The following is Part Two 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 two 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 the history of reverse mortgages and how mortgage brokers can use them to separate themselves in a competitive and post-refinance marketplace.
The Mortgage Press: What training and support does Wells Fargo give its Broker-In mortgage brokers?
Jeff S. Taylor: At our Web site, www.reversebrokerin.com, we have everything a broker would need. First of all, there is an online calculator that the broker can use when talking with the customer. They can instantly input the borrower's age, zip code and approximate home value, and discuss how much the borrower will be eligible for right upfront. Brokers are offered a reverse mortgage sales guide in the Broker-In Program, in addition to one day of training and orientation through Jeffrey Moulton's operations in Boulder, Colo. (Jeffrey Moulton runs our the Broker-in Program in our strategic markets group). And we work through the whole process with them and explain that in order to be in compliance with RESPA, there are specific functions they must perform in order to be compensated. We review with them the importance of the applicant assistance agreement, which is our authorization by the consumer to compensate the broker for their assistance. Again, I want to reemphasize that the former is not an add-on fee. That comes out of the normal fee they would be paying whether they went to Wells Fargo or a broker. In addition, there is a full agreement that the broker executes with Wells Fargo. It has all the reps and guarantees that they are a duly licensed organization in their state and market, and that they have all required licenses to be a broker. Our Web site is the support arm for all of this material. Everything may be downloaded in PDF form.
TMP: Have you heard any complaints about your compensation structure?
JST: The biggest complaint is, "That's all we get?" and I respond, "Compared to what?" They say, "The correspondent program means I get to keep all this?" And I repeat, "Compared to what?" Compare your investment, commitment and level of involvement, and I would suggest that before you think of a correspondent program, try this other program. If you are going to be a correspondent, you are going to do all of the work, take all of the risks, do all of the disclosures; you are going to have to learn how to do the loans correctly, and you have the risk of having to repurchase the loan if it is incorrect. Now, that's one way to look at it. If you think there are enough loans out there, if you have people who are committed and you can dedicate yourself full-time, I would say the correspondent should be your choice. My compromise is, until you want to make that decision, our Broker-In Program would allow you to affiliate yourself, at least on the referral side, to Wells Fargo. The program allows you to familiarize yourself with the program. If it turns out that the economics could be better as a correspondent, you already have an opportunity; you've got your toe in the water, so you now know the next step to go to.
I do this based on experience because I've seen people spend time and money, then lose their reverse mortgage loan specialists who move to another company and do something else. They've got to start all over.
TMP: You are definitely one of the pioneers in this business, and during your tenure at Endover Financial Services Corporation, you were the driving force behind the founding of NRMLA. Where do you think the reverse mortgage industry is going as we inch into the 21st century?
JST: Well, I can think of no other industry that is so closely tied to demographics and progression through the life cycle--coupled with the fact that as people reach retirement, there is an increasing concern about having enough money to retire on, especially with rising healthcare costs. The reverse mortgage is the tool that will allow anyone with home equity to access it for any reason whatsoever, without the obligation to repay until they move out, die or sell the home. Combine that with everything else that is moving forward and rising home values, and realizing that there is a large number of senior households that are debt-free, this is an opportunity for growth. And I think financial planners who understand reverse mortgages are beginning to see how it can be melded into seniors overall retirement strategy. I am aware of a few large mutual funds that are beginning to include reverse mortgages in their retirement planning calculator. Simply plug in your home equity and it shows how much you would be eligible for under the FHA program. We are seeing more and more of that. We have to constantly stress the benefits of the program and clear up the myths among seniors who believe that if they get a reverse mortgage, the bank gets their house. We have to work very diligently to dispel those myths. One of the primary focuses of our national trade association is consumer education. Helping legislators and consumer advocacy groups understand the program is crucial.
TMP: For brokers, what do you think is the most effective strategy for marketing reverse mortgages?
JST: If you want to make a name for yourself in any market, if you set yourself apart as being a resource for a unique type of program, you can put an ad in a newspaper that says, "If you want information about reverse mortgages, call me, your reverse mortgage specialist," you would get phone calls. There are adult children who may have questions or may be curious about it. But if you run an ad saying "I have 30-year, fixed mortgages" ... well, so does everybody else! You have to separate yourself; you have to have a niche; you must have a discernible difference and a competitive advantage.
The other thing is, there is a huge opportunity for cross-selling. Think about the mortgages that are being made to baby boomer customers. Everybody has parents or grandparents. What a great opportunity! When you take an application or close a loan, say to the customer, "By the way, I want you to know that if you ever need assistance with your parents or grandparents, we are also specialists in the reverse mortgage business." The flip side: When you are closing a reverse mortgage, you say, "Look, you have children or grandchildren; we'll be happy to help them in their mortgage needs."
TMP: Do you have any closing thoughts for mortgage brokers? What do you see coming in this business?
