market is lucrative, growing, and finding ways to help seniors when nothing else can. So why are some traditional originators wary of adding reverse mortgages
to their product mix? MPA sat down with six reverse mortgage experts to talk about growing the industry, attracting new talent and tapping into a market of 10 million homeowners
The reverse mortgage market has been around since 1989. It’s helped financially strapped seniors when nothing else could, and it’s extremely lucrative for originators. So, why are so many mortgage professionals
hesitant about adding reverse mortgages to their product mix?
MPA sat down with six reverse mortgage experts to ask them about attracting new talent, tapping into an ever-growing market, and where the industry as a whole is headed.
SMALL BUT GROWING
mortgages are still just a blip on the radar – especially in comparison to the forward space. We’re still growing significantly, but we would really like to continue to grow this industry,” says Alissa Prieto, regional account manager for Reverse Mortgage Funding. “I think it’s very important for us to continue to educate senior homeowners – as well as all age groups – and realtors, brokers, lenders. It’s such a great program that we really need to do a better job of getting in front of everybody and making sure they understand the benefits of a reverse mortgage.”
“I believe the stat is that 10,000 seniors turn 62 every day. So the market is growing,” says Kimberly Smith, senior vice president of wholesale lending for American Advisors Group.
“Right now we have the Baby Boomers turning 62, which is the qualifying age for a reverse mortgage, and on top of that most of these seniors have an amazing amount of home equity
they’ve built up over the last 30 years.”
The issue, says ReverseVision executive vice president Rob Katz, isn’t a lack of qualified borrowers – it’s a lack of education.
“Let’s say that 10 million homeowners over the age of 62 have lots of equity in their homes. Last year there were 50,000 (reverse) loans done. So it’s something like 0.003% of the marketplace that actually got a loan last year,” he says. “I think what’s missing from the industry is more loan officers talking about the product and educating financial planners and accountants, getting more people talking about it to tap into that market.”
“We’re only at a 2% or 3% market penetration when it comes to reverse mortgages,” adds Don Currie, president of HighTechLending.
“And the challenge for the industry continues to be educating the consumer – eliminating the fear that some consumers have from the misconceptions they have about the product – and educating forward originators,” says Josh Shein, executive vice president of Maverick Funding’s Reverse Mortgage Network. “Some of them have a fear about a new product, a product they’re not familiar with. So it’s getting them comfortable with this product, educating them about it, getting them comfortable with originating it and talking with their borrowers about it. That will help increase that penetration.”
“We so often hear that it’s too good to be true,” Smith says. “That’s the education piece – it truly does offer an amazing financial tool. It’s just being educated on how it works.”
“What’s interesting is that about 98% of people out there have now heard about reverse mortgages over the years,” says Jonathan Scarpati, executive vice president of Urban Financial of America’s wholesale lending division. “I think we’re doing a lot better job getting the word out. But there’s still only 30% that would actually consider one. I think the majority of those people that aren’t considering them have misconceptions about the way the product works. Because once you do truly understand how the product does work, it’s outstanding.”
And Katz thinks that’s a shame because reverse mortgages aren’t only a boon to seniors – they can help originators replace lost business.
“I think one of the most interesting things is that in the forward space right now, the refi market is dead. Rates have gone up and pretty much everyone who was going to refi has refied,” he says. “So if you’re an originator in the forward space, you’ve lost a huge chunk of your business. The purchase market is okay. It’s not as strong as we want it to be. Now compare that to the reverse side, where you’ve got millions of people who could use the loan. Even though it’s a small fraction of the total mortgages that are out there, it’s where the market should be looking.”
Shein agrees. “Those originators who are trying to jump into the purchase market are realizing there’s not enough to replace all the refi activity they’ve had over the past few years. This is a great avenue for them to jump into – understanding the differences, being educated on it and being patient with the sales cycle and the kind of borrower they’re working with. That’s a major, major point that they have to keep in mind when exploring reverse mortgages.”
EXPANDING THE SPACE
The biggest stumbling block to exponential growth in the reverse space, Scarpati says, is simply a dearth of reverse originators. That’s why one of the industry’s top priorities is bringing more forward originators into the reverse fold.
“This is an educational sale, and it’s really important to educate as many seniors as possible. The problem is that there aren’t nearly as many boots on the ground as there should be to really explain and drive home the benefits of reverse mortgages,” he says. “We need a lot more people to enter the space … It’s just a matter of educating more and more seniors out there.”
