Adjusting to the Latest in Reverse Mortgage Changes

It’s not unusual to hear in the reverse mortgage business that change is the only thing that remains constant. The past six months as well as the coming months are no exception to this as lenders have seen the new principal limit factors take effect, new product restrictions that have readjusted the ratio of fixed-rate to adjustable-rate borrowers in the market, and a resulting decline in loan volume.

But participants in the reverse mortgage process say they are working through the changes accordingly and are seeing them play out with the long term effect in mind, from counseling to marketing and closing loans.

The big picture

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For longtime reverse mortgage players, adjusting to the change is not unlike adjusting to other changes over the life of the Home Equity Conversion Mortgage program, Garrett Kolb, senior managing director for Reverse Mortgage Solutions, told attendees of the National Reverse Mortgage Lenders Association conference in San Diego earlier this month.

“2014 will be the big squeeze,” Kolb said during a conference panel in early March. “We have squeezed out profits and we have squeezed out part-time originators.”

Some of that impact will be positive, as focused originators hone in and those that are not HECM-focused tune out. However, the constant bidding up of the product could be seen as problematic in the short-term, Kolb said.

“There’s a huge appetite for the product, and now everyone is bidding up. For the health of the industry, that’s not so good,” he said.

Future changes, however, including financial assessment, will be relatively easy to implement, he continued.

“It’s not a problem from a forward perspective. You know what it is to do a qualification on disposable income. This is only going to squeeze out originators who don’t know how to sell.”

The financial assessment has long been discussed, with a proposal released by the Department of Housing and Urban Development in September. Also during the NRMLA convention, HUD representatives said that the proposed rule is expected this summer and will likely not stray substantially from the earlier proposal.

All change considered, the outlook is strong from Kolb’s perspective at RMS.

“Prediction for 2015: we’re on the uptick now,” he said.

Marketing

Marketing the “new” product following its changes has undergone some shifting of messaging, but largely has not been impacted, American Advisors Group Chief Marketing Officer Teague McGrath said during the panel, noting that the company had begun reacting to demographic trends before the changes took effect.

AAG has recently risen in the ranks to some of its highest monthly loan volume to date, a success the company attributes largely to training and remaining ahead of product changes rather than reacting to them.

“The changes coming down the pike have accelerated our plans,” McGrath said, noting a new advertising campaign that has recently launched to target the adult child of the prospective reverse mortgage borrower.

“We were talking to the World War II senior and the single female, average age 74 to 75. We were having a conversation about how to get them out of financial distress. Now that person is younger, around 71, looking for lifestyle management or financial planning.”

AAG has adapted its marketing to roughly 60% TV advertising and 40% web marketing versus its past proportion of 90% versus 10%. But the messaging and target is largely the same, McGrath said.

“We already thought the LIBOR product was better, now there are many more in the market. It’s more appealing for our sale and technique. The line of credit growth is appealing and a benefit. We’re going to go out and market that,” he said.

Counseling

Reverse mortgage counseling has had to adapt in line with the new changes, as well as an ongoing introduction of new products in the market offering different benefits to borrowers such as a new annually adjusting ARM product and fixed rate alternatives that allow borrowers an initial upfront draw in addition to future draws after a year post-closing.

Remaining current is an ongoing priority from a training standpoint, said Sue Hunt Brown, vice president for ClearPoint Credit Counseling Solutions.

“Training issues are going to be huge to make sure customers have a consistent group of people to go to,” she said.

The new product will likely mean more time spent in counseling, as well. As recently as 2013, counseling sessions were taking roughly 90 minutes to complete, prompting some agencies to experiment with ways to make the process more efficient—online education and pre-counseling, for example.

“Counseling sessions will continue to take longer,” Hunt Brown said. “This will be a challenge. Homeowners in this age group sometimes have a hard time sitting through a conversation longer than an hour. As length grows so does cost of the session.”

But an increase in the time devoted to counseling per borrower as well as a rising cost might put positive pressure on the counseling industry to drive efficiencies, Hunt Brown continued.

“Some have done group education first, then at the individual level. Some are using online education. Ten years ago, we didn’t find many people comfortable using online education,” she said. “Now we have seniors who have been in the workplace, using computers… we might see some growth in that area.”

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

Written by Elizabeth Ecker

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  • Great article Elisabeth! I have been in this industry for over 16 years and I have never seen the amount of changes we have seen in the past 4 to 5 years.

    The Dodd-Frank bill and the establishment of the CFPB started it all off, not to mention the crash of 2008. I feel the industry panicked and they had good reason too.

    We had experienced the greatest economic and housing crash since the great depression. I think in many ways 2008 was worse. There never has been so much debt in the hands of the American people when the crash hit, at least during the great depression, people had no debt! Yes, they had no money either but also no way to have a false economical growth!!

    The changes yet to come along with what we have experienced already is enough to make many want to turn and run. Many have done so and many more will down the road. However, like the article alludes to, we will have a wealth of opportunity out there as well.

    With the amount of seniors turning of age to qualify for a reverse mortgage the law of averages will be those smart enough to capitalize on what the future holds.

    Those institutions and companies that focus on continuing education for their staff and those that pass it on properly to the prospective borrower will survive in this ever changing market.

    Remember, the seniors are the most confused, the HUD approved counselors are not going to do your job, they should be supporting your position and your counseling efforts with the borrowers.
    You, the originator need to be the hero with your client, the one to answer all the questions and the one that builds up trust between you and your client. Dont rely on the counselor to do it for you!

    Do all this with passion, with dilegent’s and with the borrowers interest always number one at heart and you will survive what is ahead for all of us!!!!!

    John A. Smaldone

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