Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice
Federal Reserve Bank of San Francisco
101 Market Street, San Francisco, California 94105
June 16, 2006
skip to contents
Printable version (310 KB PDF)
Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-225 | 226-250 | 251-254
| Transcript | Line | Page |
|---|---|---|
| explore those issues a bit. | 1 | 176 |
| One of the things that was mentioned by several of | 2 | 176 |
| the speakers was the bill to raise the threshold for FHA | 3 | 176 |
| insurance on the HECM products. And, Ruth, I know you | 4 | 176 |
| mentioned it. | 5 | 176 |
| And one of the things I was just wondering is what | 6 | 176 |
| is the position of -- something that struck me as | 7 | 176 |
| interesting, while it seems like that's a necessity because | 8 | 176 |
| we're bumping up against that, at the same time the private | 9 | 176 |
| market is developing alternatives to HECM. | 10 | 176 |
| And so can you, and also your fellow panelists, kind | 11 | 176 |
| of address that terms of, you know, is there a dire need to | 12 | 176 |
| raise the threshold? Should people be relying more on the | 13 | 176 |
| private market for these products? How does that -- what are | 14 | 176 |
| the pros and cons of that? | 15 | 176 |
| MS. ROMAN: I think from FHA's position, we think | 16 | 176 |
| that it's still very important to raise the loan limit to the | 17 | 176 |
| conforming limit. The other products have different features | 18 | 176 |
| than the HECM product. The HECM product still allows for a | 19 | 176 |
| larger loan advances to be made, so there's still, you know, | 20 | 176 |
| value to having more funds available through the HECM | 21 | 176 |
| product. | 22 | 176 |
| MR. AXELSON: I agree with Ruth. I think a lot of | 23 | 176 |
| the proprietary products, including some that are coming onto | 24 | 176 |
| the market I think in the next number of months, I think are | 25 | 176 |
| geared more to nonconforming loans, which is above Fannie's | 1 | 177 |
| threshold and would be above the threshold that HUD is asking | 2 | 177 |
| for. | 3 | 177 |
| MR. CHANIN: Let me follow up on that. And earlier | 4 | 177 |
| discussions, both today as well as in other cities, have -- | 5 | 177 |
| the mortgage market is quite robust. And Jim or Peter or | 6 | 177 |
| Arthur, the products have been out there I guess for 20 | 7 | 177 |
| years, give or take. It sounds like the private market | 8 | 177 |
| hasn't developed at least as expansively as in other areas. | 9 | 177 |
| And why is that? And to the extent it has developed, it | 10 | 177 |
| seems like it's paralleled quite closely FHA's program in | 11 | 177 |
| terms of counseling and so forth. | 12 | 177 |
| So how do you see this developing in the future and | 13 | 177 |
| do you see different products coming on in terms of different | 14 | 177 |
| features, those without counseling and so forth? | 15 | 177 |
| MR. MAHONEY: I think we view the counseling as best | 16 | 177 |
| consumer safeguard. That's why we require it on proprietary | 17 | 177 |
| products. So all reverse mortgages we do have independent | 18 | 177 |
| counseling. So we think that's a great consumer safeguard. | 19 | 177 |
| If you look back at volume in the industry, up until | 20 | 177 |
| about four or five years ago, was really quite small. So the | 21 | 177 |
| secondary market that traditionally drives product | 22 | 177 |
| development wasn't really interested, particularly in the | 23 | 177 |
| middle of a refi boom in this county, to really look at | 24 | 177 |
| product development for an industry that was doing 8,000 | 25 | 177 |
| loans a year. | 1 | 178 |
| For example, in 2001 we did $300 million in loan | 2 | 178 |
| balances. We did $3 billion in 2005 and we'll do $6 billion | 3 | 178 |
| in 2006. So now the secondary mortgage industry has really | 4 | 178 |
| started to become more interested in it. There's more data | 5 | 178 |
| available about the borrowing statistics, life expectancy, | 6 | 178 |
| things of that nature with these products. So now you're | 7 | 178 |
| starting to see a full development in the secondary industry. | 8 | 178 |
| The HECM is the most financially appealing product | 9 | 178 |
| in the context of how much money a borrower could have, so it | 10 | 178 |
| will be competitive for homes under the FHA limits going | 11 | 178 |
| forward into the future. It's very difficult for the private | 12 | 178 |
| market to emulate that product. | 13 | 178 |
| MR. CHANIN: And do you not see different | 14 | 178 |
| permutations on the product? For example, the cost is fairly | 15 | 178 |
| significant. You said I think, Bronwyn, up to $60,000 in | 16 | 178 |
| fees over the life of a loan. | 17 | 178 |
| I'm sure that there are agencies out there that | 18 | 178 |
| could offer the product with lower fees but maybe without all | 19 | 178 |
| the safeguards if you will. Do you not see those products | 20 | 178 |
| developing? | 21 | 178 |
| MR. MAHONEY: I think you'll see products certainly | 22 | 178 |
| develop. There are fees that are structural elements of the | 23 | 178 |
| HECM in particular, the servicing fee, which is normally | 24 | 178 |
