It’s not the HECM Advisor Program, but the Department of Housing and Urban Development’s decision to allow brokers not approved by the Federal Housing Administration to originate reverse mortgage loans could take off as a growth opportunity for the industry as a whole.
Wholesalers say the shift provides significant growth potential and the chance to bring new players into the business. Data from HUD shows the number of non-FHA approved third party originators (TPOs) offering reverse mortgages has grown dramatically in March, and continuing into April.
“Several years ago, under the HECM Advisor program, an FHA-approved lender could take a loan application from a non-FHA approved company,” explains John Lunde, president of Reverse Market Insight. “FHA shut that down a couple of years ago. Now, effectively with their change to allow non-approved brokers, it reopens that door.”
The HECM Advisor program, shut down in September 2008, allowed non-FHA approved originators refer borrowers to FHA-approved reverse mortgage companies. Under the program, those originators could receive a referral fee for doing so.
With new regulations allowing for non-FHA-approved originators to offer reverse mortgages data from HUD is already beginning to show these originators at work, although it has not yet tracked the individual TPOs.
Some wholesale lenders note they are eager for the opportunity to work with new brokers, even if they have little to no experience in reverse mortgages.
“We believe that non-FHA-approved TPOs present a significant growth opportunity for the reverse mortgage industry and are committed to helping them grow with targeted education, tools, ‘hands-on’ sales and marketing support,” said Pete Engelken, president of Genworth Financial Home Equity Access. “We have developed a new TPO Educational Portal which provides comprehensive product, marketing, loan origination, and operations education to make the transition from forward to reverse mortgages a very easy process.”
With wholesalers doing business not only with experienced reverse mortgage originators but also encouraging business from originators who might have less experience with reverse products, does it present a disadvantage for those who have been in the business for years? MetLife says it continues to assess the standard of all originators, forward or reverse.
“We do require each potential broker to provide a summary of their reverse mortgage business plan so that we can evaluate their commitment to the business,” says Michael Mooney, assistant vice president, reverse mortgage division, MetLife Home Loans. “We focus more on the quality and conduct of our existing brokers, but we do review the production of our brokers regularly. While we typically do not terminate broker relationships based specifically on volume, there is a correlation between origination quality and volume. Very low producing brokers could be a strain on our customer support functions if they don’t stay up to date on changes in the industry.”
Others have a more open policy when it comes to working with new brokers, reverse mortgage-specific or newer TPOs who may be closing their first reverse mortgage loans.
“It has always been Reverseit’s philosophy,” says Bryan Hendershot, CEO of Urban Financial Group. “We’ll hold anybody’s hand and walk them through the business.”
However, he says, getting into the business requires commitment. “You can’t just say you’re going to do reverses and think it will fall on your lap…it takes a big dollar investment. You have to spend on marketing.”
Still, the wholesalers have responded favorably.
“Even at low volumes, reverse mortgages can be profitable for TPOs because there are relatively low costs of entry by leveraging the expertise, support, and origination platform of a reverse mortgage lender…” says Engelken. “Over time, we believe there is significant potential for TPO volume growth as the senior population grows and product awareness expands.”
MetLife has a similar take, but also stresses the standard of evaluation the company maintains for all of its third party originators.
“With FHA no longer requiring a separate approval, we can focus on educating clients that are committed to responsibly originating HECM loans for their customers, but every third party originator is still subject to our own evaluation,” says Mooney.
The lasting power of non-FHA-approved TPOs remains to be seen, but the potential for growth in the meantime could be substantial.
“It opens the door to thousands of lenders who are not FHA-approved,” says Lunde. “If you look at the number that are [approved] and that aren’t, there’s a much bigger number that aren’t.”
Written by Elizabeth Ecker