Most in the reverse mortgage business will tell you that entering the industry is not without numerous difficulties and some major differences from the forward market. Yet many forward originators are continually expanding into the reverse side of things, even though it isn’t exactly a quick or easy process.
Some companies that have recently added reverse loans to their existing forward operations can attest to the challenges they’ve faced in making the transition. Despite this, they say, they have made the right decision, and at just the right time.
“About two years ago, we got the sensation that we really better brush up on value-added products as the demographics of our consumers began to shift,” says David Wind, president of White Plains, N.Y.-based Guaranteed Home Mortgage Company, Inc. GHMC recently launched a reverse mortgage division and has closed 14 reverse loans in the past two months.
Open Mortgage, another fairly new HECM originator, has also recently opted to expand its product offerings. The company’s expansion into the reverse market has made it more “full-spectrum,” says Bob Wommack, a loan officer for Open Mortgage who originates both forward and reverse mortgages and does reverse mortgage training for the company.
However, a new type of loan means a different pace, system and process, which are just some of the challenges these new players face.
Seniors often aren’t as comfortable with technology as those who are in the process of getting a “forward” mortgage, they say. When dealing with seniors, the pace is often slower because they don’t always have all the facts, and they’re more accustomed with meeting in person or using “snail mail,” than with fax machines and email, Wind says.
“There’s also a larger degree of patience that one must exercise, because not much is well known about the process from the consumer standpoint,” he says. “Naturally there’s a tendency to be cautious. With a reverse, we’re selling the same thing to multiple people within a family, multiple times, in order to bring everyone on board to make sure it’s the right thing.”
In addition to what is often a lengthier sales cycle, there’s also a different process and regulation. With the onslaught of regulatory change within the reverse industry, cross-over companies need to be aware of what’s going on to make sure they’re compliant.
“Companies that come into the reverse mortgage business, they’re always going to think in the forward world, because that’s what they know. That becomes a challenge; the rules and regulations on reverse are so much different than a forward loan,” says Wommack. “It’s like an apple and an orange; they’re totally different, and a lot of companies do not understand that. There’s so many twists and turns today that are different from the forward side; processing becomes a big issue.”
It’s important to understand the processing for each loan, says Wommack, which is why he advises that loan officers should concentrate on particular loan types. At Open Mortgage, the vast majority of reverse originators are reverse-specific.
But a recent decision by the Department of Housing and Urban Development (HUD) has also made entry easier for forward originators by allowing non-Federal Housing Administration-approved third party originators (TPOs) to originate reverse mortgages. HUD data shows that this has sparked a dramatic growth in the number of TPOs offering reverse mortgages.
Another major consideration for entering the business is the difference in loan origination systems (LOS). New companies have to select and adapt to new systems, whereas they find more established systems are in place for the forward market.
Wind says the forward process is “clearly more mature,” from a technological standpoint.
“There’s a tremendous consolidation of [forward] companies that provide sophisticated loan origination systems,” he says. “With respect to the reverse side, there are very few proprietary systems available in the market available to non-money-centered players. We’re frustrated and would like to see more innovation from our tech partners for the integration of existing systems.”
It’s can be a major investment for a company to buy into an expensive system that may be antiquated sooner rather than later, says Wind, especially as rules and regulations for reverse mortgages continue to pile up.
But in spite of all the additional costs and challenges, forward companies continue to move forward in entering the reverse market. And it’s worth it, they say.
“[Open Mortgage] is young company that’s still growing, but we’re growing,” says Wommack, adding that his company is currently endorsing about 20 reverse mortgages per month. He expects that number to increase and eventually make up about 20% of the company’s total loan volume, up from its current level of 10%.
“We believe in this product. It’s a good product for the consumer, and it’s safe for the investor. We are staying the course, and continuing to invest in it. Although the challenges still exist, they’re less and less significant each day,” says Wind. “We believe that this is going to be, if not a major, then a significant contributor to our operational revenues,” he added.
Written by Alyssa Gerace