Reverse Lenders See Big Growth Potential in Financial Assessment

The Financial Assessment may not be the change the reverse mortgage industry wants right now from a process standpoint, but it’s the one that it needs to clean its reputation and attract a different pool of borrowers in the long-run, industry participants say.

Not only can a change in perception lead to a greater acceptance from both potential borrowers and the general public, but it can also translate into a wealth of opportunities from a reverse mortgage sales standpoint, according to several industry experts during an RMD webinar Wednesday.

Even though there is the potential of losing business from prospective borrowers who might not qualify under the Financial Assessment Guidelines, there is still an opportunity for salespeople to expand their businesses even after the rule takes effect April 27th, said Paul Fiore, executive vice president of retail lending at American Advisors Group (AAG).

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“There is an opportunity to grow this market, and on a long-term basis, this could be a positive change for the industry,” he said. “Through the Financial Assessment, you can actually solidify your sale by showing a potential borrower the value of a reverse mortgage.”

In terms of changing public perceptions of reverse mortgages, the FA can help facilitate this perspective shift since the rule requires credit and income underwriting of potential borrowers rather than simple age and equity qualifications.

“[The reverse mortgage] becomes more of a long-term plan,” Fiore said.

The Financial Assessment boils down to creating a solution aimed at longevity, rather than a short-term fix or a needs-based product, as reverse mortgages have been perceived in the past.

But to get this message across to a prospective borrower, loan originators will have to do something they’ve never been required to do before: build rapport and trust, said Shannon Hicks, president of Reverse Focus.

“This Assessment is going to necessitate that we look at how we approach our borrowers, and we’re going to have to give some thought to how we actually flow through that conversation,” Hicks said. “Rapport will be more important than ever.”

The additional credibility that FA brings to the reverse mortgage product in the eyes of the public will also extend to others in the retirement planning space such as financial advisors and planners, said Sherry Apanay, chief sales officer at Urban Financial of America.

“On the B2B [business-to-business] side, we’re seeing more doors open not only with credit unions, but also community and national banks, as well as trusted advisors,” Apanay said. “One of the biggest challenges has been getting in the door, but with the changes we’ve had recently, that has made the door a little easier to open.”

The changes brought on by the FA legitimizes the reverse mortgage product, which in turn helps broaden communication across all channels, from financial advisors and the mainstream media to even investors, said Josh Shein, senior director at Home Point Financial, formerly Maverick Funding.

Though lenders will wrestle with declining volume in the months following April 27, the setback will only be temporary as the industry perseveres through the changes, like it has done so time and time again in the past.

“History definitely gives us lessons for the future,” said Shein. “In the long-term, we’re going to be looking much better and brighter than we are today.

Written by Jason Oliva

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  • “Through the Financial Assessment, you can actually solidify your sale by showing a potential borrower the value of a reverse mortgage.” If this is true, why didn’t the originators at MetLife demand that the company keep its form of financial assessment?

    What Financial Assessment shows to a borrower is that if they are approved, they should not have difficulty staying in property charge payment compliance and that is it. Some of our leaders are sounding more and more desperate in how they are attempting to show the value of Financial Assessment. Few industry leaders have thoroughly thought through their claims.

    It will be very startling if Financial Assessment will substantially or even significantly change the perception of most seniors about HECMs. They will simply take it in stride and see it as a nuance. It will not stop the attacks of our critics but will mitigate their increased foreclosure warnings.

    Where the greatest benefit will be seen is 1) current businesses relationships where the potential for foreclosure from property charge payment defaults have been viewed as an insurmountable hurdle to overcome in order to advise their clients to take on the risk of a reverse mortgage (I have several of these) and 2) reverse mortgage lenders by allowing them to modify HECMs so that they will not have such a huge potential base for potential foreclosures, protecting their treasuries from loss and their reputations from being seen as lenders who are eager to foreclose on grandpa and grandma.

    But the biggest benefit from this change will be short-lived since Financial Assessment will be seen as a routine part of getting a HECM before the decade is out, if not even a few years earlier. So it is hard to imagine where all of this alleged long-term benefit will come from other than some business doors which would have been harder to open without it.

  • Perhaps others have different experiences but I NEVER had one prospect walk away from closing a HECM just because it did not have Financial Assessment. In fact many were pleasantly surprised even relieved to see that there actually was none.

    In fact our growth problems are so deep that this one change will not turn our growth problems on their heads. Growth will magically appear just because HECMs have financial assessment? Anyone who believes that myth should not be in a position of providing advice to others.

    Trying to explain how fully funded LESAs are a benefit to borrowers will be a chore. Just explaining the computation of the Monthly Residual Income Shortfall will be interesting. But then so will explaining the LESA computations.

    So far the lack of understanding about computing both LESAs in the face of well presented formulas has almost been hilarious if it were not for the fact that seniors will be told much of this nonsense as if it were fact. Lenders are doing an incompetent and miserable job in training originators about LESAs.

  • hmmmm….. “Though lenders will wrestle with declining volume in the months following April 27”. Yes, this is true. but increased (possible) volume in the future will come ONLY due to the 10,000 baby boomers turning age 62 everyday. Not because America respects HECMs. Some want us to drink the cool-aid. An easier solution would have been to set up a monthly escrow (yes, monthly escrow payments!). Hit LIKE if you agree.

    • Tim,

      January 1, 2015 was the seventh anniversary of the first Baby Boomers turning 62. So far the general trend is that as Baby Boomers turn 62 our annual endorsements just keep on falling.

      Then there is the monthly escrow routine. I can see you have origination experience but very little experience with collection management.

      But you are right that very few seniors are going to change their perspective about HECMs just because of Financial Assessment other than see HECMs as even more complicated and less hassle free.

  • Judging by the number of phone calls lately, I’m thinking that FA will be a huge boost to business. The more people are told they can’t have something, the more they will want it.

  • Our industry has overly relied upon senior population growth from Baby Boomers turning 62 beginning on January 1, 2008. On January 1, 2016 (just a little over 8 months away now) the very oldest Baby Boomers will be turning 70 years old.

    In 2011, counseling leaders told us of their concern that they were measuring unexpectedly high percentages of counseling sessions given to the youngest qualified seniors. They warned of the dangers of younger seniors beginning to dominate HECM closings. Yet the drop in the average age of the youngest borrower never really deviated from the pattern that was established in the early years of the industry. In fact last fiscal year the average of the youngest borrower for those between 62 and 69 dropped by 1.3% from what it was the year before at 49.6%.

    Then we had reports from lenders that a youth movement would soon be upon us. Yet all we have seen is our old patterns and no increase in annual endorsements except for fiscal 2013 when we barely achieved 60,000 endorsements. Is it Baby Boomers who have failed us or our general lack of knowing how to reach them? Better yet are they reachable in any large numbers until they turn 70s (which again would not deviate from patterns we have seen before)?

    Yet it is not Financial Assessment that will be the biggest source of growth but rather Baby Boomers turning ever older. I agree with those who cannot see even 55,000 endorsements for this fiscal year. By trends, there is even a rational argument that endorsements will be less than last fiscal year, the one I most agree with (but only IF Financial Assessment is actually implemented by the end of this month).

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