New Reverse Mortgage Products, New “Gatekeepers”

Despite efforts by originators to incorporate new reverse mortgage products into their sales repertoire, the Home Equity Conversion Mortgage (HECM) Standard continues to maintain a stronghold on the market.

For lenders who have started to see success with the alternative products, education is the inroad they credit for working with a different type of borrower as well as a new sales process.

And, they say, there are new opportunities—and challenges—for the reverse mortgage Saver and Purchase products heading into the second half of 2012, with some companies seeing the new products comprise 20% to 25% of their business.

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Those are the minority of companies, but many others are looking to ways that they can enter these new markets.

The HECM Saver currently makes up around 7% of all Federal Housing Administration-insured reverse mortgages, according to data from Reverse Market Insight.

That proportion has fallen from close to 10% in September of 2011, after rising steadily through the first half of last year. Though it is not likely to rebound this year following the exit of MetLife from the business in April, say industry analysts, the Saver concept does stand to gain from some recent opportunities, including interest in the product from financial planners.

The reverse mortgage Purchase product, conversely, is “stuck” hovering around 100 loans per month, in spite of widespread efforts to educate Realtors about its benefits for senior homeowners.

“The Purchase has been stalled out for a year or two,” says John Lunde, RMI co-founder and president. It takes longer to build a network of Realtors, the industry seems to agree, but for both products, there are “gatekeepers” involved.

For the Saver, it could be financial planners who can make or break a reverse mortgage sale, while for the Purchase loans the consensus seems to be largely: educate Realtors. But working with either group is an adjustment for many originators who are accustomed to marketing to customers rather than fellow businesspeople.

“It takes longer to build a relationship with a Realtor,” Lunde says. “There’s a much longer sales cycle than with traditional mortgages. Challenge No. 2 is working with business-to-business contacts rather than consumers. That’s something you see on the Saver side as well. It’s not something existing companies and loan originator distribution networks are set up to address.”

While working with financial professionals on the Saver product has become easier over the course of the past year following publications in financial planning press and a new outlook on the use of the loans as a retirement planning tool, originators have found working with Realtors to be a true challenge.

“Realtors are the gatekeepers,” said Jim Cory, CEO of Legacy Reverse Mortgage during a recent National Reverse Mortgage Lenders Association conference. “It’s probably subconscious, but Realtors traditionally don’t like reverse mortgages. Over the years, it has meant one less purchase, or one less sale for them.”

The trick, lenders say, is being able to show referrers of the Saver and Purchase loans how a reverse mortgage can benefit their business.

“A Realtor wants to be very confident that you will not mess up his deal,” said Eric Hiatt, president and co-founder of Reverse Fortunes, during the conference panel.

For financial planners, who may be positioned to recommend a reverse mortgage as part of an overall retirement plan, they, too, may want to know how it will help their business.

“With financial planners, they want to know what’s in it for them,” Cory says. “They are paid on total assets under management. So if you can give them an option where a client doesn’t have to sell their assets, they are going to have more assets under management. It makes a lot of sense, but it’s about dealing with the gatekeeper.”

Aside from requiring relationship-centric marketing that may require some lenders to start from scratch, the borrower for each of the new product groups is very different as well.

This new demand will come from a borrower who has some retirement savings or who likely owns his or her home free and clear. Above all, that shift requires education, lenders say.

“So far, we as originators or companies are still dealing with a needs-based borrower,” Hiatt says. “The HECM Purchase is different. The way to grow it is creating awareness. It’s being done really well by some companies but we’re still lacking in some areas.”

Expanding the market to include these new products is ultimately going to serve the borrower better, lenders say. And there may be another product on the horizon toward this end, according to NRMLA representatives.

A reverse mortgage hybrid, that combines a fixed-rate loan with an adjustable rate product, could potentially add another option to the mix. NRMLA has pitched the product to the Federal Housing Administration in an effort to introduce the product in the near term. Despite the marketing challenges, lenders seem to embrace the product mix overall.

“The Saver is not only another good HECM loan option, it’s the right thing to do in a lot of cases,” Cory says. “When people inquire about a reverse mortgage, often they have fear about the future. We can say, ‘You don’t need this, but wouldn’t you want this backstop for retirement planning?’”

Offering all products will ultimately serve the borrower best, Hiatt says.

“We need to continue to remember we are problem solvers,” he says. “We need to determine which loan meets the needs best. We need to make sure we are looking at all products across the board.”

This edition of RMD Report is brought to you by Landmark, a leading national appraisal management and compliance company serving the reverse mortgage lending industry

Written by Elizabeth Ecker