With mortgage industry players expecting a reverse mortgage boom, can technology keep up — and measure up for consumers?

If you go to www.goldengateway.com, you will see a kind of mortgage website that is likely to become increasingly familiar to borrowers 62 and over. The simple-to-navigate site uses enlarged type to take senior homeowners — and their family members — through the steps leading to a reverse mortgage. Created by Oakland, Calif.-based Golden Gateway Financial Inc., the site bills itself as "the only unbiased reverse
mortgage marketplace," providing side-by-side comparison of reverse mortgages offered by Bank of America, Financial Freedom, Countrywide, EverBank and Wells Fargo — at this writing, the five leading reverse mortgage funders.

On the other hand, Lender Loan Solutions, a division of KBC Bank subsidiary Vertical Lend Inc., bills itself as the reverse mortgage leader by virtue of its proprietary S.T.O.R.M. (Specialized Technology for the Origination of Reverse Mortgage) system. The company points out that it handles 15% of reverse mortgage in the U.S., has developed the Senior Lending Network with actor Robert Wagner as spokesman,and partners with LOS vendor Mortgage Cadence, another company that bills itself as the leading reverse mortgage technology provider. The LLS technology enables assigning, tracking and managing leads, generating reports, accessing resources such as appraisers, title companies, HUD counselors to process and close loans, and uploading lead information,loan applications and other documentation. "We are connected to most of the major lenders in the reverse space," said David Peskin, CEO of Lender Lead Solutions. "We go after all of them and present the information to the consumer for side-by-side comparison." Many say it's premature to single out leaders when the mortgage industry as a whole is gearing up to meet expected demand for reverse mortgage products.

With U.S. citizens 62 or older now holding over $4 trillion in uptapped home equity, according to the NRMLA/Hollister Reverse Mortgage Market Index, the reverse mortgage market is expected to soar. An estimated
20 million U.S. consumers qualify for a reverse mortgage; only 1% of those have one. As part of the Expanding American Homeownership Act of 2007, HUD has sought to secure Congressional approval to the RM loan limit to $600,000 to bring the product "into the mainstream." At this writing it was anticipated that the loan amount will rise to $417,000 for FHA-insured HECMs, when the bill is reconciled between the House and Senate.

As the category heats up, competitive pressure is forcing reverse mortgage lenders to offer consumers a broad selection of product options and the ability to switch from one option to another once the original loan is in place. That rapid expansion potentially muddies the waters for the upfront disclosure of costs and fees to the borrower required with the HECM. It also raises underwriting issues. At recent National Reverse Mortgage Lenders Association conferences, the concern was raised that the ensuing complexity of the product options will confuse loan officers and borrowers alike.

Nevertheless, the menu of reverse mortgages is rapidly expanding. According to NRMLA, "Much of the growth can be attributed to Financial Freedom's decision in 2003 to expand its wholesale operation from roughly 55% to 80% of its total business, thus paving a way for many lenders and brokers to enter the business." Financial Freedom president Bart Johnson predicts an explosion of new reverse mortgage products that could expand the handful of traditional products into 150 or more. While that would mandate a new emphasis on counseling for seniors looking for their best reverse mortgage options, it also suggests an increased demand for technology tools — notably reverse mortgage product-and-pricing engines — to match borrower needs with the best available products.

If you take a clue from the JamesGarner ads for IndyMac Bank's Financial Freedom, the most important technology for generating reverse mortgage leads is television. But these days the senior citizens who have preserved enough equity in their homes to qualify for a reverse mortgage are unlikely to spend their lives parked in front of the TV. The flood of boomers poised to reach 62 tend to be tech savvy and fully capable of getting the information they need from sites like www.goldengateway.com.

In best-of-breed technology for reverse mortgages, "everything needs to be Web-based," said Kevin Gherardi, CIO of reverse mortgage servicing specialist Reverse Mortgage Solutions, Dallas. Mr. Gherardi designed and developed the HUD servicing platform that includes the HECM Insured and HECM Assigned loan programs. "The problem with systems that aren't Web-based is accessibility," he said. "You need to provide accessibility to your system, and for a lot of older shops that's a problem. Ideally you want a .NET application because that has become the industry standard. The alternate is Java. The security is better with Java."

Because credit issues are not as important as property valuation with reverse mortgages, he said best-of-breed RM systems will include AVMs that elegantly factor in property appreciation as they calculate total annual loan cost. He said a key value-add on the AVM side will be to harness 203-b limit tables "because county limits trump the appraisal" in calculating the loan limit for HECMs.

Particularly on the reverse mortgage servicing side, he recommended SQL and Oracle as databases robust enough to handle the expanding complexity and scalability issues of the RM marketplace. "The most important factors are data integrity and scalability," he stated. "The system also has to be a true accounting database capable of handling multiple borrowers, making change-of-plan calculations and recalculating their monthly payments on the fly." He said most of the servicing systems in existence today were built to handle 100 loans. "People threw together little systems because they didn't think this product would grow. Nobody has database that has 100,000 reverse mortgages yet. The largest is Wells Fargo with 25,000."

