, thereby justifying the compensation. AA: Do you have any comments for mortgage brokers and lenders on TIP or on the opportunities in reverse mortgages? JN: There's been a lot of attention focused on reverse mortgages. When you look at the long-term potential of the product, it's just amazing the opportunity that will present itself in the next 20 to 25 years. For mortgage lenders and brokers coming into it, they better have a good understanding of the product, know how to market it, have dedicated and skilled support people in their shops, and be there for the long run. The biggest caution that we see is this: A mortgage banker or broker goes out to spend their time to educate and staff up, and then interest rates go down 40 basis points on the forward side, and refinances kick back up. If they are using all forward or traditional mortgage people, they will abandon reverse mortgage products, because it's got a much longer reward cycle, and go right back into the quick money. But if you look at the long-term demographics, if you are in it for the long run, you probably should start building up your knowledge and your infrastructure. You can't deny the numbers that are coming out. There are all kinds of political pressure - Social Security, Medicare and Medicaid issues - that are hounding the government. They would love nothing better than to find a way to help seniors tap the equity in their homes to relieve some of the social challenges we are facing. AA: You are right. In my upcoming book, I asserted that this [reverse mortgages] is where the action is going to be in residential mortgage lending in the new century. JN: We agree with that. Even if you start looking internationally, we are beginning to get a fair amount of attention on the international level. We are starting to get inquiries from outside the United States. It's not just an issue within the United States; it is a global issue. AA: Thank you, John. 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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Jun 11, 2007
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