| built into the interest rate on a traditional loan that the | 25 | 178 |
| borrower doesn't see. | 1 | 179 |
| A lot of things that are different structurally | 2 | 179 |
| today will change and emulate the traditional mortgage market | 3 | 179 |
| as we go forward. I think you'll see very competitive | 4 | 179 |
| products as such, but I don't think you'll see the consumer | 5 | 179 |
| safeguards because of the class we're dealing with, when | 6 | 179 |
| we're dealing with seniors. | 7 | 179 |
| MR. AXELSON: I think you will see some of the fees | 8 | 179 |
| being built into the rate somewhat. But also I think the | 9 | 179 |
| nonconforming market, I think traditionally reverse mortgages | 10 | 179 |
| I think back -- when HECM first came out in '89, it was | 11 | 179 |
| really -- the product was really geared as a product of last | 12 | 179 |
| resort I think for senior homeowners who were really -- they | 13 | 179 |
| needed medical care, they needed medicine, and that's what | 14 | 179 |
| the proceeds were used for. | 15 | 179 |
| I think we're starting to see a shift in what's | 16 | 179 |
| going to be the typical HECM borrower. And we have our Baby | 17 | 179 |
| Boomers going to be -- supposedly the first ones are going to | 18 | 179 |
| be 60 this year. Within a couple of years they'll be | 19 | 179 |
| eligible. | 20 | 179 |
| I think it's -- in a sense it's more financially -- | 21 | 179 |
| a financially savvy group of consumers, people that are more | 22 | 179 |
| used to mortgaging their homes and more aware of some things | 23 | 179 |
| than the last generation. And so to some degree they may not | 24 | 179 |
| need as many safeguards and the pricing may be able to be | 25 | 179 |
| adjusted for that reason. | 1 | 180 |
| MR. BELL: A few thoughts in response to that. | 2 | 180 |
| First of all, it needs to be understood that the lion's share | 3 | 180 |
| of those fees, more than half, are the HUD mortgage insurance | 4 | 180 |
| premiums, including up front and the half percent per year | 5 | 180 |
| ongoing on the actual balance that's been drawn down. | 6 | 180 |
| There are a lot of us who believe that there's room | 7 | 180 |
| to reduce that, and we do have a working group with the | 8 | 180 |
| department to study the program actuarially, to analyze that. | 9 | 180 |
| The fee structure that's in place today was | 10 | 180 |
| established prior to any experience. It was set up front | 11 | 180 |
| when the program was implemented back in the late '80's. And | 12 | 180 |
| now that we have a decade plus of experience, we're able to | 13 | 180 |
| go back and analyze that and work on that. | 14 | 180 |
| Also, as volume grows, fees fall because part of the | 15 | 180 |
| challenge now is that we've been doing such a small annual | 16 | 180 |
| volume that the costs of a company -- like there's a very | 17 | 180 |
| large cost to enter this. All the systems have to be | 18 | 180 |
| completely engineered from the get-go for this product. | 19 | 180 |
| There aren't off-the-shelf systems for this like there are | 20 | 180 |
| for other mortgages. And that has to be amortized over a | 21 | 180 |
| much smaller universe of loans. As that grows, we will see | 22 | 180 |
| all of that fall in place. | 23 | 180 |
| Now, the private product would come in and have the | 24 | 180 |
| advantage of not having all these mortgage insurance | 25 | 180 |
| premiums. But basically the way they compensate for that is | 1 | 181 |
| by providing less money. They self-insure in effect by | 2 | 181 |
| having a lower percentage of value. So you may knock down | 3 | 181 |
| the fees, but you're also reducing the amount of money that's | 4 | 181 |
| available. | 5 | 181 |
| MR. CHANIN: Okay. | 6 | 181 |
| MR. RICHARDS: Well, just following up on that, | 7 | 181 |
| Peter, I presume then once you take out a reverse mortgage, | 8 | 181 |
| it's difficult to increase the amount that you've borrowed. | 9 | 181 |
| Is that right? | 10 | 181 |
| MR. BELL: No. On the contrary. Not at all. | 11 | 181 |
| There's a few things that happen. On the HECM | 12 | 181 |
| product, or other products that have a line of credit | 13 | 181 |
| feature, if somebody originates the loan with a line of | 14 | 181 |
| credit, the unused balance in the line of credit grows from | 15 | 181 |
| year to year. | 16 | 181 |
| So if someone has a HECM, say their home is worth | 17 | 181 |
| $200,000 and their age gives them 50 percent of that, they | 18 | 181 |
| start with $100,000 to keep it simple. If they leave that | 19 | 181 |
| $100,000 in that line of credit, a year from now they'll have | 20 | 181 |
| roughly $106,000 in that line of credit. There's a growth | 21 | 181 |
| feature there that's going on. | 22 | 181 |
| Secondly, there's the opportunity to refinance a | 23 | 181 |
| reverse mortgage. And HUD actually does a reverse mortgage | 24 | 181 |
| insurance premium now -- congress enacted that in 2000 -- to | 25 | 181 |
| allow people to do that. | 1 | 182 |
| So what happens is -- a few things can happen over | 2 | 182 |
| the life -- since the original loan was taken out. The | 3 | 182 |
| person is older of course, giving them a larger percentage of | 4 | 182 |
