HUD Intends to Stand by Reverse Mortgage Program, Says Ex-FHA Official
Despite a tumultuous 2011 for many who offer reverse mortgages, the products are not going away, a New York Times column reported Friday.
“People certainly shouldn’t be worried,” about the reverse mortgage program, former Deputy Assistant Secretary for Single-family Housing Vicki Bott, who left her post Friday at the Department of Housing and Urban Development, told New York Times columnist Ron Lieber.
Bott’s comment represents the first words of support from HUD since industry giant Wells Fargo exited the business last week. (A request for comment from HUD was not returned to RMD as of press time).
Lieber points to industry exits from big banks Bank of America and Wells Fargo as a juxtaposition to the fact that “reverse mortgages will help millions of people stay in their homes and pay for a variety of retirement expenses in the coming decades.”
But, he writes, both turn out to be true.
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Five of Top 10 Reverse Mortgage States See Double-Digit Growth in 2011
A 3.1% national increase in reverse mortgage endorsements this year has masked volatility somewhat in the top ten states for reverse mortgages, notes Reverse Market Insight in its latest newsletter.
The “volatile” rate changes seen in some states, counties, and cities have led to the top 10 states’ growth rate remaining slightly above the national average, at 3.6%. That discrepancy, RMI notes, is likely since five of those states had endorsement rate increases in the double digits.
North Carolina’s growth rate shot up 45.9%, while Florida, on the other hand, continues its downward trend with a 26.1% decline, the largest decrease in the top ten states. Pennsylvania, New Jersey, Texas, and Virginia all posted double-digit gains, while Maryland and Washington join Florida with diminishing endorsement rates.
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Innovation - Genworth: Shifting the Focus
The reverse mortgage industry is undergoing a transformation, a makeover of sorts. Despite falling home values and the recent mortgage meltdown the HECM has proven a stalwart product that is attempting to expand its reach. The introduction of the HECM Saver began reshaping typical cost bias in the media and
opened up some intriguing markets beyond the historical borrower. Yet there remains an untapped and unrealized potential of reaching the financial community. Our industry has just begun
to take the first steps toward reaching financial professionals. Genworth Financial Home Equity Access, for one, has begun executing a well-planned strategy to educate its financial advisors
on the reverse mortgage’s value as a retirement planning asset. Senior Vice President of GFHEA, Jim Novack gave us some insights on their strategy.
Genworth Financial Inc. is no stranger to the public as a trusted brand for life insurance and financial products. Genworth entered the reverse mortgage world officially in 2007 with its acquisition of Liberty Reverse Mortgage, which was rebranded as Genworth Financial Equity Home Access, Inc., or GFHEA.
A major player in reverse mortgage production, Genworth ranks 4th in wholesale and 7th in retail sales (Reverse Market Insight: February YTD 2011). As a financial services provider, the transition to reverse mortgages seemed a natural progression in its continued mission to deliver financial security to senior clientele. They see the reverse mortgage as an opportunity for retirees to discover a new product that provides liquidity, retirement cash flow and a safety net.
A specific and structured plan to communicate with advisors and broker-dealers has already begun by Genworth with printed and electronic media and also the opportunity for professionals to complete courses as part of their continuing education. To help make the connection between a reverse mortgage and retirement they have created illustrative scenarios for specific financial situations. Beyond mere education Genworth is also stressing the importance of compliance and suitability with its internal financial advisors. They have taken the unique approach of not only covering the basics of a reverse mortgage but also how the
advisor can utilize a reverse mortgage to retain assets under management as their clients age.
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Lack of Retirement Funds Is Americans' Biggest Financial Worry
Concern about being able to maintain standard of living at a new high
WASHINGTON, D.C. -- More Americans are worried about not having enough money for retirement (66%) than are worried about seven other financial matters Gallup asked about. Majorities of Americans, however, are also very or moderately worried about not being able to pay medical costs for a serious illness or accident and about not being able to maintain their standard of living.
In the April 7-11, 2011, poll, Gallup's annual survey on the economy and personal finance, Americans were least likely to be worried about not making minimum credit card payments (24%) and not being able to pay for their housing costs (36%).
Gallup has tracked Americans' worries about these eight financial items annually since 2001, and has found that the top three concerns have consistently been retirement, medical costs related to a serious illness or accident, and maintaining their current standard of living.
While the order of Americans' worries has generally stayed the same over time, concern about each individual item increased at least somewhat during the recession, and all are up significantly from 2001.
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Senior Population Sees Rising Debt
A trend for the upcoming generation of borrowers eligible for reverse mortgages shows higher debt levels than 62-year-olds from ten years ago, a National Mortgage News article reports. Alex Farber, an experienced originator who has a reverse mortgage business with fellow originator Mario Martirano, tells National Mortgage News that this might affect the future volume of reverse mortgage endorsements among Baby Boomers.
Farber notes that many borrowers who are becoming eligible for reverse mortgages belong to the “sandwich generation,” meaning they may still be paying to put a child through college while simultaneously needing to care for elderly parents. Lenders need to adapt to this trend of higher debt levels, and Farber says that while consumers must be held accountable, the burden is on the lenders to make sure things are done right.
Farber and Martirano, the current senior vice presidents of Residential Home Funding’s reverse mortgage division, are about to become lenders, and Farber says they’re in the process of getting their direct endorsement approval to underwrite. The two originators told National Mortgage News about the necessity of ensuring borrowers are aware of the implications of a reverse mortgage.
