How Community Banks Feed Into the Growing Appetite for Reverse Mortgages

The reverse mortgage industry remains an environment susceptible to continuous transformation. Whether spurred by changes in new regulations, the exit of big banks, elimination of products or advent of a new marketing focus, the industry consistently seems to be in a state of adaptation.

In recent years, industry tumult has been enough to persuade the market’s largest lenders to abandon the space. If nothing else, this mass exodus paved the way for many of today’s top industry lenders to rise to the occasion.

The unintended consequences of this shift, coupled with the implementation of more rigid underwriting standards and new consumer protections, have made reverse mortgages more appealing to smaller, community banks who are now seeing an opportunity to add Home Equity Conversion Mortgages to their suite of product offerings.

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‘Main Street respectability’

Reverse mortgages catch a lot of flak; if not for their perceived high costs, then for their TV advertisements, which more often than not feature celebrity spokespeople pitching a complex product within the span of a two-minute commercial.

The Consumer Financial Protection Bureau even went so far as to scrutinize the murkiness of reverse mortgage advertisements, both on TV and in print, following the results of a focus group study which left several senior participants uncertain about just what exactly reverse mortgages entail.

The New York Times also railed against reverse mortgage TV ads in an article published this month, insinuating that celebrity spokesmen add an air of sketchiness to the product. But the article wasn’t all bad.

Mostly, the piece highlighted a growing attractiveness from certain community banks who have taken an interest in offering the loans. This phenomenon, the Times writes, is “bringing a kind of Main Street respectability to a product that has long lacked it.”

Community banks are often considered pillars of the local neighborhoods they serve. If reverse mortgages are ever to overcome their long held reputation as a home-forfeiting swindle, the recognition of these institutions will play a vital role.

Community relations

Community banks thrive on building relationships. In essence, it is the spirit of these local institutions to form and develop personal connections with the clients, many of whom they may be serving for many years. It’s in this spirit that reverse mortgages are a practical fit within the product offerings for community bankers.

For institutions like Standard Bank and Trust Co., a bank headquartered in Hickory Hills, Ill., the obligation to cater to the needs of the community served as the primary motivation to adopt reverse mortgages into its suite of products.

Like many community banks, Standard Bank works clients of all ages, from young first-time homebuyers to older banking clients in their retirement years.

“You have to be able to take care of people at every stage of their life,” said Nick Parisi, group senior vice president of mortgage banking at Standard Bank.

Reverse mortgages can address a variety of circumstances, whether that means tapping home equity to alleviate the burden of monthly mortgage payments, footing the bill for in-home care should the need arise, or even using a HECM for Purchase to downsize—or “right-size”—into a new residence.

“Reverse mortgages are an incredibly versatile tool,” Parisi said. “We’re most concerned that seniors absolutely understand the product—that they know what they are getting into and that their families are also involved.”

Standard Bank has total assets of approximately $2.5 billion with $2.2 billion in deposits and $1.8 billion in loans, of which 80% are commercial-related. The company operates 35 branch locations. In some areas, Parisi notes demand for reverse mortgages is higher than others.

“We have a pretty broad footprint, so there are various levels of demand, but there is demand for reverse mortgages in every area,” he said.

In terms of spreading the word about its reverse mortgage offerings, Standard Bank markets the product across its branches, as well as on its company website. The bank is also “very energetic” in doing presentations at local senior centers, community groups and expos, Parisi said.

While Standard Bank declined to disclose the number of reverse mortgages it originates each month, the company does anticipate a huge opportunity in the growth of the product, especially within the context of U.S. aging demographic trends.

“Let’s face it, the Boomers are a huge group and we haven’t even hit the surface of that market yet,” Parisi said. “As they continue to go into retirement, that market grows.”

A competitive boost

The essential mission for many community banks is being able to serve the changing needs of their clientele throughout life’s various stages. But as needs evolve with age, additional products are required to best serve certain clients.

Community banks who have adopted reverse mortgages have been keen enough to recognize the need to expand the scope of their services, as a means to retain their clients without forcing them to look elsewhere, particularly for something like a reverse mortgage.