| value. The interest rates could have fallen, giving them a | 5 | 182 |
| larger amount. And, of course, the home value could have | 6 | 182 |
| grown and, along with that, the FHA limits. | 7 | 182 |
| So if somebody had -- in my $200,000 example, their | 8 | 182 |
| age gave them 50 percent, six years ago -- nowadays their | 9 | 182 |
| home may be worth $300,000 and their age gives them 65 | 10 | 182 |
| percent. They could go back and get a new reverse mortgage | 11 | 182 |
| to take advantage of that new situation. | 12 | 182 |
| MR. RICHARDS: And do there tend to be prepayment | 13 | 182 |
| penalties with these? | 14 | 182 |
| MR. BELL: No. There are no prepayment penalties | 15 | 182 |
| whatsoever on any reverse mortgage product. | 16 | 182 |
| MR. MAHONEY: Just as a point of information, as a | 17 | 182 |
| servicer we see about five percent of our portfolio -- pardon | 18 | 182 |
| me. Sorry. As a servicer, we see about five percent of our | 19 | 182 |
| mortgage portfolio refinanced into new HECMs every year. | 20 | 182 |
| MS. BRAUNSTEIN: I didn't hear anybody mention | 21 | 182 |
| during their opening that there were so-called bad actors out | 22 | 182 |
| there taking advantage of people on reverse mortgages. Is | 23 | 182 |
| that a problem at all? Are you seeing that? | 24 | 182 |
| MS. KROHN: I think it applies in reverse mortgages | 25 | 182 |
| when you try to bundle an annuity with it. I think that | 1 | 183 |
| the -- and this is not something that the Fed would | 2 | 183 |
| necessarily be involved in. It's an insurance issue. | 3 | 183 |
| But what we have found is that very often somebody | 4 | 183 |
| will go into a bank or a financial institution to apply for a | 5 | 183 |
| reverse mortgage, or start the process, and before they close | 6 | 183 |
| on that account, they're referred to that nice young man over | 7 | 183 |
| there, that nice young lady, who is sitting at a desk with no | 8 | 183 |
| name tag on it, identifying them as an insurance salesman. | 9 | 183 |
| And recently I had a chance to talk to the | 10 | 183 |
| Department of Insurance in Sacramento about this, and they | 11 | 183 |
| said that that's a very serious problem, where they're just | 12 | 183 |
| sort of slipping these annuities into the signed documents. | 13 | 183 |
| And anyone who knows annuities will know that you | 14 | 183 |
| probably shouldn't be selling them to somebody in their mid | 15 | 183 |
| 70's or 80's because they may never live to get the full | 16 | 183 |
| benefit of them. | 17 | 183 |
| So that's one thing that we've seen very commonly | 18 | 183 |
| applied. | 19 | 183 |
| MR. BELL: Can I respond to that? | 20 | 183 |
| MS. BRAUNSTEIN: Go ahead. | 21 | 183 |
| MR. BELL: I've heard more discussion of that topic | 22 | 183 |
| in the Sacramento area than I have anywhere else nationally. | 23 | 183 |
| So I guess there might be some folks that are pursuing the | 24 | 183 |
| sale of the annuity simultaneously in that particular | 25 | 183 |
| instance than I'm aware of anywhere else in the country where | 1 | 184 |
| it's going on. But a few things on it. | 2 | 184 |
| First of all, we as a matter of industry practice, | 3 | 184 |
| when we are dealing with a borrower, we make a disclosure | 4 | 184 |
| that basically makes clear to the borrower that this money is | 5 | 184 |
| yours to spend however you want, and you are under no | 6 | 184 |
| obligation whatsoever to purchase any particular service or | 7 | 184 |
| product from any particular provider on that. The money is | 8 | 184 |
| disbursed to you, it's your money. We do not disburse to any | 9 | 184 |
| third parties, and we do make that disclosure on it. | 10 | 184 |
| Secondly, there is no product that does require the | 11 | 184 |
| purchase of an annuity. There might have been once upon a | 12 | 184 |
| time a good number of years ago. There is nothing in the | 13 | 184 |
| marketplace, nor has been, for several years now that | 14 | 184 |
| requires the purchase of that. | 15 | 184 |
| And thirdly, if there is an annuity purchase | 16 | 184 |
| involved, I believe the TALC disclosure requires that to be | 17 | 184 |
| disclosed in there so it does show up in the numbers that are | 18 | 184 |
| provided to the borrower. | 19 | 184 |
| MS. KROHN: I mean, you guys are far better experts | 20 | 184 |
| to discuss this than I am, but what I will tell you is that | 21 | 184 |
| there are some bad boys out there that are doing this kind of | 22 | 184 |
| thing. And here again it's not a Fed issue; it's an | 23 | 184 |
| insurance issue. But it is happening. And I don't think | 24 | 184 |
| it's just in the minds of those in Sacramento. We may have | 25 | 184 |
| some testimony to that fact later in the open mic. | 1 | 185 |
| MS. BRAUNSTEIN: As a follow-up to that, too, in | 2 | 185 |
| talking about possible bad actors, one of the things we've | 3 | 185 |
| heard a little bit about that I'd like to hear from you is | 4 | 185 |
| that, as you say, up until recently these loans were not a | 5 | 185 |
| big product and now it's starting to increase. And I would | 6 | 185 |
| imagine with the Baby Boomers coming that it's going to | 7 | 185 |
