How the Reverse Mortgage Has Changed Since 2009, with Todd Zurik of C2 Financial

0:01 Welcome to the Reverse Mortgage Podcast. I'm your host, Bill Gross at Bill Gross Probate, and we get together every week and meet with top producers in the reverse mortgage industry, vendors that support the business to be to learn the best practices, how we can better serve our customers, how we more effective at building our business. One of the longtime members of the industry that has some really interesting things to talk about as far as the evolution of the product is Todd Zurik. Todd, well, thank you for joining us today. Oh, thank you, Bill. Man, it's a pleasure to be here. Thanks for thanks for the invite, man. It's awesome. So, when I launched this podcast, I'm a real estate broker in Los Angeles. I focus on probate real estate. More often than not, in the p more often than the past, I get phone calls that go like, "Hey, mom and dad died. They had reverse mortgage. We're facing forclosure. What do we do?" And yet, customers don't look at the product. I used to be an originator. I've written a couple in my past career up to, you know, 15 years ago. And what I know is that there should be about 10 times as many reverse mortgages as there are, but for the lack of education and I think the stink of the original version of the reverse mortgage, I know you can speak to the evolution of the mortgage. We talked a little bit ahead. Yeah. If you want to call it that and that's correct. I mean, it just a guy asked me the other day. He says, "Well, Todd," I said, "What do you know about a reverse mortgage?" He says, "Well, I just heard they're bad. They're bad loans." And I said, "Well, one of the reasons why you probably heard that is they used to be bad lungs. I mean, I'll fess up to it." Yeah. I But the product has changed. And I think that's you know, we to kind of do a little mini dive into what has happened with the reverse mortgage in the last literally over 15 years, you know. Yes. So, and I think that breaks down the barriers. Say, well, look, it did used to be a bad loan. And then what I want to talk about today is how HUD fixed it. Okay.

1:57 So some of the key things I know in the past the reverse mortgages were really touted by financial planners who are unscrupulous. They I'm sure I'm sorry unscrupulous financial planners. Okay. Who would take a reverse mortgage, take somebody's equity, put it into very expensive high commission annuities and then turn over the investments four or five times and they'd end up making more money than the customer had in their bank account or just take all the money and I it was a great product but HUD realized it was being abused and that older people are a particularly vulnerable target and so they changed the program. So, can you highlight one or two of the main changes in the product from phase one to phase two where the reputation still lingers but really should have been solved? Well, you know, you know, Bill, there's and that's a great question and it's a because here's the thing. There's probably a handful and if you just allow me, it won't take long just to run through the handful of things that have really that HUD and FHA have done to really strengthen this program for seniors and make it a lot safer than it always has been. So, let me just start out is you know back in ' 88 Reagan signed you know the law making a reverse mortgage so it could be insured by FHA. Okay. So that's 37 years ago. That's a long time a lot of changes have happened in the past 37 years to protect seniors and when originating these loans. So one big change that happened in 2009 is that the reverse mortgage for purchase was now allowed. So previous to 2009 these are only refinance loans. So that was a big change. So the big changes came in July of 2011. The Consumer Finance Protection Bureau was originated the founded and then the CFPB at that time was given authority to look into these government entities. One of them was FHA of course. So in 2012, the CFPB did a really deep dive into this

4:01 Product and they found out that I mean this the report was published in June of 2012. So what they found out was about 9.4% of all these reverse mortgage HECMs were at risk of being in default because of non-payment of taxes and insurance. Okay, so this was a bad thing. So just to give you an idea, stop for a second. So people were gain the mortgage because they didn't have to make a mortgage payment. But the original iteration, they still were responsible for taxes insurance. And if they didn't know that or didn't manage that task or forgot about it or mom died and dad took over or vice versa and it got lost or they couldn't afford it, if they couldn't afford it, they run the risk of losing their house. Right? So it comes back to what happened during the financial crisis is something called the ability to repay. So the previous logic was well since you don't have to make a principle and interest payment where would you need to qualify for the loan. Okay. Well what happened was in 2013 and I can't make this up bill really. So the president signed what's called the reverse mortgage stabilization act of 2013. It gave FHA the authority to really modify the program. Okay, so here's where the big changes came in effective. So the first big change was in 2013. So in 2013, HUD limited the amount of money that you could get at closing called a lump sum distribution.

