When the Department of Housing and Urban Development first announced the reverse mortgage
program back in 1989, Jeffrey Taylor knew he had to jump at the opportunity
Today, Jeffrey Taylor is on the board of directors of ReverseVision, the reverse mortgage industry’s leading provider of software and technology. But when the reverse mortgage program first burst on the scene 25 years ago, Taylor was doing the same thing everyone else in the industry was – originating traditional mortgages. But when the Department of Housing and Urban Development announced a pilot program for a new loan product, Taylor knew he had to get in on the ground floor.
“Back in 1989 I was president of Wendover Funding,” Taylor says. “We were a large loan servicing organization and loan originator for the forward industry – and of course, that was the only industry we had before reverse. In 1989 I noticed that HUD was going to come out with a pilot program that was going to, by lottery, select 50 lenders to make 50 reverse mortgages
each. I thought, ‘With the demographics of retirees, this really could be the next frontier for mortgage lending.’
"I wound up deciding that this would be a program that our company would definitely benefit from, so we made a commitment to the selectees in the lottery that we would subservice the loans that were made,” he says. “There were no servicing instructions; these loans had never been made. But we knew that in order to encourage these 50 lenders, there had to be some vehicle to do that, and we were successful. We signed up probably 95% of the lenders, and that’s how we got into the business.”
But getting into the business didn’t happen overnight, Taylor says. Logistics – and the limitations of the era’s technology – meant that the reverse mortgage space took a few years to get off the ground.
“Fifty lenders each got to make 50 loans, so that was 2,500 loans under the demonstration program. That probably took about three years to get to, because at this time there was no Microsoft Windows – everything was written in DOS,” he says. “There had to be counselors trained, because under the provisions of the law each senior had to receive counseling … There were so many things that had to be put in place, and we were the pioneers.
“After we got through the demonstration program, HUD raised the limits that lenders could make. The primary lenders that got involved with this product were FHA
-approved mortgage lenders, because you had to be to make an FHA loan
. Typically banks were not FHA approved, so by and large most mortgage companies were the initial participants in the business. From 1990 to about 1994, we started seeing some interest from financial institutions. Some banks started showing interest and the AARP was very involved.”
But the program still needed quite a bit of fine-tuning. “One of the big drawbacks to the program was, because it was an FHA loan, the maximum lending limit was limited to the maximum limit of the county involved,” Taylor says. “About 80% of the counties in the United States at one point had a maximum lending limit of $47,000 or $48,000.”
That fractured system, along with other issues, was hobbling the industry. So in the late 1990s, Taylor and others set out to change that, forming the National Reverse
Mortgage Lenders Association.
“In 1997, I was the founding chairman of our national trade organization, and we began to lobby HUD and congress to establish a national, single lending limit, and we were successful in doing that,” he says. “It went from a very fragmented lending limit throughout the country to a national lending limit of $417,000 – which was the same as Fannie Mae and Freddie Mac. Today it’s $625,500.
“I testified in front of the Senate Housing Committee on this. Prior to that change, we could isolate a situation where if you had two 75-year-old widows, one in Dade County and one in Broward County, with home value, because of the inconsistency in maximum lending limits the one in Dade County could get more money than the one in Broward County.”
“The 90s were a pretty good growth period,” Taylor says. “Then we got into the 2000s. I retired out of Wendover and was recruited out of retirement by Wells Fargo. I started the Wells Fargo senior products group. We grew it from 40 loan officers to 1,200. When I retired in 2009 we had 25% or 26% of the market. We authored reverse mortgages in every branch that Wells Fargo had.”
But events caught up to the growing industry. “Then we had the financial meltdown and Wells Fargo went back to its core products,” Taylor says. “And since reverse was still so small in respect to all the other products, they elected to exit the space.”
As the economy crumbled, other big financial institutions like JPMorgan and MetLife also backed away from the reverse space.
“That left the remainder of the reverse-only lenders – I’m thinking of American Advisors Group … Urban Financial, Generation, etc. That core group of lenders still remains,” Taylor said.
With big banks exiting the space, reverse specialists now had a shot at the entire market – but challenges remain.
“The thing that impacts the volume of reverse today is actually a combination of a couple of things,” Taylor says. “One is home values – no one ever thought home values were going to lose 40%. In a lot of retirement communities, those people who thought at one point that they might get a reverse mortgage – when their home values lost that much money (after the meltdown), the equity was just not there. Also, about three years ago, Fannie Mae ran into its problems. Fannie Mae was the primary investor for the FHA-insured reverse mortgage. When they closed their window, the only liquidity for the product became Ginnie Mae.”
LOOKING TOWARD THE FUTURE
Despite the challenges facing the industry, Taylor says good things are on the horizon.
“If I look in my crystal ball, I’m very optimistic,” he says. “It’s predicted that 80% of the real estate markets in the United States will see an uptick in value. I think we’ve seen that with banks being more willing to revisit home equity
lending. In its simplest form, the FHA reverse mortgage is just a home equity loan that doesn’t require monthly payments.”
And he’s still a big believer in the benefits reverse mortgages provide to senior citizens.
“One of the great features of the program (is) that if you went to apply today to get a home equity loan at a bank, they’re going to underwrite you, they’re going to look at a credit score, and they’re going to see that you have the ability to make the monthly payment,” he says. “With the FHA reverse mortgage, you’re not evaluated on your ability to make a monthly payment, but you are evaluated on your ability to continue to pay your ongoing annual taxes and insurance. The reverse mortgage leverages (seniors’) own home equity. It allows them to age in place and access some of that cash without having to move.”
Reverse mortgages, in other words, aren’t just a convenience. For thousands of senior citizens, they’re life-changing.
“(Without a reverse mortgage) a retiree in today’s market would often have no option other than selling their house at a loss, moving in with family – but repeatedly, 80% of retirees say they would prefer to age in place,” Taylor says. “It’s not right for all, not all seniors need it, but I think that financial planners are realizing it can be used in a very strategic way. I’ll probably at some point look to leverage the benefits of a reverse mortgage myself.”
This feature is from Mortgage Professional Issue #8.04. Download the issue to read more.