| increase even further. | 8 | 185 |
| What do we see in terms of advertisements for these | 9 | 185 |
| loans? Is there starting to be very aggressive kind of push | 10 | 185 |
| marketing like we see for other kinds of products to certain | 11 | 185 |
| populations and, you know, what's -- can you -- | 12 | 185 |
| MS. BELLING: I can speak a little to that. I think | 13 | 185 |
| Peter speaks for most of the major reverse mortgage lenders | 14 | 185 |
| in his association, but there are other brokers and lenders | 15 | 185 |
| who are not members of NRMLA, of the association. | 16 | 185 |
| And I think, you know, they -- to NRMLA's credit, | 17 | 185 |
| they do have a very good code of conduct that sets standards | 18 | 185 |
| for their members, but we do get complaints from other | 19 | 185 |
| lenders who are not -- and on behalf of brokers and other | 20 | 185 |
| third parties who are not affiliated with the national | 21 | 185 |
| association. | 22 | 185 |
| I think in terms of advertising, most of the | 23 | 185 |
| advertising that we do see is pretty much above board. We | 24 | 185 |
| hear about seminars and other questionable events going on | 25 | 185 |
| around the country, and I think people tend to turn to AARP | 1 | 186 |
| as sort of a consumer watchdog for these kinds of practices. | 2 | 186 |
| In 1997 we heard about a fee being charged from a | 3 | 186 |
| third party in Southern California to direct people to a | 4 | 186 |
| reverse mortgage lender that led to a lot of confusion and a | 5 | 186 |
| lot of financial abuse frankly. And HUD stepped in and | 6 | 186 |
| efforts were taken. There were some lawsuits. It's a much | 7 | 186 |
| longer story. | 8 | 186 |
| But HUD -- the truth in lending requirements were | 9 | 186 |
| broad and HUD expanded the requirements under the counseling | 10 | 186 |
| certificate. And the major lenders in the field who were | 11 | 186 |
| buying these loans from these referring third parties | 12 | 186 |
| basically said they would no longer do business with them. | 13 | 186 |
| So fortunately those folks are no longer, to our knowledge, | 14 | 186 |
| visible in the market. | 15 | 186 |
| But I do think with the growth of the market that we | 16 | 186 |
| have to be more vigilant. And I'm appreciative that AARP is | 17 | 186 |
| held in such high trust in many places that we do tend to get | 18 | 186 |
| these kinds of complaints from time to time. | 19 | 186 |
| We now sort of automatically share them with HUD | 20 | 186 |
| staff, both in Washington, D.C. and regionally, when they -- | 21 | 186 |
| and most of them do pertain to third parties selling the HECM | 22 | 186 |
| in combination with other products or home repair schemes and | 23 | 186 |
| so on. | 24 | 186 |
| So I think we have to remain extremely vigilant. | 25 | 186 |
| The counseling component is a good consumer protection but it | 1 | 187 |
| isn't everything. And some of these things do happen outside | 2 | 187 |
| of the -- my concern about waiting 30 days after the reverse | 3 | 187 |
| mortgage transaction, then it falls completely out of the | 4 | 187 |
| purview of all the disclosures and what have you. | 5 | 187 |
| So I don't know if a delay is really going to help | 6 | 187 |
| much if someone comes behind a month later to sell someone an | 7 | 187 |
| annuity. If they don't fully understand the transaction, | 8 | 187 |
| then I think they're a little bit more at risk than if it has | 9 | 187 |
| to be disclosed in the current TALC requirements. | 10 | 187 |
| MS. BRAUNSTEIN: One of the things that's been | 11 | 187 |
| talked about obviously is the required counseling. And I | 12 | 187 |
| have to say that in preparing for this hearing and reading | 13 | 187 |
| through lots of materials on all different products, | 14 | 187 |
| including this one, one of the things that really struck me | 15 | 187 |
| was the booklet that AARP has out. | 16 | 187 |
| MS. BELLING: Right. | 17 | 187 |
| MS. BRAUNSTEIN: And the fact that it's like 45 | 18 | 187 |
| pages long. | 19 | 187 |
| MS. BELLING: Indeed it is. This is a major | 20 | 187 |
| complicated financial transaction that involves your largest | 21 | 187 |
| and many people's only major asset. So it speaks to the | 22 | 187 |
| complications and the depth of the transaction and how | 23 | 187 |
| important it is for consumers to understand not only how the | 24 | 187 |
| loan works but alternatives to the loan as well that may be | 25 | 187 |
| much more suitable to meet their needs. | 1 | 188 |
| MS. BRAUNSTEIN: Which made me wonder how much | 2 | 188 |
| people really do understand these transactions when they get | 3 | 188 |
| into it. I mean, that's a lot to absorb and understand. | 4 | 188 |
| Peter. | 5 | 188 |
| MR. BELL: Sandy, I would say a few things. First | 6 | 188 |
| of all, there's been a lot of efforts within the industry to | 7 | 188 |
| get out and do consumer education, both by AARP, NCOA, the | 8 | 188 |
| industry itself, each of us separately, a lot of us | 9 | 188 |
| collectively. | 10 | 188 |
| There's a lot of web sites. We do get a lot of | 11 | 188 |
| traffic on our web site. On AARP, the reverse mortgage page | 12 | 188 |