“I feel like there’s a fear of the unknown out there for originators,” Shein says. “The originator that’s used to doing refinance, maybe some purchases as well, has a fear of the unknown with a reverse mortgage product: ‘How do I do it? The software’s different, the product’s different, the compensation’s different.’ They step back a bit, get a little nervous, don’t want to get into it. Once they learn about it, that makes a big difference. Then they say, ‘Okay, I do want to offer this product.’ But that’s a big challenge for all of us in the industry – finding people who are interested in this and spending the time training them on it, how it works, how it’s a great product for you as an originator – and certainly great for the consumer as well. All of us – and all of our companies as well – spend our days and nights trying to figure out how to attract more talent to the industry. Because it is needed, and it’ll make a big difference for everybody.”
“I think our goal is to make ‘reverse mortgage’ a household term,” Prieto says. “Many of us have been in the industry a long time, and we’ve made leaps and bounds from where we originally started. But we want this to continue to grow, and we’ve been stuck at that 2% to 3% penetration. Our goal here is to continue to educate and make sure there aren’t misconceptions about the product, because it really is such a great program. It can assist so many senior homeowners. We do need more talented salespeople … We really do want to make sure this product is out there for everyone who needs it.”
“I think ultimately … if we could get every forward mortgage shop adding this to their product mix, that’s going to be how we take this product to the masses,” Smith says.
So the reverse space is always looking to grow. But why should a traditional originator add reverse mortgages to a product mix that’s already doing just fine? There are a lot of answers to that question, according to the experts – number one being that it’s simply important to offer borrowers as many options as possible.
“I think it’s important for a forward originator to want to have access to and offer as many products as possible,” Shein says. “Whatever’s in the industry, they want to have in their bag of tricks – anything that their competitors are offering or that the consumer might be hearing about. I think adding this into your mix allows you to be a full-service provider to your customer. It helps your referral sources and makes sure you can provide the consumer with the best possible product. Maybe they are a better fit for a reverse. Maybe they’re a better fit for a traditional refinance. If you know all the products and have access to all the products, you’re in a better position to find the best fit for the consumer. So I think it’s essential for any originator to be able to offer all the products.”
“I was a broker for 15 years and then on the banking side for the last 15 years, so about 30 years altogether,” Currie says. “And I think the philosophy has always been that when somebody sits down in front of you and there’s a loan in the industry to be offered to that person, you should be able to offer that loan. Right now, when it comes to seniors – particularly seniors that are living on Social Security or maybe a pension – they can’t qualify for the traditional loans, and really the reverse mortgage is the only option for them. As an originator, it’s really important that you’re able to place those seniors into the right loan for them. Back when there were stated-income loans, for instance, the industry really did a terrible disservice to seniors by putting them into stated-income loans when they really should have been giving them reverse mortgages. If they can’t qualify for a traditional loan, they should be getting a reverse mortgage.”
Reverse mortgages are also less vulnerable to the vagaries of a volatile market, says Scarpati. “Reverse mortgages are a non-interest-rate-sensitive product. Whether rates are up or down, people are always looking for reverse mortgages. And it’s a lot less competitive than the forward industry. You’re probably competing with hundreds of companies versus thousands and thousands of companies that offer traditional mortgages. With the number of seniors who are coming of age and the market that’s already of age, it’s a tremendous opportunity to grow your business and add an additional product. Not to mention that if you’re already spending money in the forward market and you’re generating leads, I guarantee you there’s a tremendous amount of opportunity in the people you’re already talking to.”
And of course, there’s the simple fact that reverse mortgages can bring in more money for originators than traditional loans.
“It’s a lucrative loan program,” Smith says. “As a broker, you are going to earn a tremendous amount of money on these loans.”
“You can close three loans and make the same amount of money you’d make closing six or seven loans on the forward side,” Prieto adds.
For Currie, one of the biggest benefits of having reverse mortgages in his product mix is the emotional payoff of helping seniors in need.
“I’m kind of a feel-good lender,” he says. “What I mean by that is that I really like it when we’re done with a transaction and everybody shakes each other’s hands. When it comes to reverse mortgages, it’s amazing the emotion that happens at the closing table. You’ll have seniors who are literally crying, saying that you’ve saved their life, you’ve changed their life – as opposed to the forward side where they say, ‘Well, thank you for saving me $200 per month.’ This is really more of a life-changing, lifesaving deal. Not only do you get that emotional reward, you get the financial reward also – which is just an amazing yield right now.”
“Statistically, 97% of people who get reverse loans rave about them,” Katz adds. “Nowhere in any industry is there a 97% satisfaction rate. But people love this product, because when they get it, it saves them. It’s a very positive thing.”
TARGETING THE MARKET
So how does an originator reach out to the ever-growing population eligible for reverse mortgages?
