Is the Reverse Mortgage Industry Failing the HECM for Purchase?

Many times I have been quoted as saying the purchase reverse mortgage is truly the “Sleeping Giant” of the reverse mortgage industry as well as the senior real estate market. And many times I have been told how terribly wrong I am.

That is usually followed by a long diatribe of statistics from the last six years proving beyond a shadow of a doubt this product has not even come close to being successful. But future success does not rely upon past performance. In fact, it’s quite irrelevant.

So, again I will ask: Has the HECM for Purchase failed the reverse mortgage industry or has the industry failed it?


As Founder of the American C.E. Institute, I have had more than 3,000 licensed real estate agents attend my Purchase Reverse Mortgage class. Every class has produced very positive reactions from all that have attended, and every class produced business. Well then, why aren’t we as an industry writing a ton of these? And here is a better question, with more than two million licensed real estate agents in this nation, according to the Association of Real Estate License Law Officials, why have only a small fraction been exposed to this product?

Here is why: The reverse mortgage industry is not equipped to do business with Realtors. And when I say the industry I mean most underwriters, closers, processors right down the line to most loan officers. And even the ones that are equipped will simply not put forth the effort or the hard work needed to establish a large group of referral partners.

According to a recent NAR (National Association Realtors) study, slightly more than 5.1 million homes were sold by licensed real estate agents in 2014. Approximately 14% of those mis sold ppi on your mortgage. That is more than 700,000 potential H4P clients!

That’s right, more than 700,000 potential clients. Now, how many of those have the necessary down payment needed to consider an H4P? That in itself is a great question and unfortunately there are no solid statistics to venture an accurate answer. But I’ll guarantee it’s a big number.

Let me share with you some of the comments I hear from within our industry in regards to doing business with Realtors:

  • “Real estate agents are so hard to teach.”
  • “Trying to deal with Realtors is like herding cats.” (That seems to be a very popular one for some reason)
  • “It’s so hard to get that first appointment.”
  • “You know a lot of them own their own mortgage company so why bother trying?”
  • “Most Realtors don’t really sell a lot of houses, you know.”
  • “They call me at night and on weekends to qualify their clients!”
  • “They expect me to drop everything when they call.”
  • “They just don’t get it” (News Alert: It’s your job to make them get it)
  • “I went back and saw this one agent 3 times and he still hasn’t given me a loan!”
  • “It’s so hard to get past the receptionist.”
  • “Realtors are very rough to do business with.”

And there are so many more, but here is my favorite: “I didn’t get in the reverse mortgage industry so I would have to get up every day and go talk to Realtors.”

Some people say, “this might be a small niche in our industry.” A small niche? As stated above, more than 700,000 people purchased homes last year above the age of 62. As we all know, 10,000 people a day are turning 62 years old in this Country for the next 19 years. That’s 70,000 per week! This program was made for these aging Baby Boomers.

That doesn’t sound like a niche to me. That sounds like a huge segment of market share just waiting to be educated on this product.

Given there are 2.1 million licensed real estate agents in this nation and 10,000 people each day turning 62 years old for the next 19 years, and we closed less than 3,000 H4P’s last year.

A product that allows clients to retain tens of thousands of dollars, and in many cases hundreds of thousands of dollars in liquidity and obtain their goal of no monthly principal and interest payment during the retirement portion of their lives. A product that, in many cases, allows a client to truly purchase their dream retirement home, rather than “settling” for a lessor home due to losses taken in the great recession in the last several years.

A product for the fastest growing segment in America today, people turning 62 years of age.

This product has not failed us, we have failed it.

Michael L. Banner is President of Professional Mortgage Alliance, LLC in Clearwater, Fla, and Founder of the American C.E. Institute, LLC. Together, the ultimate goal of both organizations is to educate consumers and financial professionals that today’s reverse mortgage is not just a needs-based product of last resort, but should be considered as a viable option in a comprehensive retirement plan.