| I think is one of their most frequently visited pages in the | 13 | 188 |
| whole AARP web operations. | 14 | 188 |
| People do a lot of homework on these. It's very | 15 | 188 |
| interesting. And beyond doing the homework, they do it on | 16 | 188 |
| their own, they get educated by the lender, and then they go | 17 | 188 |
| and they get the independent third-party discussion with a | 18 | 188 |
| counselor. So there is a fair amount that's out there. | 19 | 188 |
| Besides AARP's book, there's a couple of good books | 20 | 188 |
| that have been published commercially. There's the Dummy's | 21 | 188 |
| Guide, Reverse Mortgage for Complete Idiots. There's books | 22 | 188 |
| by journalists. We have a series of consumer books that we | 23 | 188 |
| distribute free to consumers. We give out tens of thousands | 24 | 188 |
| of those. Maybe even a hundred thousand of those every year. | 25 | 188 |
| So there is a fair amount -- Fannie Mae puts out | 1 | 189 |
| information. There's some very good videos. Jim's company | 2 | 189 |
| has done an excellent video, as has another organization. So | 3 | 189 |
| there's a fair amount of information that's out there. | 4 | 189 |
| But once again, the counseling network is a key | 5 | 189 |
| component of the consumer education process. There's no | 6 | 189 |
| other product that I know of that exists where this | 7 | 189 |
| counseling is in there that, you know, before you could do | 8 | 189 |
| the transaction you have to go to that counselor. | 9 | 189 |
| We cannot subject the borrower, the prospective | 10 | 189 |
| borrower, to any costs whatsoever until that prospective | 11 | 189 |
| borrower has been through the counseling and provided a | 12 | 189 |
| counseling certificate to the lender. | 13 | 189 |
| MR. CHANIN: Let me shift -- | 14 | 189 |
| MS. STUCKI: If I could just add to that. One of | 15 | 189 |
| the things that we have been doing is partnering with the | 16 | 189 |
| Administration on Aging, because we're trying to get out | 17 | 189 |
| through as many different conduits as possible to reach | 18 | 189 |
| potential borrowers who may be facing different needs. | 19 | 189 |
| The Administration on Aging has its aging network | 20 | 189 |
| with thousands of members who are already counseling seniors | 21 | 189 |
| about a wide array of issues dealing with chronic health | 22 | 189 |
| needs. And they have stepped up to the plate and are | 23 | 189 |
| actively getting involved in providing HECM counseling | 24 | 189 |
| through our new network. | 25 | 189 |
| And I think that's going to be another opportunity | 1 | 190 |
| and avenue to address the very specific needs of seniors. | 2 | 190 |
| Because often times the needs of somebody who has a health | 3 | 190 |
| condition and the solutions are going to be rather different | 4 | 190 |
| from somebody who is trying to either pay the monthly bill or | 5 | 190 |
| buy an RV. | 6 | 190 |
| So I think we're going to start to see perhaps more | 7 | 190 |
| specialized counseling coming out. I know we are also | 8 | 190 |
| talking with a financial planning association to start | 9 | 190 |
| educating financial planners more about this issue. And I | 10 | 190 |
| think that is -- again, part of the thing is that we get a | 11 | 190 |
| more targeted message out to address specific needs, and I | 12 | 190 |
| think that's beginning to happen. | 13 | 190 |
| MR. CHANIN: Let me shift a little bit. And Arthur, | 14 | 190 |
| you and Ruth both mentioned, Ruth in terms of prospectively, | 15 | 190 |
| that HECMs or reverse mortgages either can or maybe will be | 16 | 190 |
| with legislation be able to be used to purchase a home. | 17 | 190 |
| Can you discuss that a little bit more and the other | 18 | 190 |
| panelists on both sides whether you see that developing in | 19 | 190 |
| terms of the product, whether you see issues associated with | 20 | 190 |
| that use of these products to purchase a home and just those | 21 | 190 |
| types of issues? | 22 | 190 |
| MS. ROMAN: I would say from FHA's perspective, we | 23 | 190 |
| just know that there's been a lot of interest and expressed | 24 | 190 |
| to FHA for that type of product. And we know it's something | 25 | 190 |
| that currently occurs with other products and so we're trying | 1 | 191 |
| to figure out once the statute hopefully is passed -- right | 2 | 191 |
| now we're working on how that would be structured and | 3 | 191 |
| actually how it -- | 4 | 191 |
| MS. BRAUNSTEIN: People are having a hard time -- | 5 | 191 |
| I'm sorry, Ruth. Can you bring it closer? | 6 | 191 |
| MS. ROMAN: OH, what I was saying from FHA's | 7 | 191 |
| perspective, we received a lot of interest to getting that | 8 | 191 |
| type of product for HECM. | 9 | 191 |
| And, you know, we're hoping that the statute will be | 10 | 191 |
| passed. And we're really looking at the other products that | 11 | 191 |
| are out there for purchase and focused on how to | 12 | 191 |
| operationalize it. | 13 | 191 |
| MR. AXELSON: Fannie Mae has had the product -- I'm | 14 | 191 |
| not sure -- for purchase for a while. I'm not sure what the | 15 | 191 |
| numbers are in terms of -- but it does give the seniors | 16 | 191 |