“The thought is incorporating a reverse mortgage into a suite of products,” said Todd Schwartz, vice president of mortgage lending at BBMC Mortgage, a community bank headquartered in Lombard, Ill., and a division of Bridgeview Bank Group.

BBMC is 100% committed to the reverse mortgage product, Schwartz said. Reverse mortgages appear in all of the company’s marketing materials, including product newsletters, as well as advertisements at BBMC branch locations.

“They are becoming part of the vernacular,” Schwartz said.

The community bank began kicking around the idea of offering HECMs right before the Federal Housing Administration formally implemented the Financial Assessment. It was when these new underwriting standards took effect April 27, 2015 that BBMC began to seriously consider the opportunity of entering the reverse mortgage marketplace.

“The idea of a layer of underwriting—a layer of protection for the seniors—was enough for us to enter the fray,” Schwartz said. “We felt like it [reverse mortgage] was becoming par with other financial products.”

BBMC Mortgage ranked eighth among the 50-fastest growing companies in 2015, according to data from Crain’s Chicago Business. Last year, the company’s revenue totaled $99.1 million. The company originates an average of 4-5 HECMs each month, according to Schwartz, who admits reverse mortgage leads have grown since BBMC has been offering the product.

But while reverse mortgages represent the smallest portion of BBMC’s revenues, the conversation around the product has grown, both internally among company LOs interested in becoming involved and externally with banking clients and referral partners, such as real estate agents.

“We’re overcoming myths with our own bankers,” Schwartz said. “The amount of questions and responses have really lit a fire under the bankers because it [reverse mortgage] is a product they know their competitors don’t offer, and it gives us that boost.”

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

Written by Jason Oliva

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  • Again the title reads: “How Community Banks Feed Into the Growing Appetite for Reverse Mortgages.” Where do we find this growing appetite for reverse mortgages?

    With June having total endorsements of just 3,771 after three straight months of decline and RMI admitting that there is no recovery in sight, where is this growing appetite? While the interest of community banks may be growing, for now there is no growing appetite for reverse mortgages.

  • Can i get from a COMMUNITY BANK A REVERSE MORTGAGE ,without an FHA approval for a condo??? I am a perfect candidate–paid for condo,78, excellent credit score, condo in a middle class condominium, in NY.

    • Ms. Haggerty,

      Not all reverse mortgages are the same. The reverse mortgage insured by FHA must have a HOA approval from HUD or the lender is not eligible for reimbursement in case of loss and the HECM is not eligible for assignment which in most cases is as important to lenders as loss reimbursement.

      Other reverse mortgages have different rules but it is hard to believe that their requirements would materially differ from HUD’s. Most community banks will most likely only offer HECMs. Other reverse mortgages are not available outside of specific states and other restrictions apply.

      Many originators complain about the problem you bring up. Apparently there are many HOAs which cannot or do not want to comply with FHA requirements.

      • What i don’t understand —–A townhouse in my development is for sale and a Fannie Mae or Freddie mac mortgage is available to the buyer. Does that mean HUD approval?? If so why can’t I get approved???? How can i get approved????

      • Ms. Haggerty,

        Try more than one lender. Some are better with aspects of HOA approval than others. However, be prepared for continued rejection.

        Fannie Mae and Freddie Mac are dealing with an entirely different kind of mortgage. Reverse mortgages add risk over time while performing forward mortgages reduce risk with time.

  • The small community bank needs to partner up with us. The problem has been we have not known how to partner up with them!

    The opportunities can be endless if we can understand the community bank or the credit unions. To fully understand their mind set and what motivates them is the key to our success with them.

    Naturally we have to have the right concept and approach that will benefit the small community bank three fold. Believe it or not, this is not always how much money the community bank can make off of a reverse mortgage transaction!

    Think about that one for a while, there is a perfect answer?

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      It would seem that if one community bank had any kind of interest in reverse mortgages why not have their NMLS licensed loan officers do them?

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