5:41 So prior to 2013, let's say you had a $400,000 house and you're eligible to get 200,000. Well, no income, no asset, no credit. They'd stroke you a check for 200 grand. Well, turns out that wasn't a very good idea. So, in 2013, they limited the amount of money you could get to 60% of the availability. Okay? So big change one, no lumpsum, you're only going to get about 60%. Right? So, that was a big change because I remember people come to me and ask about reverse mortgages. They had no financial education, no financial knowledge. They inherited the house, they had the house, whatever, it was paid free and clear and you said, "Hey, you can get, you know, x amount of money and wow, I can get that much." And they would go through it one way or another and then now be stuck with responsibility for a house that they couldn't manage. Just imagine a famous actor, movie stars on TV saying, "These are great loans. You call, they call you and you don't need any credit. If you have the equity and you don't have an IRS tax lien, you don't need to have income qualification. They give you the money. So, recipe for disaster. So, the next change they made, this is actually huge. This is probably the biggest change they made in the reverse mortgage since you know, I started doing them actually effective 10 years ago. So, in 2014, HUD announced what's called the financial assessment. Okay, so this was now you actually have to somewhat qualify the loan, but you need to prove the ability to repay. You have to at least have the money for taxes and insurance. So they made this financial assessment went into effect April of 2015. So now we're talking most people have no idea all these major changes took effect 10 years ago. Now 10 years ago in April, the financial assessment went into effect. Though borrowers now have to meet at least a basic loan qualifications similar to traditional mortgages but it's a little bit more

7:44 Lenient and another giant thing that happened if a borrower or borrowers don't meet the financial assessment and they have a ton of equity in their house then HUD's going to just extract some of that equity and call it they call it a life expectancy set aside where they're going to take a little bit of equity or I would say could be substantial amount of equity and actually use that to fund your to pay your taxes and insurance when they're due for a certain amount of years. So those two things right there majorly strengthen the program. So just to kind of summarize that. Yeah. So that I remember coming across people who had they probably inherited the house and they lived there a long time. Now they're a senior and qualify for first mortgage themselves. They have no financial acument. They have no source of income other than they earn the house and in those days maybe lived off some savings or lived off some inheritance or maybe you know some nefarious activities or cash kind of businesses and had no ability to manage. And so now the verse market said hey rather give those people put their equity at risk. What we'll do is we'll account for that and we'll make sure the tax insurance get paid by lowering the dispersement so they can live in a responsible manner and use this tool to help them keep the house. Exactly. I mean, you nailed it. So, what happened was, and there's a couple other things we'll go into, but they lowered the dispersement amount instead of lump sum. And then what they did was, hey, if you actually don't meet the financial assessment and you have some equity, well, we're just going to set aside some money to pay your taxes and insurance for a certain amount of time. So therefore, you won't default on your taxes and insurance. That's exactly right. So the next big change happened, and this is another huge one, was the implementation of what's called the non-borrowing spouse. So in 2015, FHA announces protection for nonborrowing spouses. These are spouses who are not 62 years old. Okay? So prior to