Editor’s note: If you are interested in being a guest contributor to RMD, contact Jason Oliva at joliva(at)

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  • Mr. Banner,

    There may have been 700,000 age eligible senior family units purchasing homes in 2014 but what percentage of those were coops? What percentage were condos in projects where the HOA or property management firm wants no part of FHA approval? What percentage were property types upon which many HECM lenders will not lend on H4P transactions, such as manufactured homes?

    So let us say there are 500,000 home type qualified and age qualified senior family units buying each year. You are right to question how many of those family units have the necessary down payment for a HECM. But that is potential not facts. Let us not get beyond ourselves just yet.

    Perhaps you do not realize it but not only is this January the seventh anniversary for H4Ps but it is the eighth anniversary for Baby Boomers to turn 62. In fact, January 1, 2016, the oldest Baby Boomers will begin turning 70. While we had two good years of endorsements in 2008 and 2009, they really were not good years for seeing much increase. Then came a precipitous decline that we are still trying to dig ourselves out of. If you are trying to prove anything by implying that the growth in the senior population from Baby Boomers is having a positive impact on HECM endorsements, that is simply not the case. Baby Boomers have yet to improve our total annual endorsement numbers other than perhaps marginally so in fiscal years 2008 and 2009. Stats like NAR figures and Baby Boomer info are great source information for proving a point in a debate but so far neither has panned out in our industry; in fact as of yet there seems to be an almost inverse relationship with senior population growth and total endorsements and not much at all for H4Ps and the NAR data you cite.

    In two of the last four fiscal years, total HECM endorsements were not half of what they were in fiscal 2009. There are many indicators that fiscal 2016 will be the third of the last five fiscal years where this will be the case; in fact, fiscal 2016 could be the worst of those three years as to total fiscal year HECM endorsements.

    As of September 30, 2015, not one fiscal year has seen more than 2,440 total H4P endorsements so where does 3,000 come from? September 2015 was the first month that H4P had more than 300 endorsements; that is a genuine milestone for H4P.

    As of yet H4P is not a giant of any kind. It is a great marketing tool with Realtors and has been a growing percentage of annual HECM endorsements despite six years of overall decline for total HECM endorsement volume. As of yet, H4P has not reached 5% of total HECM endorsements but it has strong momentum for reaching that goal.

    There are two things that do not belong with H4P, pessimism and excessive exaggeration. Both can do great damage to a product that is showing continued growth in both total H4P volume and its percentage of total HECM volume.

  • Mike your right on with this piece. But I think its hard to also surmise that your average LO will be able to go out and single handedly change in large part, perceptions of RM and also develop significantly the H4P niche. Aren’t we behind the eight ball in general on product perception and acceptance? I think once we have more buy in from financial planners its an easy value addition to speak of H4P. I think it has to come from the very top and for the industry to finally make the kind of investment that is required to open up new initiatives toward this niche. IM sure there are bigger minds than my own that think outside the box to produce steps to success leading to return needed on investment. My take would be to have LO’s properly supported to work only specific niches so they are also trained adequately to speak “the speak” so to say to gain great trust and very importantly, credibility. Right now, for the most part it isn’t there. One timely option, to add another source of revenue to forward loan officer business plans for 2016 is to find out how many of them within a prospective region rely on realtor referrals and then show them how to begin to work with SRES realtors (or those whose business is with retirees or those close to this age). By illustrating a win /win for how the LO can add more revenue from referrals in 2016 because they have shown realtors in kind a new prospective niche – the H4P. This is worth pursuing as the investment is low and it may dovetail into what Rm LO’s are already doing with their time.

    • Steve,
      I agree 100%.
      The big problem right now is the great majority of the reverse mortgage industry refuses to “modify” to do business with the Realtor world. They just don’t get it…

  • There is much that HUD can do to make this product more mainstream and attractive to Realtors for instance removing the requirement of a Certificate of Occupancy on new construction prior to commencing a HECM application, Allowing for Standard Seller Concessions and Seller Customary Closing Costs, Allow Borrowing against Cash Value of Life Insurance for down payment and Equity Trades.