“There are several different ways to target the population,” Smith says. “One of them is television. American Advisors Group does a lot of television advertisements. We actually do sell those leads, so that’s one way to generate business. Most brokers are out on the streets talking to people, financial planners. There’s also mail, social media – all kinds of different avenues. I would say that the same way you’re generating your forward leads, you can generate reverse leads as well.”
“Mining the database is going to be key – going through that database of existing borrowers who didn’t get approved, couldn’t get approved, decided not to move forward,” Shein adds. “If they’re over the age of 62, they could be eligible for reverse mortgages. … The internet is a large growth area as well. There are a lot of leads being generated that way.”
And seniors today are more comfortable with technology than ever before, Smith says.
“The seniors are getting younger and much more tech-savvy, so we’re seeing a huge increase in lead generation online,” she says.
“One of our most successful branches does payper- click – Google AdWords and such,” Currie adds. “What we’re finding is that whereas 10 years ago many seniors didn’t even have computers, now because the Baby Boomers are turning 62, they are going online. They’re shopping for reverse mortgages online, and they’re very intelligent and very savvy. For us at HighTechLending, that’s really something we’re focusing on.”
But it’s not only seniors that reverse originators should be marketing to, Smith says – it’s also their children.
“They’re what we call the sandwich generation; they’re still taking care of their kids, and now they’re helping their parents out as well,” she says. “So a reverse mortgage is a great tool for that generation to help their parents out.”
SELECTING A STRATEGY
But with so many marketing options, how do originators decide what will be most effective for them? The important thing, the experts say, isn’t so much the tools you have as how you use them.
“The key to this industry is relationships. So when it comes to marketing reverse mortgages, I don’t think you can do just one thing,” Smith says.
“I think you need to be doing a couple of different things, building those relationships with financial planners… as well as the consumer. I mean, there’s nothing more powerful than a testimonial from one of your senior borrowers.”
“At HighTechLending, we use many different mediums of marketing, whether it’s direct mail or social media, and what we’ve found is that they all work,” Currie says. “Seniors take the message from different media in different ways, and we found that by going out to the house and actually meeting with the senior face to face, your chance of closing went up exponentially.”
“It’s economies of scale,” Shein says. “How do you build your business? How do you reach out to those borrowers? Education. Building relationships. Whether it’s in person, which is an outstanding way to reach out to them on the product, or even if you’re on the phone. You can be successful that way. Many are successful doing it that way. You’ve just got to build that relationship and take that consultative approach to the sale … The bottom line is, whatever you’re comfortable doing as a forward LO, do that. With a pool of 10 million prospects, you’re going to get people that respond well over the phone, you’ll get people who respond well face to face. The market is so large that whatever you’re comfortable doing, do it.”
MAKING THE MOVE
Let’s say you’re convinced. You want to add reverse mortgages to your product mix. But one problem remains, and it’s a biggie: You’ve spent your whole career originating traditional mortgages. How do you make the switch to reverse?
“With the reverse, it’s fairly simple,” Shein says. “You just have to make sure your borrower is over 62, lives in the home and has sufficient equity in the home. That’s the main sum and substance of what you need to make sure that loan is going to come to closing. There are obviously some other details involved in the underwriting process, but that is the key.”
“Ultimately it’s an FHA loan
,” Smith adds. “So from an underwriting perspective, we’re following traditional FHA
guidelines. Where we kind of separate is that there’s no monthly mortgage payment on these loans … What the clients are responsible for are their property taxes and insurance. The industry is working with FHA right now to ensure that a borrower is capable of paying his taxes and insurance. So that’s an element that’s in transition right now, but ultimately you’re following traditional FHA rules. There is a learning curve, but ultimately I’d say it’s a short learning curve to get around.”
Still, Currie says, when loan originators are dealing with seniors, they don’t want to just hope they know what they’re doing.
“There’s always that conversation of, ‘How do we get forward mortgage people to do reverse mortgages?’ And we all know that there’s a big chasm between the two,” he says. “So at HighTechLending, what we’ve really focused on is coupling that naïve broker or loan officer up with a reverse specialist … Seniors are a very protected class, so we really don’t want people who don’t know how to do reverses out trying to do reverses. You don’t want to practice at this. I feel as an industry we really need to have professional reverse specialists partnering with the forward loan officer and really mentoring them through the entire process.
And considering how eager for growth the reverse space is, finding that mentorship shouldn’t be a problem.
“I think everyone at this table – and most people in the industry – really have their hands out to help forward loan officers,” Shein says. “Not only to educate, but really to walk them through every step of the process – the sales cycle, the origination, all the way to closing. So they don’t have to experiment or learn on the fly. They can really have someone at their side every single step of the way.”
“As an industry, we’re not lacking in the training department,” Prieto says. “We just need more people to train.”
This feature is from Mortgage Professional Issue #8.04. Download the issue to read more.