9:50 2015, a non-borrowing spouse did not have rights to the reverse mortgage. So, when the borrower passed away, it left the spouse either having to sell the house or potentially not qualifying to refinance the loan or if the loan was upside down, then they'd lose the house. Okay? So, now in 2015, an eligible non-borrowing spouse now has rights to the house with some conditions when the borrower passes away. This was huge. Okay. So, and that was another that was probably a dramatic change in you know reducing the amount of foreclosures. Okay. So, now let's say I'm 62. Yeah. My wife's 59. Let's talk one second. So, let's go back. So, this was cases for people where maybe the husband or wife who was older bought the house on their own and later got married and brought in a spouse who was much younger and didn't qualify for reverse mortgage potentially. So, yes. When that person passed, that spouse was like, well, they lived in the house. They didn't need to make income because maybe the husband had income or had savings or whatever there was. And now they're the surviving spouse, more commonly the wife, as it turns out, would now be faced with having to move out of the house they lived in, you know, within six months of losing their spouse, right? Despite the equity, that could have been 10 times their income for a year. Well, believe it or not, and this is crazy. I work for a large loan serer for a little while, a lot of people are starting to find out now, you know, social security. There's a lot of talk on in the news about social security, of course, but when someone passes away, there's a form that's filled out upon their death and sent immediately to the social security. So, it's not uncommon that if you're a spouse and your spouse passes away, literally within a week, you're going to get a notice from your service saying, "Hey, the loan's due. The borrower passed away." Okay. So implementing the

11:55 Non-borrowing spouse rule once again is that's a third big change that really helped. Okay. So, elaborate a little bit on that. Go for it. Yeah. It used to not be the case, but once FHA ch I'm sorry, once the social security changed the law where deferts now have social security numbers. So I so social security gets notified immediately. It's really amazing if you think about it in the news, if you believe the news that's been reported, I do social security is writing checks to people multiple same social security number, out of the country, dead, who knows who they are. They're writing checks to everybody, but mortgage lenders know when you die like that, they're forclosing on your house and they're still on that. It's like they're on their game in the way, right? It's insane. Clearly, someone passing away, you know, not a laughing matter, but honest to God, I was sitting at my desk at a loan service or when one of the loan officers came to my desk and says, "You're not going to believe it. This lady's husband passed away on Monday and here it is Friday right before we're packing our bags and she sent us the letter from her lender. I'm like, "Holy smokes, that was quick." Okay, so another thing in 2017, look, traditional loans go by loan to value. Like you know, you want to cash out refinance, you get 75% of the equity. Well, they call it principal limit in the reverse mortgage world. So, what happened was in 2017, HUD lowered the principal limit.

13:38 So, not only now that we don't have lump sum dispersements. So, now we HUD lowered the principal limit or the loan to value, the amount of equity you can get out of your house anywhere from like 10 to 13%. And based on today's rates, a 62 year old borrower wouldn't get 52% loan to value or principal limit. We're probably talking about 39%. Okay, so they're lending people less money based on current interest rates. Okay, so that took that when that took effect. So, you know, we're talking about now a combination of multiple things, multiple changes here that have happened in the last 10 years that have really, you know, made this program the safer and in my opinion the most overregulated compliant loan I've originated in the last 30 years. Okay. One point to add that you didn't get to, I don't think yet, is the education requirement as well. Oh, yeah. So I believe I don't have actually but I think it was in 2000 prior to my time of doing it maybe 2010 I got in this 2014. So they implemented of course what's called FHA counseling. All right. So the pathway is this. A consumer will talk to a loan originator such as myself give them all the information and we send what's called a proposal and it's a standard format for every lender. We run through the proposal and make sure that it's clearly the right loan for them or something that they certainly would want to investigate with their with their spouse and with their heirs or whatever.

