First is whoever closes and funds first, and Robert W. Evans Jr. got there first. The more than half a million Home Equity Conversion Mortgages (HECMs) that have been closed and funded since 1989 began with the one he wrote for then 79-year-old Marjorie Mason of Fairway, Kan.
Evans remembers Mason as a very sharp and sensible woman and widow who fully understood the cost-benefit of reverse mortgages and the “architecture of the HECM program” before she sat down with him to take the HECM application that would become the first closed and funded HECM loan in American mortgage history on Oct. 19, 1989.
Mason died a few years ago and the well-kept home that supported the loan has since been sold, but he remembers that first HECM customer very fondly, the way some would remember their first date: “She liked the non-monthly payment feature, understood compound interest, and realized that if she goes into a nursing home, the government will put a lien on her home. And she wanted to travel and to meet other living expenses.”
By the time he wrote the Mason HECM loan, Robert W. Evans, managing director of Reverse Ultra (Kansas City, Mo.), a national reverse mortgage banking firm, had been in community mortgage lending for a few years. In more than 24 years in community lending, he has held various positions, including RTC underwriter, compliance agent for state-sponsored first-time homebuyer programs, and a U.S. Department of Housing & Urban Development (HUD) Direct Endorsement Underwriter.
Robert W. Evans Jr. also serves as a director on the board of the U.S. State Department International Visitors Council of Kansas City, and he is the United States Honorary Consul of the Republic of Chile. Below is the reflection of the first HECM loan officer in American mortgage history.
You have the distinction of being the first loan officer to originate an HECM loan in U.S. reverse mortgage history. How was the experience for your customer, Ms. Mason, and for you?
At the time Ms. Mason applied for her reverse mortgage, she did not know her adjustable-rate loan closing would become an industry first, not only for HUD and Fannie Mae, but for me as well. She viewed her reverse mortgage loan application as the answer to her specific need for additional income to maintain her financial independence in her own home. In 1989, Ms. Mason sought out information about how reverse mortgages would impact her home finances. Her major concern was how she would meet growing homeowner costs and other expenses on her limited fixed-income.
She was a single woman, living alone in a well-kept home. She had always maintained her property in good condition. Her concern was to keep ahead of the maintenance curve and to keep from going into debt. Ms. Mason was used to being in control of her finances and found that the HUD reverse mortgage was a viable option for her. It did not matter to her that she was one of the first applicants for the HECM, rather, she was grateful for the program offering and felt confident about her application knowing that HUD and Fannie Mae supported the product. I believe that the mortgage loan application and closing process was a good experience for her. It just made sense to her.
My experience as loan officer in the nation’s first FHA reverse mortgage was very positive. Before reverse mortgages, I worked with various “community-specific” mortgage loan products. As compliance agent for our community’s first-time homebuyer program, I worked closely and continuously with state housing organizations and bond issuers. From this background, I realized the importance of partnerships with local, state, and federal housing organizations for the overall success of this product. And I believe each community has a stake in the financial health of their senior homeowners, and they benefit from every closed reverse mortgage.
How did you find Ms. Mason or how did she find you?
Ms. Mason was referred to me by the local Area Agency on Aging.
How was the HECM origination process in 1989? What were the required disclosures back then?
For the first applications, I did not have use of an origination software. I made use of the HUD application and secured required disclosures from the HUD manual. Since the basic borrower qualifications are still in place today as they were in 1989, the application package included: Age verification of all borrowers, evidence of property ownership. Evidence of property insurance and a credit report was made part of the origination package. As to the required disclosures, I do not have access to the file.
How were HECMs underwritten?
Close attention was given to the HUD manual in underwriting and closing early HECM loans, as well as file submission to HUD for endorsement and delivery to Fannie Mae. My colleagues in our closing and shipping departments and I were not strangers to new community-based loan programs. We worked together and learned collectively over time to create a “best practices” procedure. Underwriting the early HECM files involved both the creation of an orderly package of all the file documents, but equally important was the execution of “getting it right” for the borrower in terms of calculating the net principal limit and the matching of benefits to the individual borrower’s needs. For me, this became the most important aspect of underwriting.
What are some lessons you have learned about seniors, the market, and the business?
Reverse mortgages are unique in their design and purpose. No other loan product or financial tool provides for and addresses a borrower’s expressed financial needs like a reverse mortgage does. Here are some lessons I have learned about the market, seniors, and the business:
►No borrower should execute a reverse mortgage without careful consideration and counseling as to their own need and how the reverse mortgage would satisfy that need over time. The process of counseling and need assessment may be one of the last few opportunities a borrower and their family and advisors have to bring these very important issues to the table.
►The senior homeowner has an expressed financial need and is faced with multiple economic, family and other social concerns, some occurring the same time. When a borrower first learns of the benefits of the product offering, he may not be at a point of executing an application. Some event on a future timeline may occur, triggering the need to apply. The experienced loan counselor understands this and recognizes the importance of the borrower’s timeline.
►A reverse mortgage is designed to meet the borrower’s financial needs on an immediate, short-term, and intermediate situation, as well as on a long-term basis. Even though the reverse mortgage can be used for short-term borrowing, its benefits are usually best leveraged when considered for long-term borrowing needs.
What are the prospects and the challenges you see in the industry and why?
One of the biggest challenges facing today’s reverse mortgage retail market is property valuation. The reverse mortgage market is not immune to the nationwide decline in the housing prices and is deeply affected by declining markets resulting in lower than expected appraised values. To what extent property valuations will be influenced by the rise in both foreclosure and unemployment is yet to be determined. But it is clear that both challenge the growth in the single-family housing market, be it of new construction, sales of existing homes or cash-out refinancing. One prospect for a bright FHA reverse mortgage market is that, as the market moves forward and property values stabilize, it stands to reason that the FHA reverse mortgages secured by today’s property values will yield a more secure and insured mortgage product.
What is your favorite reverse mortgage story?
As I said before, no other product on the market today fits a senior homeowner borrower’s needs like the reverse mortgage. I recall one borrower’s concern was the payment of his wife’s ongoing medications, as well as making the needed updates and repairs to his house. Deep down, he knew his wife’s medical condition was not improving and he had to figure out a way to continue paying for her meds. In-home healthcare was routine, but it did not cover her expenses entirely, not to mention his occasional co-pays. He took great pride in his home and wanted to make some updates to his wife’s bedroom and modify her bath area.
The proceeds from the reverse mortgage loan did not cover all of the items on his list, but it did provide for a steady stream of income covering monthly medications and paid for the modifications to her bath area. The last thing he wanted was for his wife to suffer a move from their home of 35 years for financial reasons or to accept willing financial assistance from his children. Without the reverse mortgage, my borrower would not have been able to provide for his wife’s needs and maintain their lifestyle in their own home.
Author and columnist, Atare E. Agbamu, CRMS is director of reverse mortgages at Minneapolis-based AdvisorNet Mortgage LLC. A member of the BusinessWeek Market Advisory Board, Agbamu is author of Think Reverse! and more than 130 articles on reverse mortgages. Through his advisory firm, ThinkReverse LLC, Agbamu advises financial professionals, institutions and regulators across the country. In a 2007 national report on reverse mortgages, the AARP cited Agbamu’s work.