JST: First of all, our industry is growing at a compound rate of 25 to 30 percent a year. There is no other industry coming close. We started from small numbers. Look at the HUD endorsements year over year. I am predicting that the HUD endorsements for the fiscal year of 2004 will be 150 percent more than what was done in 2003. In all of 2002, HUD endorsed 13,049 HECMs; in all of 2003, they endorsed 18,097; in the first six months of this 2004, they endorsed 17,035. I am projecting, based on the run rate, that they will endorse a little more than 27,000 HECM units by the end of this year.
TMP: Wow! How long do think this is going to continue?
JST: This is fueled by additional consumer interest. We've seen an increase in volume, resulting in an increased number of lenders getting into the business. So, you have a combination of financial need, awareness by seniors and more lenders at least telling the story. This is one of these deals where you shout from the mountaintops. You have to tell a story to everybody. I've been doing this since 1989. I have the Certified Mortgage Banker designation, and I've been in the mortgage business for more than 30 years. And wherever I go, people don't ask me about a 30-year, fixed-rate mortgage, they ask me about the reverse mortgage because they want to know. They want to know how it could help their parents or grandparents, and they want to know how it can help them personally at some point. If they are in the mortgage business, they want to know how big the business is going to be. It only stands to reason because we work all of our lives to build equity so at retirement, why not use the equity since it is just sitting there? It is very interesting because the old adage of holding on until mom and dad pass on and then inheriting the house equity doesnt apply as readily as it used to. Today, we are living longer, and we all have additional expenses. The idea of counting on mom and dad's equity is old school and probably not going to happen.
TMP: But you still have moms and dads who come from an era that believes it is a sin to put debt on the house, and they want to live somewhere even though they've put these kids through college. Theyve given them the best they could, yet they still feel an obligation to leave this equity to well-taken-care-of children; at the same time, they are living in abject poverty when they shouldn't.
JST: It is the whole legacy philosophy of leaving something behind. In reality, many baby boomers today have a primary home and a secondary home, and they really don't want mom's condo in the sky. That's tough for seniors to understand sometimes because they want to leave a legacy. Second to that, they want to make sure they don't use up all of their assets because their greatest fear is that they are going to outlive their money and not be able to take care of their medical needs. Those are the two concerns standing in the way of many seniors completing a reverse mortgage. We have seen numerous testimonials from seniors who have received a reverse mortgage, and it has totally changed their lives. The preponderance of evidence is in. If we can help seniors change their lifestyle and offer them independence and dignity, then we've done a good job.
TMP: Regarding your role with NRMLA, why did you get that organization started?
JST: It was my opinion that the reverse mortgage industry was beginning to take shape. I was very active in the Mortgage Bankers Association of America, but the industry was small enough that they really didn't have time for us. I felt that as a group of lenders, it was time to get together to create a code of ethics and best practices because my message to them was "If you don't do it, somebody else will regulate us. And so you've got to come together as an industry and adopt a set of best practices." This was a brand new industry; and on top of that, there is a huge education challenge with our political contacts because they need to understand the program and where we need help. For example, through our lobbying with our trade association, we were able to achieve three requests concerning the housing legislation in 2000 that was sponsored by Congressman Rick Lazio: HUD agreed to study a national single limit, analyze seniors who would purchase LTC to possibly qualify for a reduction in the HUD mortgage insurance premium, and study cooperatives for possible inclusion in the FHA HUD HECM program.
TMP: You recently sponsored a reverse mortgage course for the mortgage broker community. Why did you do that?
JST: Again, 95 percent of everything we do is education and awareness. I felt that the mortgage broker community needed a better understanding what the program is, what it isnt, and how it works. Reverse mortgages may be a program they are interested in as they begin to review their business models. If the refi boom is gone and we are back to a purchase market, I just felt it was something we could do over a two-year period to help both of our industries (forward and reverse).
TMP: Do you have any closing thoughts for mortgage brokers about reverse mortgages?
JST: I would encourage mortgage brokers to make themselves aware of what the program is. If they decide to participate, there are several options, whether as a Broker-In or as a correspondent; but more importantly, just simply being aware of what the program is and what it is not benefits their customers and future customers, because the more you know about this program, the more you can set yourself apart from other mortgage professionals.
Atare E. Agbamu, CRMS is a reverse mortgage consultant with Credo Mortgage in Twin Cities, Minn. Atare is widely regarded as an emerging authority on reverse mortgages, and is frequently consulted by financial professionals and families across America. His reverse mortgage interviews have been webcast on MortgageMag Live! Atare serves on the board of Little Brothers--Friends of the Elderly in the Twin Cities and on the national board. In addition, he is a trustee of The Little Brothers Foundation, serving on its investment committee. He can be reached at (651) 389-1105 or e-mail [email protected].