Want to Triple the Reverse Mortgage Market? Here’s How

The HECM Saver and HECM for Purchase are tapping a mere fraction of their potential markets, each with a projected target population that could yield the equivalent to the entire current HECM Standard market, an industry analyst says.

The potential HECM Purchase market includes a whopping 70,000 seniors annually, according to calculations from Revere Market Insight. That potential nearly reaches the total of all HECMs that will be endorsed in fiscal year 2011.

John Lunde, RMI’s president and co-founder, explained the math behind the number at a Texas Mortgage Bankers Association reverse mortgage conference in Houston last week.

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Considering a 23.2 million senior homeownership figure for the United States and an annual relocation rate of 6%, Lunde estimated that 1.4 million seniors move each year. Figuring that 20% of those have a mortgage, it leaves 280,000 seniors annually who could use a HECM for Purchase in order to buy their next home. Using a 25% conversion rate for those who choose a HECM Purchase rather than another type of mortgage, Lunde determined that there are 70,000 potential HECM Purchase borrowers each year.

There were just 101 HECM Purchase loans done in 2010, with recent monthly totals around 100 per month.

“The HECM for purchase got to around 100 loans per month,” Lunde said, “but has plateaued quickly and well before its time.”

The same goes for the HECM Saver, which launched in October 2010 and has showed a steady—but slow—increase in market share.

“When the Saver was first announced, the initial impression was: This is a great thing for the industry,” Lunde said. “Expanding beyond the needs-based market.”

Likewise, the Saver has far more market potential than its current reach of 9%. By considering standard adjustable rate loans that could become Saver ARMs, plus age-eligible home equity line of credit borrowers and those who are age-eligible for a HELOC but are declined for credit or other reasons, along with the generation of new customers through several other strategies.

But, he says, the Saver presents a challenge.

“The challenge is much bigger. If you want to have Saver volume that’s meaningful at all, you’re almost talking about two different marketing campaigns.”

Targeting a new kind borrower may take time, but the payoff could be substantial.

“It has the potential to do as many loans as entire HECM market,” Lunde said.

Written by Elizabeth Ecker

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  • Math is math but practice is quite different.
     
    Savers have been available for 11 months.  Since inception they have had no significant changes.  HECMs for purchase seem to have been in continual flux from inception in early 2009.
     
    The volume of Savers could take a big percentage reduction soon due to the loss of Wells but its numbers should recover over the next few years.  One problem with the purchase program is that the potential period of interest in the product is so short and with so many concerns during that period of interest focusing attention on an unfamiliar mortgage is difficult at best.  If the borrower lives in the home 10 years and the time from actual offer to close is 90 days or less, that means reaching buyers with the HECM for purchase message at just the right time is a difficult marketing game.
     
    There is an estimated 430,000 plus real estate licensees in California.  If 20% of the relocations are within or to California (an unrealistically high percentage) then we are looking at 14,000 potential transactions per year based on the math presented above.  Removing mortgage and other areas of specialization, let us assume that only 300,000 real estate licensees are frontline residential home sellers.  That means 5% of these individuals might be involved in one senior relocation annually.  That makes HECMs for purchase a difficult marketing risk.  That is probably why it will take years before it will become a significant part of the HECM program.
     
    Savers are much different.  They are geared toward the more affluent.  Not only can these seniors be reached through our normal channels of marketing but they are much more likely to have financial advisors and planners.  Advisors and planners can provide warm introductions year round.  These individuals can provide introductions whether the client is moving or not.  Even if the potential market for Savers is the same as HECMs for purchase, Savers should reach that potential much more rapidly than HECMs for purchase.
     

     

  • Math is math but practice is quite different.
     
    Savers have been available for 11 months.  Since inception they have had no significant changes.  HECMs for purchase seem to have been in continual flux from inception in early 2009.
     
    The volume of Savers could take a big percentage reduction soon due to the loss of Wells but its numbers should recover over the next few years.  One problem with the purchase program is that the potential period of interest in the product is so short and with so many concerns during that period of interest focusing attention on an unfamiliar mortgage is difficult at best.  If the borrower lives in the home 10 years and the time from actual offer to close is 90 days or less, that means reaching buyers with the HECM for purchase message at just the right time is a difficult marketing game.
     
    There is an estimated 430,000 plus real estate licensees in California.  If 20% of the relocations are within or to California (an unrealistically high percentage) then we are looking at 14,000 potential transactions per year based on the math presented above.  Removing mortgage and other areas of specialization, let us assume that only 300,000 real estate licensees are frontline residential home sellers.  That means 5% of these individuals might be involved in one senior relocation annually.  That makes HECMs for purchase a difficult marketing risk.  That is probably why it will take years before it will become a significant part of the HECM program.
     