“Besides the counseling, we also have a secondary check, an internal compliance system where actually Mario or myself will call clients on loans and ask, ‘Just what are you trying to accomplish and is this something that may work for you, understanding at the end of the road you’re going to be eating away a little bit of the equity? Are you comfortable with that and not being able to give it to your children?’” Farber said.
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Social Security and Medicare to be Exhausted Earlier Than Expected
by Elizabeth Ecker
The U.S. Social Security Trust Funds will be exhausted in 2036, and Medicare HI (hospital insurance) Trust Funds will reach exhaustion in 2024, according to a report released last week by the Social Security and Medicare Board of Trustees. The Social Security projection is one year sooner than previously estimated, and for Medicare the projection is five years earlier than previously thought.
The Social Security funds together include the Old-Age and Survivors Insurance and Disability Insurance (OASDI) funds. When they are exhausted in 2036, there will be sufficient non-interest income covering 77% of scheduled benefits.
Source: Social Security Administration
“The current Trustees Report again reflects what we have long known to be true—we need changes to ensure the long-term solvency of Social Security and to restore younger workers’ confidence in the program,” said Michael J. Astrue, commissioner of Social Security. “The report also highlights the more near-term shortfall in the Disability Insurance Trust Fund. Our disability programs are complex, and there is a long history of well intended ‘reforms’ causing unintended consequences. The President sent to Congress our Work Incentive Simplification Proposal, which would be a good start for bipartisan debate. I urge the House and Senate to review this proposed legislation carefully and schedule hearings this year.”
In 2010, Social Security paid benefits of $702 billion to approximately 54 million beneficiaries, the report found.
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Generation Mortgage Launches Reverse Operations in Puerto Rico
Generation Mortgage announced this week it is expanding its retail reverse mortgage business into Puerto Rico.
Generation, a Top-10 lender and the largest privately-owned reverse mortgage company in the U.S., has opened a branch office in San, Juan, Puerto Rico, to market and service reverse mortgage loans throughout the island.
“We’re very excited about being the first Top-10 reverse mortgage lender to open a retail branch in Puerto Rico,” said Scott Peters, President and CEO of Generation Mortgage. “Puerto Rico boasts a home ownership rate of 74% versus 67% in the United States. Additionally, 29% of the households in Puerto Rico have at least one person 65 and older compared to 23% in the U.S. We’ll be providing older homeowners in Puerto Rico a safe way to access the equity in their home to obtain cash for use as they think best, and still remain in their home.”
Luis Alberto De Jesús will lead the Puerto Rico operation for Generation. De Jesús brings experience from Senior Mortgage Bankers, where he aided in expanding the reverse mortgage business to the territory.
“It’s tremendously exciting to bring to the Puerto Rican market a financial solution that could literally change the life of a senior in financial need, and Generation Mortgage has a long and proud history of being the leader in customer service in this industry,” he said.
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Gloomy Forecast for Boomers’ Retirement Security
Retirement for Baby Boomers and Generation Xers (those born after 1965) will be a very different experience from that of the previous generation of retirees because of the financial crisis, says Alice Munnell, the director of the Center for Retirement Research at Boston College. The Center came up with a National Retirement Risk Index that would “quantify the impact of this security crunch” and found that in 2009, 51% of households were projected to be “‘at risk’ of being unable to maintain their pre-retirement standard of living in retirement.”
The NRRI shows that even before the financial crisis, in 2004, a projected 43% of households were ‘at risk,’ and those projections increased to 48% for Late Boomers and 56% for Generation Xers by 2009.
“This gloomy forecast is due to the changing retirement income landscape,” says Munnell. These changes include living longer, falling replacement rates from Social Security, increased out-of-pocket healthcare expenses, and declines in retirement asset returns.
Munnell notes that the NRRI is based on “conservative assumptions” and that it may, in fact, understate future challenges for upcoming retirees. The index is based on the assumption that seniors will not retire until they reach the age of 65, when in fact many will retire before then. Additionally, says Munnell, the index assumes everyone will utilize their home’s equity through a reverse mortgage, although only a small percentage will actually do so.
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20% of Workers Expect to Retire Later Than Planned
Twenty percent of U.S. workers say their expected retirement age has increased over the past year. An annual Employee Benefit Research Institute survey found the 20% increase in 2011 was statistically similar to 24% who said they were planning to postpone retirement in 2010.
The study, EBRI’s 2011 Retirement Confidence Survey, found several frequently cited reasons for the change. First, the poor economy was most often attributed (36%), followed by a lack of faith in Social Security/government (16%). Other reasons for postponing retirement included changes in employment situation (15%) and “can’t afford to retire” (13%).
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Reverse mortgage market set to grow
The proportion of retirees taking out reverse mortgages will grow in the coming years, as the borrowing option becomes an income supplement rather than a way of paying for holidays, an industry body says.
Restricted to outright home owners aged over 60, reverse mortgages are loans against the equity in a home, and require no repayments until the home is sold.
After their launch last decade, there were predictions of steady growth in the product, but the global financial crisis saw a decline in the value of reverse mortgages issued by lenders.
That's now rebounding, according to new data from Deloitte.
The value of outstanding reverse mortgage loans stood at $3 billion at December 31, up from $2.7 billion 12 months earlier.
There were $322 million worth of reverse mortgage loans written in 2010 - equal to the amount written in 2008 - taking the number of loans to 41,600 at December 31, up seven per cent from a year earlier.CLICK HERE for remainder of article.
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