    • hecmvet,

      What incentive does HUD have to make these changes? There is no verifiable evidence that endorsed H4Ps improve the financial health of the MMI Fund. What information is available so far would be based on such a small sample that the findings could only be subject to question.

      To make it clear, less than 11,500 H4Ps have ever been endorsed as of 9/30/2015. That is it despite being around for almost six years now.

      Bring something to the table that proves beyond reasonable doubt that the MMI Fund will improve financially as a result of taking your suggested actions and you might get the attention of HUD to make those changes.

      What is at risk in getting HUD to make positive changes is that they may also make others that could harm total endorsements even more than they are harmed today. So even if you are right, in the current environment, do not expect much support from the industry.

  • This was a great article, I hope many have read it. The HECM for Purchase loan (H4P), what a tremendous opportunity we have going after this unbelievable profitable product!

    Michael Banner hit the nail on the head and you have to love his list of reasons why many in our industry don’t go after the relator?

    We can find every excuse in the book as to why it is so difficult to reach out and deal with realtors but the bare facts are that realtors are looking for anyway to do business and make money!

    Those of us that came from the forward world made our living dealing with real-estate brokers and agents. We gave mini seminars, sold our services and networked, the competition was fierce! However, we plugged away and fought for that business because we knew they did the greatest majority of selling homes in the market place.

    Why can’t we do the same thing in the reverse mortgage space? We sure don’t have the competition the forward mortgage world has so why don’t we open the flood gates and go after it?

    It is not rocket science, you go in, you ask to speak with the broker, let the receptionist know you have an important subject to talk to him or her about. If the broker is not in, leave your card, tell the receptionist you will call him or her to make an appointment. You now just opened the door for your call. Be sure to call the broker the next day and make that appointment to see him or her!

    Once you meet with the broker, your mission is to explain to him or her you have programs that involve reverse mortgages for home purchases that realtors are starting to take advantage of all over the country. Try and set a time with him or her to speak before his or her agents at one of their meetings. Stress that you can show them how to make more sales and more commissions by using your H4P program. Now set the time with the broker to speak before his or her agents. Before leaving give the broker a flyer or brochure and when you come back to make your presentation at the meeting, come loaded with all of your ammunition.

    Remember, to get the most bang out of your buck, get to the broker first, he or she will respect you for not going around his or her back and directly to his or her agents!

    It works folks, I have done it, the H4P market is wide open and for the most part, has not been penetrated much at all.
    Good hunting!

    John A. Smaldone

    This is the expressed opinion of John A. Smaldone only and does not represent an opinion of Willow Bend Mortgage or its affiliates.

    • John,

      It is easy for forward mortgage originators (FMOs) to get business from a Realtor since the Realtor already understands the product and has used it in almost every transaction since their first day selling homes. The same holds true with title companies, appraisers, and other service providers; these like forward mortgages are needed services for which there is much information available to Realtors and their managers. Almost all buyers understand forward mortgage basics.

      Here we have a product that per Mike only about 14% of the buyers could even be eligible for, if that. Even at that, the percentage varies by state. It is not something that buyers are even necessarily all that familiar with to quickly grasp the concept and see it as the best option for them in the midst of a home purchase. I know of financial advisers who like HECMs and believe that many seniors who are clearly competent enough to make a home decision and get a HECM separately but are far less competent in getting them both as part of one transaction.

      While a buyer’s agent maybe a great supporter of the H4P concept, he or she is much less likely to be so when the rubber meets the road and the seller is clamoring for a twenty day escrow in a sellers’ market. Under those circumstances what are the odds that either Realtor is going to mention a reverse mortgage especially when the buyer is already qualified for a forward mortgage on a home in that price range.

