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

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  • Of all of the statements above, those of Mr. Jim Cory are most troubling.  If the purpose of Saver originations is to line the pockets of the originator and the “planner,” Savers should be banned forever by HUD.  BUT Savers are an excellent product and can be utilized to help more affluent seniors in many ways.

    What Mr. Cory is presenting has little to do with financial planning in the purest sense of that term but rather asset managing and asset managers.  Unfortunately, the financial services industry has clouded terminology in the hopes of putting the best spin they can on the services they provide.  While asset managers may do financial planing that is not their primary expertise or principal area of practice.  Those whose dominant revenues are derived from hourly fee based planning are financial planners.  Even some CFPs, like Mr. Ray Lucia, are more asset managers than true financial or retirement planners.

    In our CPA firm we separated asset management from financial planning.  Within our entertainment group, we had several people in our asset management group but few financial planners.

    It is not clear what is meant by a “backstop product”.  Perhaps that is a standby line of credit?  This is a problem for our industry at this point and that is having individuals who can speak the language of retirement and financial planners, asset managers, insurance producers, and securities registrants.

    The most successful CPA auditors I dealt with, were not only fluent in the terminology which governed accounting but also were very fluent in the terminology and jargon of the industries from which they generated their greatest revenues.  To that extent the statements related to the financial services industries show how much further we as an industry have to go.       

  • When it comes to Realtors, education opens the door but is not the central issue.  The central issue to the Realtor is can you work as part of “the team.”  The goal is the sale not HECM origination.

    If the originator does not understand the role, all of the top education which can be provided is meaningless.  The buyer is not your customer; that person is the customer of the Realtor.  If you get the origination but the buyer obtains a different home through another Realtor, to the first Realtor you probably caused the seller to turn somewhere else.

    If the Realtor needs you in the evenings or weekends to help close the sale, well that is when the originator is expected to provide the information needed to make the home sale work or take the HECM application.  You must find ways to work at their convenience and the convenience of the buyer.

    To gain the friendship and the trust of the Realtor it will usually require going to an open house to show the Realtor you are willing to work when they are the most productive.  It may take months before the Realtor has a real prospect if ever.  However, working with a Realtor especially in a large real estate office is to be put under the microscope.  When it is PERCEIVED you have failed in just one sale, every Realtor in the office will be put on notice either through the Realtor or the managing broker.

    Working with Realtors is much different than just educating and get an application signed and the borrower through counseling.  It is not just the need to educate.  It is understanding and practically fulfilling your responsibilities as a team member in a way which is perceived as adding value to the team.  No Realtor wants the best educator in the city if that educating HECM originator does not understand how to enhance the value of the team and get the home sold.

    • Well said and a great reminder of how to work with Realtors, how critical each sale is to the next and just how different it is than working with the seniors directly.  It takes a team approach and the processing, underwriting and closing departments all need to understand the importance of each step.  When one sale deal goes wrong, all reverse mortgages lose.

    •  Yep, it’s as you’ve said, Mr. Critic, in the traditional sense.  So I’m trying another approach, and it’s been a long slow road, but I’m finally starting to get there.  Instead of asking to be on the team, I create the team, with the goal of making the buyer both mine and the Real Estate Agents client.  I’m establishing team relationships with SRES’s (Senior Real Estate Specialists’), because we both understand the same target audience, and I’m responsible for the technical portion of our relationship, which involves providing buyer leads to the Agents.  I do that by creating lead generating markets, like http://www.LagunaWoodsFeaturedCondo.com.  In turn, when it’s time to review financing options and solutions, they review and explain how the HECM for purchase program works.  I hope I’m successful.

      • Raymond,

        I have seeing marketing video from forward mortgage gurus presenting this idea for the last twelve months. Some have developed systems on how to make this work.  I wondered how it would work in our industry.  

        I would love to see Elizabeth do an article on this focusing on what it is you are doing.

        Good luck.

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