15:21 And after that they actually have to call in most cases they call a counselor and it's about a 45 or 60 minute conversation to counsel them essentially repeat back what myself as a loan officer has told them. And now if they fully understand a couple one concept is if you don't make a mortgage payment a principal and interest payment on this loan your loan balance will actually go up. Maybe that sounds like a no-brainer, but people need to understand that. So that takes a and so you have this extra set of protections. If you wanted to forward loan from me, Bill, right now, a traditional loan, I'd send you a link, you'd fill it out, you'd make application, we'd be on we'd be on the road tomorrow morning with your loan. However, in a reverse mortgage, it's way different. Is the counseling comes into effect to where we give them the information. They are responsible for calling and they are the borrower is responsible for calling and the borrower is responsible for paying for the reverse mortgage counseling. It's anywhere from $125 to maybe 175. It takes about an hour. And then a counseling an official FHA counseling certificate is issued to them and issued to the lender. And only then can we start the loan and in California we have to wait seven days after that. Okay. So let's talk about how this created more protection on two areas I think. One is helped educate customers and is this the best form of education? It is what it is. Better than nothing. Not as good as it could be, of course. But more than that, this also forced out some of the abu elder abuse that went on because elder abuse was as commonly talked about 15 years ago as it is today. It's a more common topic, more well understood topic today.

17:14 And this counseling kind of forces out because the customer has to be competent to answer those questions whereas 15 years ago that wasn't required. And so that's another protection. So when people say it's a bad loan and I've been around a while and I'm one of them who feels that Phil felt that way. Yes. But the truth is these changes have captured a lot of the opportunity for fraud and mistake and abuse. And the education one I don't think people understand it's not just education. It also is kind of a without saying kind of a force test on competency of the borrower. And I do think that in some regards that also is the main reason why it's eliminated a lot of the abuse that went on in the in reverse mortgage 1.0. That's correct. So I had a great call. One of our lenders brought an actual FHA counselor on a conference call a couple weeks ago and they can't tell you exactly what they asked them, but there are 10 questions and half of them are competency questions. Now, all the loans I've done, I've had actually three people in the last 10 years that the counselor called me and said, "Hey, they're they are not competent. They're probably have on early onset Alzheimer's or there's some reason why that I can't issue a certificate for that. It's rare, but it does happen." So, it's another stop gap to help seniors understand the product. Like you said, the counseling's not perfect un clearly, but it's certainly another stop gap to make sure that they do understand the product. And thanks for bringing up that counseling bill. That's that's fantastic. Yeah. Yeah. So, those are some tremendous changes that to where from where I sit as and I don't do loans. I don't get paid for this. I'm not an advertiser. I do this I do this as a real estate broker because I want my customers to learn about this product and to use it when and how appropriate.

19:14 And I think overall it's good for the economy that we take advantage of that and I believe the limit to it is educa lack of education about the product as it is today compared to how it was. So that's why we did this. Now one of the things that also I think raised the standards of this industry and improved it dramatically is the CRMP designation. I know that you are so designated through the National Reverse Mortgage Lenders Association NRMLA. You got it. NRMLA, the National Reverse Mortgage Lender Association and I'm going to convention in the regional convention in April. It's out in Anaheim, I think. Irvine actually speaker there as it turns out. But here's the thing. You know, I'm a real estate agent. We hand out designations in real estate like candy. When somebody says they're designated something, it means nothing, right? I'm a certified probate expert. I've taken five certifications because I won the education. None of them are really that important. But the CRM in particular, in my experience in being a Realtor® for 38 years, I've never heard a designation where the people have it take pride in it, where the standards are as high as they are to get into it and to pass it are as high as they are. To me, it is really a exciting addition to the industry and the gold standard of certifications in our in the mortgage real estate field.

