Despite recent announcements from the Senior Lending Network that it’s seeking a buyer and WSFS’s decision to wind down 1st Reverse Financial Services, the reverse mortgage industry continues to be a sector where private investors see opportunity.
Prior to the investment from JAM, AAG’s volume was up 28% in 2009, endorsing 351 HECMs YTD according to data from RM Insight. The injection of capital gives AAG the resources needed to compete on a national level with a celebrity spokesperson and build a recognizable brand.
With a new management team brought in from Liberty Reverse Mortgage/Genworth and the Senior Lending Network, Reza Jahangiri, CEO of AAG is confident the company has all the right pieces in place to turn itself into a leader in the reverse mortgage business. He recently sat down with RMD to talk about how the company plans to make it happen.
RMD: Given today’s economy, raising money must have been difficult. Why were you guys able to get it done and why is now the right time?
Reza: I think that first and foremost it’s the team we’ve put together. These are all industry veterans and considering the reverse mortgage business is a relatively young industry, a key component to our capital raise was the fact that we built a team that had scaled companies within the reverse space before. By having that in place, it mitigated a lot of the risk for JAM. That is definitely one of the major factors.
In addition, because of the shakeout in the market right now, it’s a great time to be well capitalized and focused on building a solid platform. A lot of competitors have gone by the wayside and we still really believe in the future of this product.
RMD: Was JAM’s experience in the reverse mortgage industry an important reason for you guys to add them as a partner?
Reza: That was a critical element. We were in discussion with others as well, though considering JAM’s track record in the space and its familiarity with the industry, it helped a lot and it became the most strategic choice.
RMD: With $4 million in the bank how does your strategy change? Are you sticking with retail or are you moving on to other aspects of the business?
Reza: Well it really enhances our strategy. We now have dedicated compliance resources and are really focusing on that aspect of the business. It also allows us to have the budget we need to get into television, which we have recently rolled out.
We are also strengthening our licensing platform from 18 states to 44 states while simultaneously moving from broker to banker, which is a business model that makes more sense by enhancing the control and the economics of the business. In terms of strategy, we are sticking with retail as our primary focus.
RMD: You brought up compliance, tell me about what happened in Massachusetts and how it relates to your strategy and where you want to go?
Reza: We relied on a third-party marketing company and learned a lot of lessons from the experience. After the problems in Massachusetts, we realized the need to be in control of our marketing and the need to be very conservative in our approach.
Today’s compliance landscape is very challenging and it continues to change on a day-to-day basis. Additionally, raising the capital allows us do it the right way and have the resources to build a brand. We are putting the dollars into informing the demographic, making them more aware of the product and its features with conservative messaging. Overall the funding allows us to take a more long-term focus. It gives us the resources to really build this block-by -block, piece-by-piece and really focus on brand building.
RMD: Last time we spoke, you said that you were being very proactive in terms of how you were reaching out to individual states on compliance.
Reza: We have been very proactive the last six months, though, there’s been a lot of inconsistency between states and their positions. Many states have approved our marketing materials, but based on the environment right now we are focused on becoming a national lender and need to be ultra conservative and really brand focused. The way direct marketing verbiage is being scrutinized and with Reg Z coming out in the near future, it’s going to be even more challenging. So right now, we have to be extremely cautious and conservative.
On a state-to-state compliance level, it’s becoming a very murky area. One state will approve a marketing piece but then suddenly you’ll get another state telling you not to use it. It’s very difficult to be spending a lot of time and energy to try and meet all the different conflicting requirements.
RMD: Part of your branding and marketing strategy is a celebrity spokesperson. Can you let us know who it’s going to be?
Reza: We haven’t yet made a decision but we’ve always planned to have a two-phased rollout with our national television campaign. The first stage with the initial spots have started running and we will rollout the celebrity spokesperson in another six or eight weeks. We’ll let you know as soon as we have the person secured.
RMD: Why did you decide to go the celebrity route? The Senior Lending Network and Financial Freedom were successful with it, can you improve on what they’ve accomplished?
Reza: Being a smaller company we need to get some traction to quickly gain market share to meet our goals. We need to bring volume in very quickly and the celebrity spokesperson gives us the credibility right away that we wouldn’t otherwise get. I think a celebrity spokesperson adds that credibility and gets borrowers a little more comfortable with the company and acceptance levels rise as well.
There’s a lot of misinformation about this product and I think it’s a perfect time to have a new celebrity in the mix to help combat some of these issues. And I think it will be really interesting to test because the two spots will be quite similar, one with the celebrity and one without and see how the results end up.
RMD: How do you guys grow in the next 12 months? Do plan on adding some more people, adding some more branches or how does it work?
Reza: Our business is based on a centralized model so we will be operating under a single location and not planning on moving to a branch model. We have added a significant amount of head count already in the last 60 days. We’ll put a lot of time and money into both compliance and technology.
By the beginning of next year, we plan on being well over a hundred units and by summer of next year we should be at two to three hundred units. So, we have some pretty aggressive goals for the next 12 months but with the team that’s been put together along with the resources and the marketing campaign, we should be able to hit them.