Reverse Mortgage Margins Fall, Price of Leads to Follow?

As the secondary market for reverse mortgages continues to fluctuate, the importance of how much it costs to generate a lead has never been greater.  In theory, with margins coming down, the cost of buying leads should follow.

“They’re so expensive with where the margins are right now,” says Josh Shein, President of Great Oak Lending Partners. “Companies really need to watch their marketing dollars and pull through rates to ensure they’re converting with margins so tight.”

Lead providers may not feel the same way.  When premiums from the secondary market were higher, lenders had no problem plowing additional money into generating or buying high quality leads (live transfers, national advertising campaigns, ect.). But as rates have risen and premiums have fallen, the cost of generating leads hasn’t changed.  RJ Johnson, president of Reverse Rate, told RMD that regardless of where premiums are, there will always be a demand for high quality leads.  “Lenders may need to adjust their models to fit the ever changing reverse mortgage market,” he said.

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New Trends in Acquiring Reverse Mortgage Leads

One trend that has re-emerged over the last six months is the increase in wholesale lenders who provide leads to their customers. It’s a practice that started with the Senior Lending Network and has been adopted by Genworth Financial Home Equity Access (GFHEA). The Rancho Cordova, Calif.-based company acquired Premium Reverse Leads and its websites for an undisclosed amount last year.

Since then, the company has rolled out the leads for purchase on a pilot basis with good success and anticipates expanding the program in March, said Pete Engelken, president of GFHEA. “Our leads program offers affordable, high-quality reverse mortgage leads that are delivered in real-time while meeting all regulatory requirements,” he said.

The program isn’t meant to be the only source of leads for its wholesale parters, but it’s designed to complement their overall marketing strategy.

“We have found that brokers are the most successful with our leads program if they have previous experience working with online leads and can purchase in order quantities of 30-50 leads at a time,” said Engelken. “As more and more seniors turn to the Internet to research and shop for reverse mortgage products, we feel that the Web will continue to be a great source of potential customers for our broker partners.”

Urban Financial is also expected to roll out a similar program through its wholesale channel once the acquisition of Guardian First Funding Group is completed in early 2011. During an interview with RMD last year, Bryan Hendershot, CEO of Urban Financial told RMD he planned on using leads generated from Guardian’s national television campaign featuring Robert Wagner to help their wholesale partners.

Going it Alone – Generating Leads

For companies that rely on their own efforts to generate market reverse mortgages online, RMD’s analysis using Google’s Keyword Tool shows the average cost of terms related to reverse mortgages remains around $15 per click. There hasn’t been any pullback in online bids for keywords according to Cliff Auerswald, loan originator for All Reverse Mortgage Company. “The cost has hasn’t come down yet,” he said. “I lowered my bids when the pricing fell but people are still willing to pay $20-plus per click.”

With so much competition online, companies like Great Oak Lending Partners decided to test the waters of local television to reach seniors in the community. While the company kept its costs low by not using celebrities like Robert Wagner or Fred Thompson, the commercials were great for exposure and name recognition in the local community, says Shein.

“With regards to the overall lead success, it was successful and profitable, but not significantly,” he said. “We are re-evaluating our costs for marketing and will most likely hold off on running more local network TV ads right now, although we are looking at doing local cable in the near future. Had margins not changed, we likely would have continued.”

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  • How much will all of this change after 4/1? Leads are the life blood of this industry. Recently we used some great leads but their actual cost per closing turned out to be $3K each. Oh for the days when the very best of the SLN leads in California were $50 each.

  • Agree with jeromew – this is a useful article. I’d like to see some comments re the business model of putting the onus on the loan officer to generate his/her own leads vs. relying on the professional lead generation industry. Any advocates/detractors of that approach?

  • It’s not a stretch to look at social media — especially as our target prospect’s age slowly skews younger and as the Saver gains traction (not to mention as a link to influencers and financial stake holders). The key is building a social media program with the goal of driving in-bound leads, not just conversation alone — it’s all in the tactics.

  • The reluctance to lower lead prices makes sense. I see two main reasons. The first, as pointed out in the article, is that there are still parties willing to pay the current price. When the lead suppliers begin to find that the higher prices are not generating the sufficient revenue to meet their profit targets, it will correct itself. (Basic Econ 101: supply, demand, equilibrium). Second, once the price goes down, how many of us will be wanting or willing to pay higher prices again if and when our margins increase?

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