20:42 Talk a little bit about your decision to become a CRMP and what you had to go through to get it. Well, Bill, thanks for bringing that up. In fact, let me say one other thing before I go there. Let me just t this last word. I'm a real estate agent. When I ask mortgage lenders about reverse mortgages, if I ask a 100 mortgage lenders, do you do reverse mortgages? 99. There's one guy's honest. 99 will say yes. 98 have never done one or did one in their career. One is a guy who does it once in a while. And the very few are CRMPS who do them at a high level volume-wise and consistent. Tell me about your decision to go forward with that designation. So when I got into reverses back in 2015 is right when all these changes were implemented. Okay. So I got there and like wow this program really changed. Everyone's all confused. So click forward to about 8 years later. So the CRMP you actually have to be at le in the industry for at least 50 at least three years and or have closed personally 50 loans. Okay. And there's also the NMLS who were registered for the national the to be a mortgage broker loan officer. There's a background check. So the CRMP check is another level of background check on top of that. Okay. And then furthermore, there's about 250 CRMPS in America. So you've got to look at potentially hundreds of thousands of traditional loan officers and only 250 of us have decided like look let's get this designation and specialize in this in this field and then there was one other qualification. Oh yeah the test. Okay so the test has about a 60 or 75% fail rate on the first time. Okay. So, I've passed with an 84 and so it's a pretty stringent test. I think it's

22:46 Maybe 100 multiple choice questions. So, the reason why I wanted to be a CRMP was the fact that I wanted to separate myself and let people know in the industry and in my area that I specialize in this loan because I mean I've met like you hundreds and hundreds of loan officers and I think you nailed it right. Oh, yeah. I've never done one, but I could do one. Okay. Well, I'll put it this way. It took me about 12 months to unlearn a forward mortgage pathway to learn the reverse mortgage because it's in reverse. I mean, it's no pun intended, but really, honest to God, after talking with people and being trained on my first in my first company I was with, we did a month of training before they let us talk to anyone. Okay. So, I mean that the training is huge. But, you know, the CRMP designation and like I said, that's the reason why I got it to where, you know, I want to let people know. I look, I originate reverse mortgages. I'm proud of it. We're good at it. And we have a code of ethics. I mean, I talked to a lady two months ago. I went to her house. Her friend was there. It was clear to me she didn't know what was going on. There's no way she could be counseledled. Her friend was trying to help her and that's great, but you know what? She had a POA signed last week and I said, "Hun, look, it just I can't help you. Your lady, she has no idea what I'm doing here. And I commend you for trying to help your neighbor out because she's helping her neighbor financially." But I mean, I walked away from that. You know, could there have been a way to do it? I doubt it. But still, no. It just it didn't she was not competent.

24:42 The POA was not valid. Period. End the story. Walk away. So that's the great you know and that's another thing we have a they have a NRMLA has a code of ethics that we have to follow. So I'm really organization top to bottom. I had a chance to talk to the leadership earlier this week and like I said, I'm going to actually be I believe at the Western region convention in April in Irvine and look forward to meeting people there and I believe I'll be speaking at it. I haven't we haven't finalized that yet, but we're figuring out those details. So, yeah, I'm really excited about it and I think like I said, this is something I really believe in as a as a real estate broker. Come across people who what I call the real the reverse mortgage SOS which is mom and dad had a reverse mortgage they're passed now we had this property we didn't really think about it because we didn't need to do anything there was no mortgage payment due but now we got this letter saying we're in forclosure what do we do and that's where I can step in we can help them expedite if a probate's needed or trust we can lend them the money to either bring the loan current or pay off the mortgage in many cases which is simple and help them and so this an area I've really been working on quite a bit on a national basis with individual originators and that's why I kind of got into this and I realized there's a difference between when I talk to people like you who do this type of business all the time and the oneoff person who they just wanted the quick commission check and they looked at their commission statement oh wow I'm going to get $8,000 check if I put this mortgage in and throw this person into this product and then when the customer's family calls they don't know what to do to help them and so we want to be the people who help the rich leaders help the people so Look, Todd, this has been really informative.

