American Advisors Group founder and CEO Reza Jahangiri has learned a thing or two since getting into the reverse mortgage business in 2004. From launching a celebrity-driven leads campaign to growing AAG’s retail business to the top-10 lenders, he says he practically stumbled upon the reverse mortgage product by accident. Reza sat down with RMD to tell us about building his business from the ground up, as well as the biggest issues facing the industry today.
How did you get involved in the reverse mortgage business?
I was actually introduced to the reverse mortgage product by someone I was dating. She was running a reverse mortgage unit of a bank at the time and I was immediately drawn to the product. As a result, I decided to launch a small origination platform with a footprint in several western states.
At the time, I was running a preventive medical imaging business focused on the early detection of heart disease and cancer. We were partnered with Johns Hopkins along with several other hospitals and had a number of different entities and business models.
I incorporated AAG in late 2004 and formally launched the operations in July 2005. In 2006, things started to take off after running several successful direct mail campaigns.
I had initially hired a young guy out of New York to launch the business who had minimal experience within financial services. I was not involved full time with the day to day of the business and was mainly focused on high-level strategy. As the business was growing, I became more and more interested in the product and industry. The business model was also looking more promising as each month went by with minimal management resources.
Therefore, in July of 2007, I decided to divest myself of all the healthcare assets and commit full time to AAG.
What was the growth plan initially?
Once I committed to the business full time in mid 2007, the goal was to build a good management team and really prove the business model out with some scale and additional states. We were successful in that goal and experienced solid growth in in 2007 and 2008.
In late 2008, I decided it was time to raise capital in order to substantially scale the business with the goal of becoming a banker, adding more states, building technology and systems, adding new marketing channels and creating a national brand.
I recruited Chris Mullins who was formerly with Senior Lending Network and we teamed up with Jacobs Asset Management (JAM) in early 2009. Less than two months after being introduced to JAM, we wrapped up the capital raise and began to build our management team.
Chris really helped with bringing in the talent, including Kevin Blakeney and Paul Fiore, to get the sales side going. We additionally recruited Teague McGrath who built our national marketing campaign from ground up (at first with Mission Impossible Actor, Peter Graves).
This is a question I’ve wanted to ask for a long time. After you launched with Graves, AAG didn’t see any volume growth for quite some time. There were doubts in the industry about whether it was actually working and if you would be around in a few months’ time. Was it a pretty scary time?
The short answer, Yes! After raising the private equity money, we had invested heavily in growth infrastructure; moving to mortgage banking, phone systems, software, multi-state expansion, compliance systems, TV commercials, etc. This was all at a time when the industry was taking a 30%+ dip in volume. The senior mindset had changed drastically in connection with making financial decisions as well as the obvious declines in home values, which resulted in less supply. Our volume was not tracking as we had projected the first 12 months and we were outflowing a lot of dollars.
There is no doubt that it was scary early on. Though at the end, we kept true to our business model, consistently de-bugged our systems and eventually realized consistency in our metrics
and performance. This took about a year to accomplish.
So all of this was going on and then Peter Graves passed away unexpectedly in March 2010.
Exactly. When that happened in March, I was in New York and it was a really bad day. Of course it was incredibly sad for his family – he was a great guy to work with.
[Note: AAG pulled the Graves campaign upon his passing, out of respect for him and his family.]
As a direct result of Peter’s involvement with AAG, we were able to partner with a new spokesperson fairly quickly and we launched the Fred Thompson campaign. Contemporaneously, we created a new revenue channel for AAG, which was the lead sales business. The business model really started coming together.
Was the lead business part of the plan from the start or was it something you guys scrapped together out of necessity?
We considered it but didn’t know how successful it was going to become. It certainly helped in terms of cash flow for the first several months. It really worked out perfectly.
At the same time as launching the Thompson campaign, our metrics really started normalizing and we began seeing a baseline of fundings each month that were predictable. The premium environment definitely began to help as well during that time.
I remember it popped a little bit according to HUD data right after he passed and then I want to say it plateaued and then after few more months.
Once we experienced normalization of our monthly volume metrics, we decided it was time to scale. We had already invested in the infrastructure, brought on a new senior management
team, and built software and technology that was built for a larger scale business. It was time to ramp up. We made plans to triple the sales floor in order for our model to make sense in
connection with the fixed cost structure. Although, we didn’t see the benefit of our efforts in terms of volume until approximately April 2011.
Once we hit 150 units per month, we raised another small round from JAM to help us with the next stage of growth. Right now, we have over 125 loan officers with plans to reach 200
by the end of the year. We won’t really see the fruits of our hiring until the end of the year. There is a solid 6 month lag between hiring and productivity of a loan officer.
If premiums hadn’t improved, would it have been a different story?
It would have been tough, but we would have pulled through that summer of 2010 independent of premium movement.
We have built the business so that our model can withstand well over a 50% decrease in premiums. We are at scale now, so the business just looks different than it did several years
How has your role changed since you started the company?
It has become less operational and more strategic – where do we want AAG to be next year and the years beyond that. What aspects of our vertical do we want to take part in. I’m
also focusing more on building relationships within the industry, our product evolution and lobbying.
I am still involved with day to day operational matters, though much less than before.
Back to the story about the ex-girlfriend. How did she get into the business?
If I remember correctly, she got into the business by working with Financial Freedom and was running a reverse mortgage unit of their forward business. We would talk about her new job and I’d ask her a little about the product. Over time I became fascinated with the product and thought: This makes a lot of sense.
I didn’t love the mortgage market at the time. It was when the forward market was booming in places like California. While I didn’t like the mortgage business in general, I loved the product and saw the opportunity with how the demographics are trending higher.
I didn’t love all the players that were in that space, and just the whole vibe. But I saw, like everyone else, the demographic trends. I said: Well, we gotta get into this. So I geared up and got licensed.
So when did the relationship end?
As soon as the company was about to launch…the relationship ended.
She is no longer in the industry. She eventually went to work for Bank of America and later moved to Arizona because they had better opportunities there. After that, we eventually lost touch.
[Editor’s note: Reza is now happily engaged and is getting married later this year. Congrats from the RMD team!]
What is the biggest issue facing the industry right now?
Stability and confidence. We’ve had major players leave the space and there is arguably a need for a bit more liquidity.
The existing players are doing a good job in filling the void but it would be nice if there were some bigger participants in the space. Besides that, we as an industry are actually at a better place than we’ve been from a consumer and Congressional awareness standpoint. With that being said, there’s still a lot of work ahead of us, but we are doing a much better job educating people on the product.
The general consumer is going to take more time before we really reach a tipping point in terms of product awareness. We’ve also seen a little bit of a lift due to the buzz recently from the financial planning community.
I don’t think it’s been a complete paradigm shift but we’re seeing with every year that goes by, more consumers, regulators and legislators understand how the product works better, and it’s importance within senior retirement planning.