Reverse mortgage lenders’ leading challenge is to convince the public that the product “is as good as it actually is,” declared the top executive of Generation Mortgage, Atlanta. Jeff Lewis, Generation’s chairman, adds that “the naysayers...have succeeded at really casting a pall of negativity at what is a phenomenal proposition for the borrower.” And that is one of the things, outside of the problems with home values, which has caused reverse mortgage lending activity to shrink. This in turn has originators looking for new ways to revive the reverse mortgage’s popularity.
The industry is down 10% year-over-year, in spite of the introduction of the HECM Saver product by the Federal Housing Administration.
Another reason why the decline in business is puzzling to Lewis, signaling that the industry needs to try a new approach, is because right now reverse mortgage borrowers have a unique opportunity to get the most benefit from this product.
Today’s Home Equity Conversion Mortgage lenders are originating at a floor interest rate and borrowers can get the maximum proceeds from their loans. Given that the program will be reevaluated at the end of the government’s fiscal year, borrowers are unlikely to see such generous terms again.
But the public is unaware of the current enhanced state of the product’s benefits and the industry needs to do a better job communicating those benefits, he said.
Marc Helm, president and chief operating officer of Houston-based RMS, noted that the market for reverse mortgage loans is defined as the people who the product can help. If loan limits were to be lowered, there would less money available to help consumers pay off existing forward mortgages; that is what the reverse is most commonly used for, he explained. Right now, RMS is seeing applications under the current limits where the proceeds are not enough to pay off the borrower’s current forward. And it is not only that they need to take care of their forward loan, these borrowers also are likely to need cash for other needs.
The fact that origination volume for reverse mortgages is shrinking is something that puzzles industry participants, Helm, like Lewis, said. “If you had asked me a year ago, with the new loan limits and the lower interest rates, I would have thought business would be booming right now. “I think what people have underestimated is the cautiousness of the baby boomers,” he said, adding that a lot of this generation is still working because they can’t afford to retire and still make their first lien mortgage payment.
“So just assuming that somebody gets to be 62 years old, they’re going to run out and get a reverse mortgage is not a fair assumption,” Helm said. There are a lot of people who are over that age, and for various reasons, have not retired. Reverse mortgages are designed for seniors who have retired, on fixed income who need extra help to pay off their first mortgage or need extra cash, he said. Helm did note that many of the early reverse mortgage customers were in the 62-year-old age group, in large part because they were starting to retire, but that assumption is not always true. The growing number of baby boomers will have an impact, but it may not be seen until down the road three to six years.
RMS, which started as a reverse mortgage servicer, started to originate for portfolio protection reasons, Helm said. As home values come back up, people will be able to refinance their loan and get more money out, he said. RMS now aggregates reverse mortgages for Ginnie Mae pools and it even has a real estate owned management division. “We tried to diversify our business so it is not all dependent on servicing or on originations,” he said. The company has even moved into the forward REO property management space, and even aggregates forward mortgages for Ginnie Mae pools. “We realize that being in this business day in and day out, you need diversification,” Helm said.
But the government has anti-cross-selling provisions for lenders/originators, something Lewis reiterated his longstanding opposition to. He continues to believe is the biggest issue impacting reverse mortgage lending. “I think our industry has always taken great pains to protect the best interests of the borrower. And we’ve also been extremely highly regulated just in case there are any actors out there who didn’t have those interests at heart. But at the end of the day, I really believe that most of the people in this industry are very well-meaning, and we are highly, highly regulated,” he said.
The anti-cross-selling provision prevents “intelligent discussions” regarding a senior’s financial future. This is because no one has any financial incentive to do a comprehensive plan combining the use of a reverse mortgage with other financial products for an individual. He compared this to the situation in England, where the equity release loan (a reverse mortgage equivalent) is always sold in packages of financial products. Such sales are not viewed as abusive, but rather constructive, Lewis continued.
Another factor that will hurt interest among consumers for reverse mortgages is that the federal budget does not include any funding for counseling, which he said everyone recognizes as necessary for anyone looking to take out one of these loans. But if the burden is placed on an already cash-strapped consumer to pay for the counseling, it will make it more difficult for them to do this loan. “It is a small price for the government to pay” and keep the counselors “truly independent third parties.”
When asked if we have seen the peak of the reverse mortgage business, Helm replied no, that it has only been delayed. People have to have a need to get a reverse mortgage, and if someone is still working at 64, making the same salary as they did a few years before, getting one of these loans is not on their minds. People can look at the Census Bureau statistics that show there is an aging population, “but nobody really can say what percentage of these baby boomers would want or need a reverse mortgage,” Helm said.
