Reverse Mortgage Lenders Adapt to Product Change—with X Factors Ahead

With 2014 well under way and with it, a completely revamped reverse mortgage product, lenders tend to agree: marketing the product hasn’t brought too many surprises, but there’s uncertainty ahead.

The new borrower restriction limiting upfront draws for fixed rate reverse mortgages as well as principal limit factor cuts that took effect after September 2013 stand to turn the industry on its head—again. But those marketing and originating the new reverse mortgage report their process hasn’t changed much, yet, and while some borrowers won’t qualify under the new PLFs, many are still making reverse mortgages work for their situations, albeit at lower principal limits than before.

Educating borrowers

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For some of the largest lenders, the changes have been minimal from an operations standpoint.

“There had to be some changes in how we present the program and the information that can be found in our educational materials because of the new limitation as it relates to the initial use of the [loan],” says Gregg Smith, president and chief operating officer of One Reverse Mortgage. “It was a minor tweak in our process. The options are still there. You can still do your initial draw, then tenure, term or line of credit. The bigger change was the initial limitation and the PLF cut.”

 

Likewise, American Advisors Group, another top-10 lender by volume, has made very little change to its borrower education process.

“At AAG, our process in educating a client has not changed,” says Paul Fiore, senior vice president of retail lending. “We still take a very deliberate approach in our sale, focusing in on the borrower’s needs and wants first, finding out what they know about the product through their own research and ultimately working with them to help determine if the reverse mortgage is the right choice for them.”

Originators are finding borrowers largely aren’t aware of the program changes, unless they had applied or seriously researched previously; so there’s no need to address the change, except as a way to outline some of the safeguards introduced by the modifications.

But in the cases where borrowers realize the impact of the changes in terms of the amount they are now eligible for, they’re not happy.

“For consumers, we simply educate them on the changes, and we explain that the changes were wisely made to strengthen the program over the long term, and protect the interest of senior borrowers now and in the future,” says Mike Gruley of 1st Financial Reverse Mortgages. “Some borrowers are aware of the changes to the program, but most who are contacting us for the first time, are not. All borrowers seem to be receptive and understanding of the changes, but a few who have been negatively affected by them are not happy.”

On the counseling front

Counselors, too, are finding the new rules are not daunting to borrowers, even if they don’t qualify for the same proceeds as they would have before the program changes.

“I don’t find the process more difficult,” one counselor said. “There are times that the borrowers find it confusing, but there were some that found the old product confusing as well. That is going to happen with any product, I believe.”

Further, some say the single product versus a Standard and Saver option is even easier from a borrower education standpoint.

“I’m not getting any more questions than normal after the rule changes,” says another counselor. “Counseling is not more difficult; simpler in fact. No standard or saver products. No more choice for the borrower, really.”

Both counselors and lenders are opting to focus not on what the borrower can’t get, but what the borrower can get with the new product—an adjustable rate line of credit with the option to pay off mandatory obligations upfront.

The “X Factors”

But there still remains to be seen the impact of additional product overlays that may seriously change the business-as-usual stance taken by large lenders in the new year, as well as the same problems that have existed for years, originators say.

 

“The education process at the borrower level has fundamentally remained the same,” Gruley says. “Borrowers seem to grasp the new functionality of the product with relative ease, but still our greatest challenge with the education process still has to do with the same misconceptions we’ve dealt with for years.”

A new, multi-million-dollar initiative under way is aimed at solving the second problem: product misconceptions and general “PR” around reverse mortgages. The Extreme Summit, a project spearheaded by the National Reverse Mortgage Lenders Association along with lenders large and small, is taking a three-pronged approach: geo-target areas of the greatest opportunity, combat negative media by driving three positive impressions for every one negative news story, and rebrand the reverse mortgage.

It’s no small task, but it’s the most time, effort and money committed yet to the issues.

Lenders are hopeful this year will bring positive change, although major uncertainty still lies ahead from home prices to Federal Housing Administration policy and position.

“I think home prices are still in our favor for 2014,” says John Lunde, president of Reverse Market Insight. “I would say a big unknown for 2014 is FHA/HUD policy with 2013 being a year of tightening posture based on insurance fund pressures. With home price increases in insurance fund accounting, that should have a positive impact.”

One Reverse’s Smith says financial assessment of borrowers will likely be the greatest unknown as lenders gear up for the next wave of change.

“2014 is the ‘X factor’ year,” Smith says. “We don’t know what it will be. We know financial assessment is coming and no one has any solid data on it. We’re all going to learn this together, hopefully, but we just don’t know the impact it will have on the program.”

This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.  

Written by Elizabeth Ecker

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  • What is so different other than the total elimination of all Standards? The new HEM after reduction for the initial MIP is simply the Saver.

    What is happened is that things got easier for originators in that they do not have to figure which is best for a customer, the Standard or the Saver and why would I ever present a Saver? Of course now we have higher initial MIP to contend with in comparison to the initial MIP on the Saver. That is the initial MIP is now 50 to 250 times higher than on the Saver.

    We do have one thing new to deal with (first year disbursement limitation) and are awaiting the much more difficult one, financial assessment.

    The real news for the industry is that average UPBs are much lower now and endorsement volume on the the new HECMs will stink in 2014. We will lack some clarity on the latter issue since many Standard ARMs which closed in 2013 were not endorsed by year end.

    It is strange to see “education” taking up so much space in the article. Since when has “education” been that significant to begin with? What we supply is basic product information and a lot of “overcoming objections.”

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