    Savers are much different.  They are geared toward the more affluent.  Not only can these seniors be reached through our normal channels of marketing but they are much more likely to have financial advisors and planners.  Advisors and planners can provide warm introductions year round.  These individuals can provide introductions whether the client is moving or not.  Even if the potential market for Savers is the same as HECMs for purchase, Savers should reach that potential much more rapidly than HECMs for purchase.
     

     

    • Agree with your main thrust on growth from these products taking longer than this article suggests.

      I also agree that Saver appears to be a faster ramp than Purchase, although I mostly attribute that to the early volume being migration from Standard ARMs to Saver ARMs as opposed to true incremental customers.

      Your points about short transaction times for Purchase product are well made.  On the realtors, I suspect that this will be yet another 80/20 situation and likely even more extreme than that.  Very few realtors will understand and utilize a HECM Purchase partnership correctly, but there will be a few diamonds who actively create new purchase transactions for their business by marketing to seniors who would love to move but don’t believe they can afford it.

      Once those early adopters show the way, only then will the larger mass population of realtors follow.  So don’t focus on the 430,000 or even 300,000.  Market to realtors to find out who will be your diamond.

      • John,

        All good points.

        But I have heard some others say that Savers are primarily incremental business for some lenders like Wells and MetLife but few others.  The reason for their answer was these two were using the product to reach out to the segment of the financial advising and particularly planning community whose primary senior clientele are the more affluent.  The problem with hearsay is that it is just that.  Since Wells is no longer with us, it would be great if someone from the senior HECM management at MetLife addressed this rumor.

        I once worked for a realty firm with over 100 realtors not far from where you went to college.  They work in a city where there are huge segments of seniors.  Few of the licensees could remember working with any seniors who were purchasing homes; most were selling.  BUT my experience is nothing but anecdotal. 

        So while my experience with real estate licensees may not prove out what you advocate or my hearsay on Savers is different than what you present does not mean anything. 

        Until we have evidence, your opinion is as good if not much better than mine.

    • Agree with your main thrust on growth from these products taking longer than this article suggests.

      I also agree that Saver appears to be a faster ramp than Purchase, although I mostly attribute that to the early volume being migration from Standard ARMs to Saver ARMs as opposed to true incremental customers.

      Your points about short transaction times for Purchase product are well made.  On the realtors, I suspect that this will be yet another 80/20 situation and likely even more extreme than that.  Very few realtors will understand and utilize a HECM Purchase partnership correctly, but there will be a few diamonds who actively create new purchase transactions for their business by marketing to seniors who would love to move but don’t believe they can afford it.

      Once those early adopters show the way, only then will the larger mass population of realtors follow.  So don’t focus on the 430,000 or even 300,000.  Market to realtors to find out who will be your diamond.

  • John Lunde,

    Brings up very good points about both programs. We as originators need to start thinking out of the box. The saver does have its challanges but it also has its place in our market. Believe it or not, Boats are still selling and RV vehicles are still selling. Grant you, no where near where sales used to be.

    The point I am trying to make is the saver is ideal for this market, go out to these dealers, show them how they can increase sales by using your program. They will love to talk to you, you can make them money! There are many other areas the saver makes sense, look at the program closeley, you will see the picture!

    Same with the HECM purchase program. You need to go out to the purchase market, advertise in senior publications, put on realtor seminars. Educate and educate! Like John said, we have not yet begun to tap the market for these two products!

    Thanks,

    John A. Smaldone

  • John Lunde,

    Brings up very good points about both programs. We as originators need to start thinking out of the box. The saver does have its challanges but it also has its place in our market. Believe it or not, Boats are still selling and RV vehicles are still selling. Grant you, no where near where sales used to be.

    The point I am trying to make is the saver is ideal for this market, go out to these dealers, show them how they can increase sales by using your program. They will love to talk to you, you can make them money! There are many other areas the saver makes sense, look at the program closeley, you will see the picture!

    Same with the HECM purchase program. You need to go out to the purchase market, advertise in senior publications, put on realtor seminars. Educate and educate! Like John said, we have not yet begun to tap the market for these two products!

    Thanks,

    John A. Smaldone

  • Only issue I have with this article is that I never suggested the market would triple in the next 12 months.  The theoretical potential is there, but it simply won’t happen because execution takes time in the real world.

    I would think an optimistic view is that these two products triple the market over 5 years, a more realistic view is that it’s likely to take longer than that without a bigger change in home values and other key factors.

  • Only issue I have with this article is that I never suggested the market would triple in the next 12 months.  The theoretical potential is there, but it simply won’t happen because execution takes time in the real world.

    I would think an optimistic view is that these two products triple the market over 5 years, a more realistic view is that it’s likely to take longer than that without a bigger change in home values and other key factors.

      • Ms. Ecker,

        The most refreshing side of your reporting is your honesty.  That makes you unique and very valuable.

    • John,

      This is one reason why I did not use your name in my comment.  Sometimes headlines are more meaningful than the article or are far too sensational than warranted.  Your positions are generally well founded and reasoned. 

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