With the explosion of new reverse product vying to set records in speed to market, "we can't be an obstacle to our clients' speed to market," said John LaRose, president of CeLink, a Fannie Mae-approved reverse mortgage subservicer. If a client wants to role out a product in two weeks, we have to get there for them."

He said the proprietary Java-based CeLink ReverServ platform with IBM database is nimble enough to handle all the loan volume and product changes coming its way.

As already noted, Denver-based Mortgage Cadence has proclaimed itself the leading technology vendor for reverse mortgages, stating that four of the five leading reverse mortgage lenders utilize their technology. Mortgage Cadence is particularly proud that Financial Freedom picked it as a vendor after looking at 30 competing choices.

When Wall Street began showing an appetite for reverse mortgages, Financial Freedom — then owned by Lehman Brothers — was still too mired in paper-based processes to respond quickly. In 2002, the industry had done just 14,000 RM loans, and Financial Freedom accounted for half the market, but was not able to meet existing demand for the product. "We were a mom-and-pop shop despite being the leader."

In 2004, Financial Freedom Senior Funding Corp. became a subsidiary of IndyMac Bank after reverse mortgage loans produced by Financial Freedom in 2003 totaled $976 million. In 2006, Financial Freedom picked Mortgage Cadence because they had "an enlightened view," Mr. Johnson said because Mortgage Cadence offered "a superior rules engine to drive workflow queues" with completely open .NET architecture. He said Mortgage Cadence offered integrated imaging and document-drawing activities tied to the rules engine, enabling the system "to fire a half dozen work activities, to get the right loan to the right person at the right time" for efficient closing.

"We saw the potential in the reverse mortgage lending market early on and so we have been proactively working on this functionality for over two years," said Michael Hammond, CEO of Mortgage Cadence.

"This market offers an incredible opportunity for lenders, but most don't have the experience to lend here confidently. That's why we built all of the functionality and the business rules necessary to run a reverse lending business into Mortgage Cadence Orchestrator, and it's why the largest reverse mortgage lenders rely on our platform."

Mortgage Cadence touts its Orchestrator as the first enterprise-level loan origination system to offer both forward and reverse lending capabilities. Orchestrator supports reverse process flows and requirements, lets lenders enter 1009s and HUD supplements, completes calculations for FHA HECMs and Fannie Mae Home Keeper products, adds additional customized calculations for custom products, and has full document support via Mortgage Cadence Finale. The system also supports multiple underwriting processes, including credit and property analysis.

Mortgage Cadence will also release a new SaaS-based point-of-sale tool called Prelude, designed for all the brokers and correspondents just now moving into reverse mortgages. Mortgage Cadence promised that the new tool will not just be a knock-off of its existing Orchestator, but will be specifically written for the reverse mortgage market to embed best practices and maintain compliance.

However, much of the technology now in use with reverse mortgages was previously used with very different products: 125% LTV loans, combos, subprime and so on. Because largescale reverse mortgage lending is only now coming to the fore, said Mr. Peskin,"We are going to have to make modifications to our technology. We look to technology to benefit the consumer so they become knowledgeable enough to make a decision [about a reverse mortgage], particularly with assistance from a loan officer."

In addressing the need to maintain quality of service by mortgage industry players newly entering reverse mortgage lending, Cerritos, Calif.- based Sun West Mortgage Co. says its hosted system is already where reverse mortgage technology competitors want to go in order to help "forward" mortgage professionals reorient toward reverse without disadvantaging consumers. Sun West's Reverse-Soft, powered by XL Dynamics' ReverseServe, is offered as a hosted Web application that enables originating reverse mortgages through multiple channels.

Anthony Toro, managing director at XL Dynamics, said the system's Oracle database enables having all the HUD rules built into it and all the calculations pre-set. He said Sun West is happy to make its system available for free to originators — even those who may or may not end up doing business with Sun West — to run loan scenarios and make sure the RM loans they do are in compliance.

As 2007 came to an end, Sun West launched a Simple HECM product that goes beyond older Constant Maturity Treasury based HECM products and enabling loan officers to originate their first reverse mortgage in minutes. Based on the London interbank offered rate index and powered by an artificial intelligence engine that computes complex parameters — such as the optimal LIBOR margin, closing costs and required cash-out — the system creates a custom loan product that is tailored to the specific needs of the borrower. The simple HECM offers some benefits not usually found in the traditional reverse mortgage world, including lock at the time of application, a higher principal limit, and a lower margin that protects borrower equity. "Before the Simple HECM, I stayed away from reverse mortgages because they were so complex. However, after attending just one of Sun West's free webinars, I was originating my first reverse mortgage in minutes," said Mario Vargas of Bellflower, Calif.- based Loanplex Mortgage. That initial reverse mortgage of his is likely to be
the first of many.

Given the widespread mortgage industry need to embrace reverse lending quickly, mature hosted solutions are meeting a critical demand. However, once the industry gets into high gear, who knows what marvels of reverse
mortgage technology will come to the fore.