Reverse mortgages have a bit of a dirty reputation: elderly borrowers are suckered into the product, exposing themselves to predatory lenders who are then poised to snatch borrowers’ homes, leaving them without the asset that many people have worked a lifetime to obtain.
Or so the story goes.
In reality, reverse mortgages are now becoming less of a niche lending product, according to Mark O’Neil, national sales leader, wholesale and correspondent, at Reverse Mortgage Funding, who has been working with reverse mortgages for almost 20 years.
“The product has gone from a niche, really specialized area of lending, to a much broader, more commoditized market that we have today, where our loans are being pooled into Gennie Mae securities and sold through the secondary market to investors. That’s brought a lot more market exposure, certainly much better pricing for originators, and it’s really helped make the program a much more mainstream lending product,” O'Neil said.
In addition to gaining more market exposure, the reverse mortgage product itself has changed to meet the needs of a broader range of borrowers, becoming more flexible and customizable.
“The reverse mortgage is sometimes described as a Swiss army knife. Originators are frequently—and borrowers are frequently—surprised at just how adaptable the program is to the individual borrower’s situation,” O'Neil said. “We can assist everything from borrowers who need a cash-out refi to restructure or eliminate their current mortgage debt, borrowers who are using the reverse mortgage as more of a financial planning tool and just looking to set up a line of credit that they can tap into for emergencies or for investment opportunities, and everything in between.”
One reason that reverse mortgages are on the upswing is due to an aging population. In 2016, 12.4% of the population in the U.S. was 65 or older; by 2020, that figure is estimated to be nearly 17%, according to Statista. By 2030, 1 in every 5 residents will be of retirement age, according to the U.S. Census Bureau’s 2017 National Population Projections.
Demographics don’t lie, and as the population ages, they’re also aging with high levels of debt. According to research by the Employee Benefit Research Institute, 68% of families with heads older than 55 had debt in 2016, an increase of more than 15% over 1992 levels.
“Every year, more boomers are retiring, carrying more and more debt into retirement than ever. Historic levels, both consumer debt and mortgage debt. So the need is only increasing, and the need is increasing by the day, literally. At the same time, we have boomers who are controlling an all-time high amount of home equity, so we [also] have this need,” O'Neil said.
There are a number of lenders who have developed proprietary reverse mortgages. Reverse Mortgage Funding’s proprietary product is called Equity Edge, and O'Neil said the product development has really picked up pace recently. Given the need, they expect the trend will continue for years to come.
Because the need for reverse mortgages is expected to remain, it’s a good time for originators to explore the product. When it comes to adding and learning about a new product, it’s often not enough to just read the guidelines. Reverse Mortgage Funding is big on training, and they provide ample training opportunities and sales support for loan officers.
“It is a unique product from the perspective that we’re dealing with borrowers whose motivations are typically different than a traditional mortgage transaction, it does have more of a financial planning type feel a lot of the time, and we’re dealing with older homeowners, so by definition, a little more of a protected class of borrower. So it’s not rocket science, but you do need to know what you’re doing, and it all starts with training,” O’Neil said.
Once originators are trained, Reverse Mortgage Funding provides originators with technology that essentially does the math and makes the process a lot more accessible. They provide marketing materials and a sales support team that includes a dedicated account executive and pipeline manager, “who are there to really hand-hold until new originators get over the hump and get a couple of loans under their belt.”
“You can’t just throw it against the wall and see what sticks,” O’Neil said. “You really need to have a robust, multi-pronged effort or else you’re going to wind up with originators that just get frustrated if they don’t have that full support and full backing.”
Originators will often tell referral partners that, ‘if I can't do the loan, I will find you someone who can.’ It's a completely valid way to ensure that you're seen as a true partner and resource, especially when it comes to niche products. But imagine the possibilities of keeping those leads instead of referring them out.
“This can be a very profitable line of business, it is a very profitable line of business, especially this year, where the refi boom has slowed down, as rates are backing up, we’re getting some good traction from originators who, rather than referring these valuable leads out, have chosen to keep them themselves and write these loans themselves," O’Neil said.
Most originators today don’t suffer from the same misconceptions around reverse mortgages as those people who have been in the business for decades. There’s less of a hurdle to exploring the product and all it has to offer to borrowers.