A lot has changed in the reverse mortgage industry within the past decade. The last five years alone saw the exits of big banks like Wells Fargo (NYSE: WFC) and Metlife (NYSE: MET) from the reverse business, as well as a series of new game-changing updates to the Home Equity Conversion Mortgage (HECM) program.
Through the industry tumult, several new reverse mortgage lenders were born, seeing opportunities to launch and grow their teams in the departure of big banks and new program rules.
As the reverse mortgage product today further distances itself from the “loan of last resort” perception and into a viable financial tool for a borrower’s retirement strategy, lenders are seeing even greater potential to grow their businesses by forming relationships with organizations outside of the reverse mortgage industry.
Earlier this year, American Advisors Group (AAG) formed one such relationship with home health provider Visiting Angels. Through the partnership, AAG’s national sales team provides training and education to Visiting Angels franchisees on how to initiate conversations about reverse mortgages with their senior clients and caregivers.
For newer reverse mortgage lenders, partnering with non-industry channels focused on seniors is one strategy that some say not only raises awareness of the reverse mortgage product, but also increases their exposure and solidifies their seat at the table in the retirement planning conversation.
‘Growing the pie’
The 2011-2012 exits of mega banks like Bank of America (NYSE: BAC), Wells Fargo and MetLife dealt a one-two-three punch to the reverse mortgage sector, in turn leaving a craterous impact on reverse industry volume in their wake.
But natural evolution progressed and over the years several new reverse mortgage lenders spawned from the market void, including Longbridge Financial (est. 2012), Reverse Mortgage Funding (2013) and Retirement Funding Solutions (2015).
“Our job is to grow the pie—to find new and different ways to use this [reverse mortgage] product, and get it accepted. And there needs to be a strategy to do that,” says Chris Mayer, CEO of Longbridge Financial, a Mahwah, New Jersey-based reverse mortgage originator that launched in 2012.
Reverse mortgage lenders, like those focusing on the HECM for Purchase, have typically targeted non-industry professionals like Realtors and senior homebuilding companies when forming referral relationships.
Longbridge, however, is trying to build its success in other channels. Recently, the company became a closed loan seller to BNY Mellon, which announced its re-entry into the reverse mortgage market earlier this year after originally exiting the business in 2007.
Longbridge’s strategy is to grow its reverse mortgage business by developing relationships with outside professionals and organizations, particularly those operating tangentially to seniors such as financial planners and senior care providers (e.g. at-home care and long-term care). Teaming with employers to help reverse mortgages become part of the retirement discussion among workers presents a third channel opportunity for Longbridge, added Mayer.
“Those three are important channels where the reverse mortgage product hasn’t penetrated,” Mayer said, who adds that Longbridge is working hard those channels the company believes will “move the needle” in terms of the public’s acceptance of reverse mortgages.
Two years after Longbridge launched, the company’s growth took off in September 2014 when Ellington Financial, LLC (NYSE: EFC) made a significant investment in the company, which was founded by a group of former New York Life employees. The specific terms of the deal were not disclosed.
A specialty finance company, Ellington primarily acquires and manages mortgage-related assets, including residential and commercial mortgage-backed securities and loans. The principal held in its reverse mortgage investment totaled just north of $53.1 million in second quarter ended June 30, 2015, the company disclosed in its most recent quarterly earnings release.
“We believe that Longbridge is poised to significantly expand its presence in the reverse mortgage origination space,” stated CEO Ellington Management Group, LLC in an announcement of the Longbridge investment. And so far, the company has.
In the past six months, Longbridge has been ramping up its reverse mortgage operations. In November 2012, the company welcomed former MetLife division and sales leader Melissa Macerato as its newest partner and vice president of sales and marketing to aid in the company’s reverse mortgage expansion.
“It’s not a simple process,” Mayer said. “We spent a long time raising institutional capital, which we were successful with, and it takes a long time to grow licensing for a warehouse line and all of the things you need to be a credible company and approved lender and servicer.”
To date, the Longbridge is licensed in 44 states and most recently opened a new call center in Charlotte, North Carolina, joining its others in Mahwah and Kansas City. In the first half of 2015, the company has reported a volume of 42 loans through June, and 71 total endorsements in the last 12 months, according to the most recent industry data from Reverse Market Insight.
Now into its third year of operation, Longbridge attributes part of its successes to the company’s experience in the reverse mortgage industry, including personnel from MetLife, New York Life and BNY Mellon.
“When building a company, you need to have a strategy and a way to differentiate yourself,” Mayer said. “The ability to connect and bring some different kinds of people and companies into the [reverse mortgage] space is where we see our competitive advantage as a growing lender.”
A bottom-up, top-down approach
Aligning a reverse mortgage business with outside channels like those of financial planners or at-home care providers is critical, said Torrey Larsen, founder and CEO of San Diego-based Retirement Funding Solutions (RFS), the reverse mortgage division of Synergy One Lending, which launched January 1, 2015.
“Everything we do as a company, we take both a bottom-up and top-down approach,” Larsen said. “You have to take a viewpoint that once you pick your strategy, it’s both top-down as well as bottom-up in terms of going forward with it.”
Bottom-up, this means boots-on-the-ground originators are out there sourcing referrals from within their individual market, he noted, whereas ‘top-down’ lies within the potential to leverage referrals and drive value to originators as well.
But whether it’s forming relationships with financial advisors or senior homebuilders, Larsen says it is the responsibility of any new company to source affiliate organizations that can help drive the business.
Larsen, who most recently served as president of Security One Lending, has been building the RFS team following the January launch. In recent months, the company has made several key hires and executed other strategic initiatives focused on training and consulting.
In June, RFS announced that it had secured reverse mortgage industry veteran Alex Pistone—former senior vice president at Security One/RMS— to serve as the company’s president.
Also around that time, the company inked a deal with Longevity View, LLC, a consulting firm owned by reverse industry veteran Shelley Giordano. As part of the agreement, Longevity View provide educational training, sales, coaching and mentoring services to RFS originators.
Having a seasoned team of experienced reverse mortgage industry professionals is critical to navigating the reverse mortgage market, Larsen said. It’s also the foundation for new lenders to succeed.
“You need to have a seasoned group of professionals who are representing and making decisions for your company,” Larsen said.
Mile wide, mile deep
From a scale perspective, a smaller fledgling company has the advantage of nimbleness, in that the less expansive an organization is, the easier to manage and implement processes throughout. But new companies should be wary of building their strategies a “mile wide and mile deep.”
“I’d rather be a foot-wide and a mile-deep on each strategy, so we can become experts and differentiate ourselves from the rest of the market,” Larsen said.
Growth doesn’t happen overnight when launching any business. And in the reverse mortgage industry, which has recently faced some of the biggest changes the HECM program has seen in the history of the program, new rules often times mean heightened competition among lenders as they tweak their operations to adapt to the changes.
“You have to be patient—it’s not going to happen overnight,” Larsen said. “Second, you have to be persistent and willing to overcome challenges that hit you on a daily, weekly and monthly basis. Lastly, just being diligent with your clients—understanding your strategy and be willing to go deep to understand the marketplace.”
This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.
Written by Jason Oliva