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By uday Singh
Manage Third-Party Risk
Better risk management can help mortgage bankers avoid costly consequences
Because of a variety of economic and political reasons, regulators have been applying increased
scrutiny to foreclosure practices.
although most questionable practices
have come from third-party service providers, banks have had to shoulder the
lion’s share of the costs and negative
press resulting from this heightened
regulatory attention. By proactively
addressing third-party supplier risks,
however, mortgage bankers can help
protect themselves and avoid costly,
time-consuming regulatory action.
In response to complaints of dam-
aging practices such as robot signing
and lax oversight, the Office of the
comptroller of the currency (Occ) re-
cently asked 14 financial institutions
to implement comprehensive action
plans to ensure that their mortgage-
servicing and foreclosure operations
complied with legal requirements and
Occ supervisory guidance. In addi-
tion, several large banks have begun
to identify critical gaps in their man-
agement of third-party supplier risks
and have launched their own internal
initiatives to address the issues.
uday Singh is a partner with a. T. Kearney’s
financial services practice. he focuses on
operating models, operational improvement,
outsourcing and supplier-management issues
related to retail and commercial banks. Singh
has been working extensively with banks to
augment and improve their risk-management
practices as related to selecting and managing third-party suppliers. reach him at
By Marty Appel
Mason-Mcduffie Mortgage Corp.
Keeping Up with Downsizing
reverse-mortgage programs can help your clients as they transition into retirement
Reverse mortgages have existed for many years and have seen a multitude of revisions and new
product offerings. That said, one type
of reverse mortgage remains the most
prevalent: the home Equity conversion
Mortgage (hEcM), which is sponsored
by the U.S. Department of housing and
Urban Development (hUD) and the Federal housing administration (Fha).
In general, hEcMs allow homeowners who are 62 years or older to convert
some of their home’s equity into cash.
This cash can be received in several
different forms: as a line of credit, as
monthly lifetime payments, as payments made across an established
term, or as any combination of these
forms. No monthly payment to the
lender is required as long as the borrower actually lives in the home.
recently, hUD and the Fha also have
begun allowing older homebuyers to
use hEcMs as a mechanism to purchase new homes, thereby preserving
some of their cash or investment portfolio. Mortgage brokers and originators would be wise to know about what
kinds of borrowers may be interested in
this particular hEcM program — what’s
known as the hEcM for Purchase.
The hEcM for Purchase is ideal for
homeowners who are downsizing.
according to an October 2011 report by
hanley Wood housing, 20 percent of
homeowners who are 50 years or older
plan on purchasing a new home at some
point during their retirement.
To meet this segment of the retired
and soon-to-be retired populations,
mortgage products need to be made
available to all segments of older homeowners. This includes those who wish to
relocate closer to their children and those
who wish to downsize from a family
home to an active adult community. The
hEcM for Purchase may be exactly what
these kinds of clients are looking for.
In many cases, selling the family home releases a lot of cash, which
some people then use to buy a smaller
home. Purchasing a new house with
cash may not always be in the best interest of your clients, however.
With that in mind, mortgage professionals should consider educating their appropriate clients about
the numerous benefits that the
hEcM for Purchase can provide. For
instance, it eliminates monthly mortgage payments, requires no income
or minimum credit score, and it allows homeowners to remain on their
In addition, the hEcM for Purchase allows any remaining equity to go to the
borrower or the borrower’s heirs — not
the lender — and it includes no prepayment penalty. Finally, the hEcM for
Purchase is Fha-insured and is a nonrecourse loan, meaning that the borrower
or the borrower’s heirs will never owe
more than the value of the home itself.
In addition to knowing about the hEcM
for Purchase’s benefits and the type of
client who may be interested in this program, brokers and originators should
be familiar with all of the hEcM for
Purchase’s requirements. Perhaps most
significantly, the program requires the
borrower to make a substantial downpayment — as much as 30 percent to
45 percent, depending on the borrower’s
age. This downpayment must come from
eligible and verifiable sources.
Furthermore, the purchased home
must be occupied within 60 days of
close of escrow, and seller concessions
continued on page 44 »
Marty Appel is a mortgage consultant/
reverse-mortgage specialist at Mason-McDuffie Mortgage corp. he helps clients
purchase homes or refinance their existing mortgages. appel has eight years
of experience in reverse mortgages and
prides himself on his ability to assist older
homeowners navigate the reverse-mortgage
process. his technical knowledge of Fha
rules and lender policies help clients avoid
pitfalls in the loan process. reach him at
(510) 701-2167 or Marty@Martyappel.com.