RMS Sees Growth In Reverse Servicing
With the baby boom generation starting to enter retirement, the business of making reverse mortgages is entering a growth phase.
The baby boomers, more comfortable than earlier generations taking out debt, make for prime Home Equity Conversion Mortgage customers. And plenty of lenders are lining up to serve this market.
The problem is, many don't have the wherewithal to service reverse mortgages, with their complicated draw options, payback scenarios and special clientele.
Reverse Mortgage Solutions here believes it can help. The company offers to subservice reverse mortgages for lenders that want to get into the game and maintain ownership of the customer relationship but don't want to actually manage administration of reverse mortgages internally.
Marc Helm, chief operating officer of Reverse Mortgage Solutions, said the baby boom generation is less self-conscious about debt and more sophisticated about managing finances. With the help of things like a reverse mortgage, which essentially turns the equity into their homes into an annuity to supplement their income, they can maximize their retirement income.
Most of the reverse mortgage lending being done today comes through the Federal Housing Administration's Home Equity Conversion Mortgage program, which has a $250,000 loan cap, though some legislators want to raise the maximum. There's also a private reverse mortgage market, though growth of non-government-insured HECM lending has been stunted by Wall Street's lack of interest in new mortgage products in the current economic environment.
As a servicer, he said RMS has the benefit of having staff who helped build the master servicing system used by HUD for the FHA program. RMS has created its own proprietary technology for administering reverse mortgage loans.
"There was a real void. The systems in the marketplace were limited to large players, and the smaller systems really weren't that good," Mr. Helm told NMN.
The technology, which is image based, is built to follow workflow rules in managing accounts. But Mr. Helm said servicing reverse mortgages is more complex than an old-fashioned home loan.
"This business is very people intensive. Our customers keep us on the phone twice as long as the typical forward mortgage customer."
While the average talk time for a forward customer is about two minutes, the average customer service talk time on reverse mortgages is more like five to seven minutes, Mr. Helm said. He said the typical client is a single woman in her mid-70s.
He said RMS caters to those lenders that want "private label" subservicing on their accounts, so that the consumer doesn't necessarily realize that another company is managing their account. The subservicing system interfaces with the RMS loan origination software that lenders can license as well.
While a reverse mortgage loan, like an annuity, requires the lender to make periodic payments or draws to the borrower, servicing the loans still requires attention to possible default events, Mr. Helm said. The servicer has to make sure that insurance and taxes are paid on the home. Since the loans are typically not escrowed, this requires the homeowner to make the payments themselves, something they may not be used to budgeting for if they previously had a forward mortgage where the lender paid insurance and taxes via an escrow account.
Homeowners, particularly in coastal areas with high tax and insurance rates, need to plan to save to pay annual or semi-annual tax and insurance bills.
The lender also has to monitor occupancy of the home to make sure the homeowner still resides there. The reverse mortgage is payable after the homeowner moves out or dies.
Lenders also have a vested interest in making sure the home remains in good repair.
Because reverse mortgage customers are elderly and may be vulnerable to scams, Mr. Helm said the servicers have a duty to alert family or guardians if anything seems amiss.
"We are kind of a line of defense in terms of protecting the customers home environment," Mr. Helm said. "If we pick up anything in terms of the borrower's state of mind that doesn't seem appropriate, we will contact the next of kin."
Warning signs of problems may include draw requests that seem unusually large, or indications that someone such as a caretaker is prompting the request for funds rather than the borrower. Signatures that seem frail or inauthentic also can be a clue.
Mr. Helm estimated that 10% of reverse mortgage loans done last year were boarded on the RMS servicing system, giving the company a good database to analyze the performance of the loans.
The market is still likely to grow. One reason is that seniors with significant equity can obtain a reverse mortgage to consolidate debt, perhaps paying off a small balance forward mortgage and reserving funds for future use. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/