| greater flexibility. I mean, you know, a lot of them want to | 17 | 191 |
| age in place, but sometimes they want to relocate for family | 18 | 191 |
| or health reasons or whatever. | 19 | 191 |
| And rather than getting a traditional mortgage, I | 20 | 191 |
| mean, the Home Keeper for Home Purchase, they can often | 21 | 191 |
| qualify for larger amount of funds than -- and buy a better | 22 | 191 |
| home because there's no income limits or income test. It's | 23 | 191 |
| based on their age, the value of the property. And so it | 24 | 191 |
| just -- it's another flexible piece to, you know, retirement | 25 | 191 |
| solutions and planning. | 1 | 192 |
| MR. CHANIN: Peter. | 2 | 192 |
| MR. BELL: Sure. The classic case of HECM for home | 3 | 192 |
| purchase would be a case where you have a couple that's been | 4 | 192 |
| in a home for a long time. It's very often a multi-story | 5 | 192 |
| home, deferred maintenance, a lot of property to take care | 6 | 192 |
| of. They don't necessarily have cash sitting in the bank to | 7 | 192 |
| be able to take care of it and they're interested in moving | 8 | 192 |
| to a smaller, newer, single story product that better fits | 9 | 192 |
| their needs. | 10 | 192 |
| Well, very often these days with home values being | 11 | 192 |
| what they are, land costs, development costs, that smaller | 12 | 192 |
| and newer product is actually more expensive than the value | 13 | 192 |
| of their older home. The HECM for home purchase concept will | 14 | 192 |
| allow them to sell their home and either supplement the | 15 | 192 |
| proceeds that they get from that or even perhaps not throw | 16 | 192 |
| all the proceeds that they take out into the new purchase. | 17 | 192 |
| So, for example, if someone got 50 percent of the | 18 | 192 |
| value of the new home, if they were buying a $300,000 home, | 19 | 192 |
| they could get 150,000 out of the HECM. If their old home is | 20 | 192 |
| worth 200, they could sell that and have no mortgage to make, | 21 | 192 |
| have the $300,000 home, and have $50,000 cash reserves. | 22 | 192 |
| So it really totally transforms their living -- | 23 | 192 |
| could totally transform their living situation. So it would | 24 | 192 |
| be a very good product to have. | 25 | 192 |
| MR. AXELSON: And the borrower can decide how much | 1 | 193 |
| of their own money they want to put down and how much they | 2 | 193 |
| want to borrow. So there really is flexibility. | 3 | 193 |
| MR. CHANIN: Bronwyn? | 4 | 193 |
| MS. BELLING: Yea, I was going to say I think some | 5 | 193 |
| people are -- that the HECM for home purchase would allow | 6 | 193 |
| people to trade down and into more appropriate living | 7 | 193 |
| arrangements, pretty much what Peter had to say as well. So | 8 | 193 |
| I think it would add a lot to the options. | 9 | 193 |
| You hear a lot of sometimes negative criticism about | 10 | 193 |
| these loans keeping people in older houses longer than is | 11 | 193 |
| appropriate. So allowing them to move to something more | 12 | 193 |
| suitable to meet their needs better, I think it would be a | 13 | 193 |
| very good thing. | 14 | 193 |
| MR. CHANIN: Okay. | 15 | 193 |
| MS. STUCKI: Just to add to that, again coming from | 16 | 193 |
| the perspective of a chronic health condition, this is | 17 | 193 |
| exactly a great idea. There are many new models for housing | 18 | 193 |
| that are now being opened up, co-housing and other kind of | 19 | 193 |
| models where a person still owns their -- the place where | 20 | 193 |
| they live, but they're not necessarily the traditional single | 21 | 193 |
| family home. | 22 | 193 |
| And to the extent that these kinds of loans can | 23 | 193 |
| enable a person to move to these very supportive settings and | 24 | 193 |
| also provide some additional cash to help them pay for the | 25 | 193 |
| services that they need to be able to sustain themselves in | 1 | 194 |
| the home, it may be ideal for somebody with a chronic health | 2 | 194 |
| problem. | 3 | 194 |
| MS. BRAUNSTEIN: Have there been problems in the | 4 | 194 |
| existing portfolios with -- this sounds kind of morbid -- but | 5 | 194 |
| people outliving their loans basically and using up all their | 6 | 194 |
| equity and their payments cease? Because obviously medicine | 7 | 194 |
| is improving and people are living longer. And, you know, | 8 | 194 |
| they took out a loan maybe 20 years ago and not envisioning | 9 | 194 |
| that they'd still be alive now but they are. | 10 | 194 |
| MR. AXELSON: I mean, the benefit in HECM of the | 11 | 194 |
| ten-year plan payment is that as long as the consumer remains | 12 | 194 |
| in their home and using it as their principal residence, | 13 | 194 |
| their payments continue whether the outstanding balance is | 14 | 194 |
| below or exceeds the value of the home. | 15 | 194 |
| MS. BRAUNSTEIN: No, I understand that. But I guess | 16 | 194 |
| I'm asking a more general question. Because HECM came along | 17 | 194 |
| a little bit late -- there were products before HECM and some | 18 | 194 |
| of those -- you know, I'm just wondering about even the | 19 | 194 |
| private products that were out there before HECM came along | 20 | 194 |
