Forward on reverse: Choice, value and HECM renewal: A conversation with BNY Mortgage Company LLC's Sarah HulbertAtare E. Agbamu, CRMSfixed-rate HECM, reverse mortgage, NRMLA
Part II
What a difference a price cut can make in an industry! America's
reverse mortgage business got a kick in the pants in January from
BNY Mortgage Company
LLC.
By slashing investor profit on the monthly adjusting Home Equity
Conversion Mortgage (HECM) by 50 basis points, the EverBank-owned company dragged
HECM and the industry into the 21st century.
The major originators--Financial Freedom, Wells Fargo and Reverse
Mortgage of America--have since introduced their versions of BNY
Mortgage Company's HECM 100, as well as other margin-adjusted
programs, giving customers unprecedented choice and value in HECM
products.
In March, BNY Mortgage Company launched an industry first--a
fixed-rate HECM. Others will do the same soon. It is spring in
reverse country. To put these developments in perspective, I spoke
with Sarah Hulbert, senior vice president at BNY Mortgage Company
and former four-term National Reserve Mortgage
Lenders Association (NRMLA) board co-chair.
NRMLA President Peter Bell has described Sarah Hulbert as an
"essential leader for the industry." An industry veteran who has
been in the business since 1992, Hulbert has experience in almost
every aspect of the business. From 2000 to August 2006, Hulbert was
senior vice president/national director at Reverse Mortgage of
America, where she was part of a team which propelled the Seattle Mortgage Company
division from a few loans a month to one of three major reverse
mortgage lenders and servicers in America.
The following is a transcript of our conversation:
Atare E. Agbamu: Now, what do you say to those who say
you [BNY Mortgage Company] have not really tackled the high
closing-costs factor in HECM--that all you've done is merely cut
margin in a tight-margin business?
Sarah Hulbert: Well, as far as tackling the closing costs
issue, that is the real issue, and that is something we, as an
industry, are working on--to look for ways to reduce those upfront
costs to the borrowers. Where that is going to come into play is
with some other products, similar to the proprietary jumbo products
you see out there today that have the higher margins and have no
upfront closing costs. We are going to be looking at ways to do
that with the HECM. Now, with the HECM 100 product, I agree; we
have not addressed the upfront closing costs issue. But we have
addressed the cost issue. And that is a critical issue, and it is
one we as originators and lenders come up against frequently when
working with the advisors of our borrowers, because they look at an
amortization schedule, and they see this is a negative amortizing
loan that reduces the equity in the borrower's home. And what we
have done with the HECM 100 is, again, with our lower interest
rate, we are consuming that equity at a much slower rate. So the
cost of the loan at the time the loan is paid off, in the
74-year-old borrower example, is going to be about $28,000 less in
accrued interest. That's a huge number! That's an important
number!
Furthermore, when we are meeting with our borrowers and we are
going through the calculation worksheets, we are all required to
have the borrower sign a total annual loan cost (TALC) disclosure.
That TALC disclosure clearly indicates that the total cost over the
life of the loan is significantly reduced. So again, yes, it has
not reduced the upfront closing costs, but those upfront loan costs
that are financed into the loan become part of the loan balance,
hence, part of the final payoff at loan repayment.
AA: Well, in a sense, you've indirectly reduced the
upfront costs by reducing the margin for the long-term HECM 100
consumer. It's like killing two birds with one stone--more cash and
lower overall costs.
SH: Exactly! Exactly! And it is only going to get better
from here, because we are going to have more options available in
the future.
AA: Now, how attractive will a low-margin HECM be to
secondary market investors? Because that is where the cash that
supports the origination business comes from.
SH: It will continue to be an attractive product, but it
is a different product from the HECM 150 [original monthly
adjusting HECM], just as it will be a different product from--and
I'm guessing, looking out into the future--an HECM 250 or an HECM
350. All those little pieces come into play when determining the
value of a loan, and the lower the margin, the less value the
secondary marketplace will put on a loan--the higher the margin,
the more value. And that is going to come into play down the road
when we develop these other products with reduced or zero upfront
closing costs.
AA: So, as it is right now, HECM 150 will fetch premium
pricing in the secondary market over the HECM 100; consequently,
lenders who want to raise money to invest in marketing and
operations are more likely to offer HECM 150. That will not be the
right thing to do, but they will be tempted to do that, they would
argue, to stay in business.
SH: That's it. Yes, the lenders in this industry are not
non-profit lenders. We are in this business to earn money, but that
is not the primary reason why we are in this business. We need to
turn a profit, but we also need to continue our commitment to
providing valuable financial services to senior homeowners. And we
need to continue our commitment to looking for ways to develop new
products or make adjustments to existing products to be able to
provide greater accessibility to reverse mortgage products for the
senior community.
AA: You are definitely an evangelist for this thing--a
rev-angelist, as I called ardent reverse--niks in my book.
SH: Well, yes. I am a representative of BNY Mortgage, but
I am also very involved at the industry level. I've been in the
business since 1992 and have personally originated and closed over
500 HECMs over my career. Reverse mortgages have played a very
important role in my life and my profession.
AA: That's impressive.
SH: In order to really be successful in this industry, I
think it is important that you have the passion for the product and
the passion for the people the product is targeted towards.
AA: Amen! Those who come here thinking it is another
mortgage product that will make them a quick buck will be
disappointed.
SH: Absolutely. Reverse mortgages are truly a labor of
love. They are not a means to make a quick buck. And again, our job
is to come up with these products. If I remember my statistics
correctly, seniors who are 65-plus have over $3 trillion dollars in
home equity out there in the United States.
AA: I think that is even very conservative.
SH: It's probably more now. That number, I think, is a
couple of years old. We've got over $3 trillion in equity in homes
owned by people who are 65-plus, and the question that is
constantly asked is: "Why aren't more people doing reverse
mortgages?"
AA: There are more reasons to it. If you read my
conversation with long-term care reform guru Steve Moses, who is in
your neck of the woods in Seattle, some of the factors that are
really affecting demand are way out of our industry's hands. In
this economy, everything is interconnected. Until we have real
long-term care reform--until senior homeowners with substantial
home equity feel a strong push to spend down their home equity
assets--they may not want to take out reverse mortgages in
sufficient numbers to unlock the more than $3 trillion in home
equity.
According to Moses, once they wake up to the enormous risks
long-term care costs pose to their homes and their well-being, they
would be more inclined to buy long-term care insurance. And the
demand for long-term care insurance will significantly influence
demand for reverse mortgages.
Moses believes the reverse mortgage and the long-term care
insurance industries should be working together to educate the
American people and seniors (and pre-seniors, in particular) about
the risks long-term care costs represent to their homes and their
well-being.
SH: To encourage seniors to look at the assets they
have--assets that were previously illiquid--that is when the
product design does come into play, because like you said, they are
not motivated to tap into the equity to pay for long-term care.
However, if there are products out there that address some of the
misperceptions and some of the negative aspects of reverse
mortgages, we are going to only improve the awareness and
acceptance of the product, as well as increase the accessibility to
the product, which ultimately will encourage more seniors--maybe
not as many more as we'd like right now, but it will play a role in
encouraging these seniors to look at reverse mortgages as viable
options to help fund their in-home care, retirement or
aging-in-place goals.
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 80
articles and a book on reverse mortgages. He may be reached at
(612) 203-9434 or e-mail
[email protected].