      The process is much easier in a builder situation where the builder sees the value of H4P and is willing for his onsite Realtors to encourage their use, things are better. In that situation normally only extreme buyers’ markets might come in to interfere with this very positive relationship for reverse mortgage originators.

      Just remember that the home selling industry has seasonal highs and lows as well as overall changing market demand. It seems November existing home sales volume fell 10.5% per CNBC this morning. For those who choose this avenue, your choice will be a very interesting ride.

  • I would heartily recommend RM loan originators interface with Realtors. There may be positive unintended consequences.
    A little story – I was doing business as a forward mortgage LO. I attended the weekly Realtor meetings to generate business. When I became a RM specialist about 15 years ago, I stopped going because I could no longer be of any help to them.
    Fast forward about 10+ years past the HECM for Purchase implementation. I finally bit the bullet and started going back to the meetings about 3 years ago. I stood up and talked about the H4P. I made presentations to Realtor offices and individual Realtors.
    I’ve only received one H4P referral and that didn’t work out. But I have received TONS of referrals from both Realtors and the other mortgage LO’s that hear me make short announcements occasionally about RMs at the weekly meeting. No one else is so I’m the “Reverse Mortgage Guy”.
    My business has easily doubled since I started attending their meetings.

    • Tom,

      Great anecdotal information. It is encouraging especially in the Napa area of California.

      Yet to go forward “about 10+ years past the HECM for Purchase implementation” puts us into some time after 2018 since implementation for H4P came on 1/1/2009 based on Mortgagee Letter 2008-33. HERA which created H4P only became law on 7/30/2008.

      While this is but minor and not in any way objectionable exaggeration, it seems H4P either attracts exaggeration or demands it.

  • Realtors like the product, and so do prospective homebuyers, until they hear about the fees, and that the Buyer has to pay all of them. Want this product to be successful? Then allow the Seller and Lender to pay fees, just like with a traditional Forward FHA-insured mortgage.

    • Mr. Denton,

      We talk about understanding the needs of our borrowers before trying to close a HECM but how much do we really understand the opposition of HUD to your proposals? Perhaps you can explain why HUD sees these as deal breakers.

      • Nope … I can’t explain why HUD created guidelines that make a Forward FHA mortgage less costly then a Reverse FHA mortgage. And I don’t think HUD cares they’re deal breakers. It’s just not fair to Seniors … home Sellers should pay 50% of the customary fees, just like with every other type of mortgage.

      • Raymond,

        Look at this way without FHA insurance there would be no deals to break except for maybe a couple hundred proprietary reverse mortgages annually. But there has to be some concern HUD has to block real estate sales customary practices even if it is irrational to us.

      • Mr. Denton,

        While that may be customary in your part of the country (and mine), it may not apply to all areas. Are you sure you aret right in saying: ” just like with every other type of mortgage?” It would seem it is not just true with mortgages but all purchase transactions.

  • In my experience, many Realtors seek out low hanging fruit. Some will not be willing to learn a new program, even if we can show them empirical evidence that it will increase listings, sales, and borrower purchasing power. As evidence, consider that most Real Estate events designed to improve sales performance will focus on image, not substance.

    However, I agree with you, Michael, that the industry is not equipped… but should be. And to your credit, education is the key. Yet, we need to change some of our basic terminology. I have heard many loan originators refer to the borrower’s investment or contribution into the transaction as a “downpayment”, which is a forward term. This will not make sense to a Realtor when an LO tells them that the borrower will have a downpayment of 47% and still be required to pay mortgage insurance. The conversation needs to begin with the lender’s contribution and the consumer protections, instead of comparing it to just another mortgage product.

    • Mr. Hulquist,

      It is a hard sell on a large scale basis.

      Any major lender in this industry will not refuse new business if it is a mere matter of retraining even forward mortgage originators. There are many reasons why existing originators would not want to a training period and then go exclusively H4P since they would not be generating much income in that period. Could they catch up quickly so that they lose little or nothing short-term? It all depends on whom you ask.

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