26:20 I appreciate a chance to really kind of go through the product top to bottom. Let me ask you one last piece is within the range of reverse mortgages. I find the originators either specialize in one type like either purchases or work with financial planners or HECMs that people may not need but should have in place or they kind of more evangelical about the product and focus on evaluating the customer and what they do. Where would you fall out if you had to say where's your focus or do you have one as far as the type of product that you're placing most of the time? Well, you know, Bill, so that's a great question. The way we've kind of narrowed it down is there's pretty much two baskets or buckets of borrowers who are looking at this product. One is the needs borrower. So, the needs borrower currently has a mortgage on their house and they're in retirement. They have the equity and man, it sure would be nice if I didn't have a principal and interest payment until I left the house. Okay, that's a need. So, wow, extinguishing that forward mortgage is great. Or another of the needs when you know a lot of people don't understand that, you know, they think, well, you know, I need a reverse mortgage. So the connotation is, well, wow, maybe you didn't manage your money well. But what it turns out, what happens when your spouse dies? Well, you just lost one social security check for real. Okay, so there's many instances where someone would really need this reverse mortgage. And I probably I would have to say that about 90% of the loans that I originate are for this type of borrower. Now the other type of borrower are would be a borrower who has heard about the product as a financial planning tool. Okay, would be the not needs borrower. You know, I said, "Well, Todd, why should I pay these closing costs to originate this loan to access $200,000 of my equity?" I said, you

28:25 Know, that's a great question because your equity has a growth rate over time, right? You know, so what this does is when you're a financial planner, you've dealt with financial planners. So what happens is this financial planning tool increases the probability that the borrower won't run out of money in their lifetime. So now they have a bucket to pull on. They could like right now the market's down what 10% as we speak, 8 9%. So if you have you could either now if you had a line of credit you could take money out of your line of credit instead of taking money out of your 401k. So that's the logic between the not needs borrower. Now the HECM for purchase you know it's such a misunderstood product and you say FHA to a Realtor® and they kind of freak out. I don't want to make an FHA offer. So but that product now has started to wake up. I will put it that way. I had a call two weeks ago. Lady wanted to sell her house in Seattle to take the entire equity. She goes, "I want this $550,000 house, but I'm only going to get $400 at closing." Well, turns out the numbers were in her favor to where she sells her house, gets 400, and buys the $550,000 property in Florida and doesn't have a mortgage payment, but responsible for paying her taxes or insurance. So that's an upand cominging product and it's just the more education bill that you and I can get out of their the product. I've probably done half a dozen of them in the last two years and every single borrower did it was like wow why would no one tell me this? I why would every senior buying a house for cash use the HECM either to preserve cash or maybe preserve cash when you move in and then you say you don't need it and then pay the mortgage off at least you have it available. I don't understand that to me that's why there should be 10 times the deals done and that's really what prompted me to do this podcast. Well and that and

30:26 That's Bill this is something that this I'm glad that we're talking and this is fantastic that you're you know throwing out this information. Thanks. Is the fact that I mean we just spent what 20 minutes telling you how FHA has retooled this program to make it better and safer. Yes. And now it's something that it's worth let me put it this way. It's worth a look. I mean 100%. Take a look at this. Yeah. Well, Todd, I really appreciate your time. I know I went a little longer than I had planned. Absolutely. No, man. I appreciate it. Been awesome. But that said, if somebody wants more information from you, we have on the screen your website is reversemymtg, short for mortgage, reversemymtg.com, and phone number [phone number]. All his contact information is there. If you go to the website, you see a picture of handsome Todd with a coat on and his contact information as well. But a great place to get more information. Thanks so much, Ty, for taking time with us today. I really appreciate it. And we'll look forward to continuing with you. Okay. All right. Thank you, sir. Maybe we'll see you in Irvine in April. And for the rest of you, this is the Reverse Mortgage Podcast where I get together every week with the top originators in the business to talk about this. I think was amazing tool. And you go to if you go to the Facebook group, the Reverse Mortgage Podcast is a Facebook group as well. You can go there to ask questions, look for referrals, look for attorneys, you have attorney questions, look for vendors and such.

31:55 Love to continue the conversation there. Love to have on every week. If you like this, please like it, share it, put comments in. If there's something else you want us to talk about, please let us know as well. Again, I'm at Bill Gross Probate and social media. As always, make today your best day ever. Thanks so much.