The reverse mortgage product is heavily promoted, most of the time by companies using celebrity spokespeople, leaving the impression for some older consumers that it is their only option if they need liquidity and their house is their primary source of net worth.
However, proper education and financial planning advice could provide other, possibly more suitable options for those seniors. Impac Mortgage Holdings is
William Ashmore, the company’s president, said the company had a couple of call centers overall, but the reverse mortgage call center was on a slightly different technology and had a different viewpoint in terms of marketing.
Recently, Impac brought together its call centers, so they now have a common technology and a common management and operational team and marketing.
Most other companies’ reverse mortgage divisions are 100% focused on doing that product, Ashmore noted. “If somebody calls in and wants a forward mortgage, they will refer them away and that is not really what they are in business for.
“We have created a reverse mortgage division that not only is focusing in on reverse mortgages, but also will be participating on the forward side,” he said, explaining when a senior calls in, it is not always the case that a reverse mortgage product makes the best sense for them.
“We feel better about that from a compliance standpoint. When somebody calls in, I am not trying to move him into a product which may or may not make sense for him.” Impac wants to take more of an overview of the customer’s financial situation and provide the best alternatives for him.
“We at least have all of the tools available for that particular borrower. So we’ve created something that is a little bit different from some of the other reverse mortgage companies,” Ashmore said.
Richard Johnson, senior vice president, was hired to build the reverse mortgage division in 2012. Building on what Ashmore said, Johnson declared the reverse mortgage operation really wants to provide the senior with a product which best suits their needs.
The company has done $10 million in reverse mortgages this year. The consolidation of the call center platforms has given Impac the ability to market reverse mortgages in a broader array of states, which in turn has allowed it to expand the kinds of marketing platforms it can use, Johnson noted.
It will be doing a television campaign (although not using a celebrity spokesperson at first) as well as a direct mail campaign. Plus it will mine its current portfolio for referrals.
The combination of those three things will help Impac grow its reverse mortgage business going forward, he said.
Ashmore noted the reverse mortgage product has a longer time frame from lead through closing. “So you need a different set of sales people, and you also need to have the right technology with which to be able to stay in touch with and engage with the borrowers,” he continued.
But the reverse mortgage has the potential for greater secondary market gains than for forward mortgages and it is one that is reasonably insulated from rising interest rate risk.
Regarding the sales staff, Johnson said the typical mindset is that a loan officer can do a forward exclusively or a reverse exclusively.
While “for the most part that is true, we have found there is a population that can do both,” he said. Impac identifies which individuals can do both and it allows them to do so. Others at Impac just specialize in one or the other.
Impac had jumped into reverse mortgage originations as three of the largest players in the space—Bank of America, Wells Fargo and MetLife—elected to end their involvement.
Their exit helped Impac to be able to grow this business, Johnson said. It also made some experienced people available for all the remaining players in this line.
He added Impac is very comfortable training its own people in doing reverse mortgages.
There is no one single dominant player in the reverse mortgage field, and Impac is well-positioned as a company which will have the ability to securitize its originations. The company is approved as a Ginnie Mae issuer.
Bob Rubin, principal of The Business Loan Connection LLC, believes reverse mortgages should be a product that originators have in their arsenal. He does believe some changes need to be made to the HECM program, such as provisions that allow borrowers to take the entire loan in a lump sum at closing. When this happens, in a lot of cases when it comes time to pay taxes and insurance on the property, there is no money left. This is the primary cause of defaults and a big threat to the Federal Housing Administration insurance fund.
Still, Rubin said reverse mortgages have a place in supplementing retirement income for people from all walks of life. But it takes the right type of person, with the right type of counseling for this to work.
On the other side of the ledger, the profitability for the originator is great, and sales people are always looking for an easy way to make a buck. But because of the way the rules are structured, it takes a long time to close a loan.
However, Rubin noted that he works with a warehouse bank who is worried about changes to the program so it has a tight limit in dollar amounts of HECMs allowed on the line. Others are not as concerned.
A related issue is the capital that some of the lenders have, especially after the bigger players pulled out. If one of these smaller players has a problem, they could be put out of business.
Still, Rubin declared that he has clients which are “so responsible in putting this stuff on the books and they watch it like a hawk and they are fabulous operators.” And because they do things the right way, they deserve to succeed.
Because of the concerns, he predicts changes to the program such as mandatory escrow accounts to cover taxes and insurance. This could cause the profitability to decline, which might not be a bad thing because it would take out some of the less scrupulous sales people.
Another potential change to the program will be the addition of continual counseling to make sure the senior is using the product right and able to understand their obligation.
“They have to put more than their thumb in the dam,” Rubin declared.
A developing problem Rubin came across at the Mortgage Bankers Association’s National Secondary Market Conference is that now some forward lenders are back to using 8% appreciation estimates in their models. That is “a scary thing,” built of wishful thinking.
Unlike a forward mortgage, the underwriting of a reverse mortgage is property based not credit based. So an executive with appraisal management company LRES notes there are some common challenges between the valuation side and the lending side.
Like those interviewed above, LRES chief investment officer Alice Sorenson believes that educating the consumer about reverse mortgages, about what it does for them and does not do, is the biggest challenge.
LRES has several of the largest reverse mortgage lenders as its clients, so it has become familiar with the issues around the product, she said.
Like the executives at Impac, she noted a key point is for the originator and the senior to realize the product is not for everyone.
The senior needs to learn the reverse mortgage does not function like a traditional mortgage. Sorenson made the analogy that the house has become a credit card with limits. Only a portion of the equity is available.
Plus, the borrower needs to be educated that in some cases only way to eliminate this debt when the loan comes due is to sell the home. And the lender needs to be sure the senior is educated enough to understand those distinctions and possibilities.
The lender, she said, needs to understand how the borrower plans to use the proceeds. That will allow them to originate a better quality loan.
Then there is the need for the lender to educate the borrower regarding the different product options, including comparing the standard HECM with the
Sorenson said a senior should not get a reverse mortgage if they are already in a financial crisis. “Desperation leads to bad decisions, and you don’t want to be in the twilight of your life making bad financial decisions.”
By working with a financial planner or as part of the mandatory counseling requirement, discussions could lead the senior to other, more suitable alternatives, including public programs that might help rather than drawing on debt.
What is important is that “the borrower doesn’t get talked into a loan they don’t want or they don’t need,” Sorenson said.
