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Product Innovation Creates New Challenges

 By Atare E. Agbamu, CRMS

Reprinted with permission from the NRMLA

It wasn’t long ago that consumers had three reverse mortgage products to choose from: the FHA HECM, the Fannie Mae Home Keeper, and The Financial Freedom Cash Account. Now Seattle Mortgage Company, Generation Mortgage Company, Countrywide Home Loans, Virtualbank and Sun West Mortgage Company have all introduced competing Programs, and later this year, BNY Mortgage Company and Vertical Lend (dba Lender Lead Solutions) will be following suit. In addition to these private sector programs, new multiple-margin HECM products have been introduced, as well as a fixed rate option by BNY Mortgage. All these developments are good for customers and healthy for originators. But there is another, more complicated, side to this explosion of choice that bears greater scrutiny. To discuss these issues, NRMLA put

Together a panel of industry leaders at our recent Western Regional Conference in Newport Beach, CA. Moderated by NRMLA’s General Counsel, James Brodsky, the panel featured Sarah Hulbert of BNY Mortgage (Renton, Wash.), Pamela Henderson of

Countrywide Home Loans (West Hills, Calif.), Jeff Lewis of Generation Mortgage Company (Atlanta, GA), Bart Johnson of Financial Freedom (Irvine, Calif.), and Erik

Anderson of Seattle Mortgage Company (Seattle, WA) The following article is based on comments Made during a Q&A with audience members.

SIMPLIFY , SIMPLIFY , SIMPLIFY

Some in the audience expressed concern that these generally positive developments could come at a significant price—that is, greater complexity for customers and loan officers.

Sarah Hulbert agreed that product innovation adds a distinct layer of complexity, and that keeping abreast of new products, new features in existing products, and simplifying them for customers will become “absolutely critical” for loan officers. Bart Johnson declared that complexity can and will come. He invited the audience to imagine a Reverse mortgage world with 150 products, including many proprietary programs. “No single salesperson in any company can pretend to explain every product,” he told audience participants. “So it looks very much like the forward industry, where you have brokers that pick the best from each of several lenders until they think they have a menu that represents all needs. That’s what they show. That’s where we are going to end up.

There is no way any single company is going to be able to explain the full breath of what exists here.” Pamala Henderson added that third-party counseling and education can help breakdown product complexity for customers.

TRANSITION JUMBO REVERSE WITH NO UPFRONT COSTS

Hulbert indicated there is some talk about developing proprietary loans with zero closing

Cost options that could be used to help refinance customers into better products.

“If you have a borrower who is in a reverse mortgage and another plan becomes available, and there are no upfront costs for moving into that plan, that’s a pretty easy transition,” said Hulbert. Brodsky quipped that we’re not talking about a “free lunch” and said the forward marketplace struggles with these issues too. “That’s why I think a

Refinance may be an analogy here,” he added.

SUBORDINATE LOANS

The industry leaders were asked if they are planning to add subordinated loan products to “fill the gap if there isn’t enough money to pay off an existing loan.” Jeff Lewis said such a product may be possible if the capacity of the first mortgage is curtailed. “If you’ve got a first mortgage that is going to take up all the borrowing capacity, then no (we can’t

Offer subordinated financing),” he said, “but if you somehow limit the capacity of the first, then you can have a second. But as of now, no one has introduced a first that has a limited capacity.” Brodsky said subordinate financing presents “some statutory issues” on the FHA side. (For more information, please refer to FHA Mortgagee Letter 2006-20, which can be downloaded from Nrmlaonline.org.)