| with its safeguards. Have you heard anything about there | 21 | 194 |
| being problems like that for people who got them? | 22 | 194 |
| MS. BELLING: The earlier -- there were some private | 23 | 194 |
| plans before the HECM that involved giving up a share of the | 24 | 194 |
| future appreciation or an equity -- a share of the equity in | 25 | 194 |
| the house and there were some problems with that. | 1 | 195 |
| I think that's why AARP has supported and advocated | 2 | 195 |
| so vehemently for the counseling component to really help | 3 | 195 |
| people -- require people to understand the transaction before | 4 | 195 |
| they enter into it. | 5 | 195 |
| In terms of HUD's own evaluation of the HECM | 6 | 195 |
| program, they're periodic analyses of the HECM program itself | 7 | 195 |
| indicate that the financial model that's set up the HECM | 8 | 195 |
| program is quite robust and that there is an appreciation | 9 | 195 |
| assumption built into the financial model for the HECM. So | 10 | 195 |
| it seems to be holding its own in terms of the mortgage | 11 | 195 |
| insurance premiums that are collected being sufficient to | 12 | 195 |
| cover the expected losses on the program. | 13 | 195 |
| But as property -- as the 203 -- as the maximum | 14 | 195 |
| single national limit goes up and property values continue to | 15 | 195 |
| increase, that might also adversely affect, you know, the | 16 | 195 |
| cushion that HUD has built up in the mortgage insurance | 17 | 195 |
| premium pool. So it's something that everybody has to I | 18 | 195 |
| think keep a close eye on. | 19 | 195 |
| And I know HUD did an actuarial study that looked | 20 | 195 |
| into some of these matters. So things are changing very | 21 | 195 |
| dramatically as property values appreciate so much. | 22 | 195 |
| MR. AXELSON: Also, I'd just like to point out there | 23 | 195 |
| had been some litigation in connection with some of the older | 24 | 195 |
| products that had the shared equity feature, et cetera. To | 25 | 195 |
| my knowledge, there's not been litigation on the HUD -- on | 1 | 196 |
| HECM or Home Keeper or the Cash Account, the more modern | 2 | 196 |
| products if you will. | 3 | 196 |
| MR. BELL: It's possible that somebody could outlive | 4 | 196 |
| the money that's available to them. If they take it as the | 5 | 196 |
| ten-year payments, then they won't. As long as they're in | 6 | 196 |
| the house, that money will keep flowing. If the money was -- | 7 | 196 |
| the payment was predicated on them living to be 92 and they | 8 | 196 |
| lived to be 102 or 112 or 122, they'll still continue to get | 9 | 196 |
| those payments. | 10 | 196 |
| But otherwise, if they take it another way, it is | 11 | 196 |
| possible that they could outlive it. It would be possible | 12 | 196 |
| that they could outlive their money without the HECM. The | 13 | 196 |
| difference is they would have had to sell the house and moved | 14 | 196 |
| out without the HECM and then they would have outlived their | 15 | 196 |
| money at some point and been equally there. I mean, that's | 16 | 196 |
| one aspect. | 17 | 196 |
| You know, I don't know how you can design a product | 18 | 196 |
| to deal with that. But I think they've done a very job at | 19 | 196 |
| FHA in designing this product that if people do take that | 20 | 196 |
| life ten-year option, they have the ability to stay in that | 21 | 196 |
| house right until their very last day and always continually | 22 | 196 |
| receive income from it. | 23 | 196 |
| MS. ROMAN: I would add that we do operate the HECM | 24 | 196 |
| program on a modest credit subsidy, so we do have a small | 25 | 196 |
| reserve to cover any losses. | 1 | 197 |
| But to Peter's point earlier about perhaps looking | 2 | 197 |
| at reducing the MIP, FHA at this time doesn't see us reducing | 3 | 197 |
| the MIP because we think that could run us into a positive | 4 | 197 |
| credit subsidy and requiring congressional appropriations | 5 | 197 |
| which we don't have now. | 6 | 197 |
| MR. MAHONEY: Just very quickly, most borrowers take | 7 | 197 |
| out the loan thinking they're going to die in the home. And | 8 | 197 |
| the typical borrower is 74- or 75-year-old senior that | 9 | 197 |
| probably has a 12- to 13-year life expectancy. Reality of it | 10 | 197 |
| is the loans on average are repaid in seven years. | 11 | 197 |
| So although they take out the loan thinking they're | 12 | 197 |
| going to stay there forever, they have to downsize, they go | 13 | 197 |
| to an assisted living facility, somewhere along the line | 14 | 197 |
| they're actually moving out sooner, selling the house, taking | 15 | 197 |
| the equity with them onto the next living place to pay for | 16 | 197 |
| their retirement. | 17 | 197 |
| MS. BRAUNSTEIN: And, Barbara, did you have a | 18 | 197 |
| comment about that? | 19 | 197 |
| MS. STUCKI: No. | 20 | 197 |
| MR. CHANIN: Let me shift to disclosure. There has | 21 | 197 |
| been a lot of discussion about counseling. And it seems from | 22 | 197 |
| everyone's point of view that counseling is not only very | 23 | 197 |
| helpful but the most important channel of communication in | 24 | 197 |
