Forward on reverseAtare E. Agbamu, CRMSjumbo reverse mortgage product, proprietary product, RESPA
Reverse Mortgage of America declares jumbo independence:
A conversation with John Nixon
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
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
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
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
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
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
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]