Leading industry executives discuss what it takes to tap into the other 98% of the growing Baby Boomer market
As the age-eligibility pool for seniors who qualify for reverse mortgages continues to grow, industry players are working to concoct the right recipe to reach them. While no one has the answer locked down quite yet, leading industry executives provided their ideas on how to seize the market at the annual National Reverse Mortgage Lenders Association (NRMLA) conference in Miami.
“It’s the $64,000 question,” said Reza Jahangiri, CEO of Orange, California-based American Advisors Group (AAG). “We have this large acceptance and awareness problem, and I don't think anyone has found the answer yet… We are sensationalized and we have to be bulletproof.”
The Baby Boomer generation is predicted to account for nearly one in every four dollars spent on housing in the next five years, according to a recent report by The Demand Institute. Adding to that is the estimated 10,000 seniors a day who turn 65; the reverse mortgage industry is poised for growth.
“The underpinning demographics are very favorable,” said Steve McClellan, CEO of Tulsa, Oklahoma-based Urban Financial of America (UFA). “I think some of what’s holding us back is market awareness and some of it is resistance to the product created by a bad name.”
Reverse mortgages have gained a bad reputation over the years and have developed a misconception of being a last resort for struggling seniors. However, recent regulation changes have transformed the product to a viable financial planning tool, said Joe DeMarkey, leader of product development at Bloomfield, New York-based Reverse Mortgage Funding.
“I can’t emphasize how important the FHA structure changes are to the long-term stability of the industry,” said DeMarkey. “We’re now at 14 to 1 positive to negative press articles this year. This is something I dreamt about in the 90s.”
According to NRMLA, the reverse mortgage industry is penetrating 2% of the current market, and the issue that stands before the industry today how to reach the other 98%. “The aging population is growing with need, so why are we not penetrating better,” said Reza. “Or better, why aren't we maintaining our penetration levels? Despite the sheer number of number of baby boomers, it is not growing.”
A number of factors have contributed to the decline in market share, including big banks leaving, the housing market collapsing and the layers of policy changes. “I think if you like back at the time before the recession, our market was growing very significantly. We went from 6,000 loans a year in 2003 to 50,000 to 2006,” said James Mahoney, founder and CEO of Lansing, Michgan-based Celink.
Mahoney suggested that changes need to be made at the consumer level in order to expand the reverse mortgage market. “We have to do the right thing every day and change mindsets,” he said. “Proprietary products are very important, but we need to show application of these products.”
DeMarkey echoed Mahoney’s sentiments and said the industry reach out to other players in the housing market. “Builders are a fantastic opportunity for us and so are financial planners and realtors,” he said. “I think we should reach out and try to educate them.”
On top of connecting with financial planners, McClellan also suggested a major player entering the space could boost the market share. “When MetLife, Bank of America and Wells Fargo were in the space, there was more market acceptance,” he said. “I think if some big player jumps into the marketplace, it would help the product develop creditability.”
Reza said he believes the industry is poised for growth after it gets adjusted to the recent FHA changes. However, he added that investing money into messaging will help increase growth. “We need to get some studies going in the industry as well to tell what the benefits are and we will start seeing growth.”