| terms of consumers. | 25 | 197 |
| But I would like to focus for a moment on the truth | 1 | 198 |
| in lending and other disclosures. Do consumers look at those | 2 | 198 |
| or are they very secondary in use to consumers? How does | 3 | 198 |
| that fit in in terms of the products and consumers | 4 | 198 |
| understanding these products? | 5 | 198 |
| MR. AXELSON: Well, I just wanted to comment because | 6 | 198 |
| I -- I drafted a lot of these disclosures through the years. | 7 | 198 |
| And I was surprised some of the comments across the room that | 8 | 198 |
| the borrowers didn't understand this or that, because there | 9 | 198 |
| are certain things that are clearly disclosed in the | 10 | 198 |
| disclosures. And to say -- then to hear, well, they don't | 11 | 198 |
| know, you know, to me means they're really not reading them. | 12 | 198 |
| MR. CHANIN: Those may be only the disclosures | 13 | 198 |
| you've drafted. Perhaps you -- | 14 | 198 |
| MR. AXELSON: That's right. So there's clearly some | 15 | 198 |
| disconnect there. Because there were certain things that | 16 | 198 |
| were raised that buyers should understand this but that are | 17 | 198 |
| clearly required to be disclosed in truth in lending and | 18 | 198 |
| they're in there. | 19 | 198 |
| MR. CHANIN: And in your sense, the consumers, do | 20 | 198 |
| they read these or they really rely on the counselors to | 21 | 198 |
| explain these obviously very complicated products in some | 22 | 198 |
| instances? | 23 | 198 |
| MS. KROHN: When you're handed a stack of paper that | 24 | 198 |
| thick and you are expected to read every single piece that's | 25 | 198 |
| in there, disclosures or no disclosures, truth in lending or | 1 | 199 |
| no truth in lending, you absolutely have to have counseling | 2 | 199 |
| to understand. And especially if you don't speak English and | 3 | 199 |
| the person that's negotiating the loan with you is doing | 4 | 199 |
| everything in English. You've got to have the language of | 5 | 199 |
| the person -- of the borrower. And in California we've got | 6 | 199 |
| six languages that are part of a Civil Code that governs that | 7 | 199 |
| for everything except for reverse mortgages. | 8 | 199 |
| So the comprehension and the understanding, I think | 9 | 199 |
| it's critical. And there is a lot of counseling I'm sure, | 10 | 199 |
| but counseling coupled with being able to understand and | 11 | 199 |
| comprehend what is being communicated so that they have a | 12 | 199 |
| better chance of coming away with an understanding of the | 13 | 199 |
| product. | 14 | 199 |
| And you know what? All the counseling in the world | 15 | 199 |
| isn't going to make somebody understand everything there is | 16 | 199 |
| to understand, but you got to do the best you can do to make | 17 | 199 |
| sure that that's communicated. | 18 | 199 |
| MS. BELLING: I was just going to add that I heard a | 19 | 199 |
| lot of -- several people allude to HUD-certified counselors. | 20 | 199 |
| Actually, HUD only certifies the agencies to do this work, or | 21 | 199 |
| approves agencies to do this work. | 22 | 199 |
| And we provided this national exam and now have | 23 | 199 |
| about 350 counselors who have met a very high qualifying | 24 | 199 |
| score on this national exam that follow our detail protocol. | 25 | 199 |
| They go into a fair amount of detail about the total annual | 1 | 200 |
| loan cost rates. | 2 | 200 |
| But there are something like 1,000, 1,200 | 3 | 200 |
| HUD-approved housing counseling agencies that allegedly offer | 4 | 200 |
| this counseling. And, you know, we do hear some horror | 5 | 200 |
| stories about -- we produced a video in 1997 that's 30 | 6 | 200 |
| minutes long with half of it is interviews with three reverse | 7 | 200 |
| mortgages borrowers. And we hear stories of people being | 8 | 200 |
| propped up in a chair and shown this video and asked to | 9 | 200 |
| sign -- and asked if they have any questions and can they | 10 | 200 |
| sign a certificate. | 11 | 200 |
| So we would like to really see -- we worked very | 12 | 200 |
| long and hard to raise the standards and the quality of this | 13 | 200 |
| counseling. We'd like to see HUD step up and require all the | 14 | 200 |
| counselors to pass this exam so that everyone is delivering | 15 | 200 |
| accurate information. | 16 | 200 |
| The other point about the TALC rates is it's only an | 17 | 200 |
| estimate and it presumes that the borrower choose -- takes | 18 | 200 |
| half the money at closing and nothing thereafter. So it's | 19 | 200 |
| just sort of -- and it presumes -- it gives some snapshots | 20 | 200 |
| about property appreciation into the future. | 21 | 200 |
| But nobody has the crystal ball to know exactly when | 22 | 200 |
| they're going to draw down the money and what's going to | 23 | 200 |
| happen to either their home value or the interest rates out | 24 | 200 |
| into the future. So it's really hard to really get a handle | 25 | 200 |
Professional Reporting Services, Inc., Walnut Creek, California, 800-261-4814
Pages 1-25 | 26-50 | 51-75 |
76-100 | 101-125 | 126-150 |
151-175 | 176-200 | 201-225 |
226-250 | 251-254