A new broker rollup launched by industry veterans Bart Johnson and Tony Garcia, National Senior Home Equity, has garnered the attention of some private equity investors who helped contribute to the entity’s $5 million capital raise. Investor partners Jim Benson and Alan Botsford of Boston-based Benson Botsford LLC shared with RMD some of their ideas on the reverse mortgage market, why it’s the right time for the growing 62+ demographic, and the push for professional business practices within the industry.
RMD: How did your experience take you into the reverse mortgage business?
JB: I became very interested in the product idea in 2006-2007 when an individual in Los Angeles. who had a home appraised at $3.5 million and virtually no mortgage was interested in liquifying. In those days, there were jumbos. As a result of this discussion, he decided to take out a reverse mortgage. He had been at one time president of an insurance company. He thought the reverse mortgage was excellent. We began talking about the business and where it was going.
We studied the demographics: 78 or 80 million baby boomers who are retiring and who are 62. There’s an incredible demographic going through the age cycle. We believe that the reverse mortgage business is going to be a major business in the future. At some point, hopefully soon, with the financial know-how for forward mortgages, property values will stabilize, homes with or without a forward mortage there will be more government backed, but also resurgence of jumbo products.
We’re very enthused, but we think the timing is a little early.
AB: Jim had come at this from the standpoint of insurance and financial services. I had been in private equity, at Parthenon Capital. Prior to that, I was an entrepreneur running businesses like these.
Jim and I formed this company as a sort of private equity firm. We have been tracking and in this business we have seen some trends that were negative, but we have seen long term demographics.
RMD: How did you react Bank of America’s exit from the industry? Some say it spooked investors.
JB: It did not disillusion us whatsoever. We don’t know what caused Bank of America to make that decision. They had made some acquisitions, acquired Countrywide, Merril Lynch and some others. They had other fish to fry that are more significant and deserve the attention of senior management. It was devastating to people doing business with them and we hope they will find new homes.
AB: It’s not always inconsistent when a large company has its own issues…entrepreneurs see an opportunity. The reasons they left are more a matter of issues of that bank.
JB: Regulatory changes are favoring the larger banks. The changes need to favor those that are larger. There seems to be a squeeze on smaller independent businesses. We bring a consortium of small brokers, with economies of scale. Some of these regulatory changes have become a perfect positive storm, but we’d be persuing this anyway. Our interest comes from very long term demographics and gradual long term real estate. We were going to do this regardless. Some of these regulatory changes, the fact they are occurring right now gives importance.
RMD: Are there any unique challenges specific to the reverse mortgage business?
JB: having been in insurance, I’ve been in a non-demand business. Life insurance is a non-demand product. When someone says the reverse mortgage business has had problems, I’d say every business has had problems. I think this is a new day for the reverse mortgage business. There seems to be a real push for professional business practices among leaders in the industry.
There seems to be pleasantly a push for making this business as pristine and professional as it can be. It takes time to gain traction, but there is enough money for brokers and lenders to do well. It’s an incredible product.
It’s an ideal product. If you were to say to someone who needs cash flow: Define something that would allow us to get some money our of our house, and live payent-free we’d like to have a product like that. We think it’s not 100% but it’s much greater than the 2% of the market we have now.
Regardless of the baby boom bubble, we’re very enthused. Bart and Tony are veterans of this industry. We think the combination of four individuals who have complementary skills can be a positive.
AB: at this point we both feel very strongly this makes sense for society, but want to make sure the loans are persued in the right way. That’s very important to us. To make sure the reputation and the way these loans are persued is in the best way possible to achieve the benefits.
RMD: Anything surprising you’ve discovered since getting involved?
JB: We’ve been around the finance business and what’s around in the broader economy, so some of the blows were not unexpected and we think it will probably be smooth sailing going forward…barring another financial meltdown.
We are hoping the regulatory environment stabilizes and there’s not a new set of rules every five minutes. Having come from the insurance industry, we’re familiar with regulatory environments that are constantly changing.
RMD: With regard to the arrangement of the company and many different brokers having a stake, do you see a challenge in such a broad “partnership”? How does such an arrangement best serve a company in this industry?
AB: We view this more as an opportunity than a challenge. The company will be manageable as the broker firms will convert to branches that are no different than any mortgage banking branch network. In fact, our network will likely remain smaller than branch systems managed in the past by President Bart Johnson at Mellon Bank and at Financial Freedom. NSHE not only enjoys the advantages of scale, but also benefits from the diverse perspectives and ideas of multiple reverse mortgage entrepreneurs. This is a proven business model, with many examples of companies that provide products and services at a national level, but depend upon a strong network of experienced entrepreneurs to distribute their products… Caterpillar, Coca Cola, and McDonald’s, to name a few. Thus we benefit from outstanding national leadership, and from an extraordinary base of entrepreneurs.
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