Lenders Adapt Approach to “New” Reverse Mortgage Borrower

Today’s reverse mortgage borrower is decidedly different from years past. Recent changes to the HECM program now require that prospective borrowers undergo a financial assessment, effectively retooling the program for the more financially savvy.

Now, originators are working with a new type of borrower, one who is considering a HECM as part of their overall retirement plan rather than someone who has turned to the loan as a last resort.

“The new reverse borrower tends to be a more educated and more informed consumer, and because of Financial Assessment, they trend toward a more responsible and more credit-worthy borrower with regard to their payment history and income,” says Joshua Shein, senior director at Home Point Financial.

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But while they might be more informed about the loan, these new borrowers can also be a harder sale.

Mike Gruley, executive VP of reverse mortgage lending at 1st Nations Reverse Mortgage, says the “new” financial planning borrowers can be less motivated than needs-based borrowers.

“They are a ‘higher hanging’ fruit for originators, who are often more focused on clients with immediate needs and a willingness to do business,” he says.

To connect with them, originators are crafting a new message about the role a reverse mortgage can play in retirement income planning.

Mark Browning, president and founder of Home Chex, says this is a message that will resonate with the new borrower. They are attracted to the HECM because it can provide “safety, income stability, financial sustainability and overall flexibility,” he says. “Deploying housing wealth in a comprehensive retirement financial plan using a HECM supports all of these goals.”

Browning says that oftentimes, these borrowers will seek advice from other financial professionals. “They tend to have other confidants, advisors and information sources,” he says.

Browning suggests originators get in front of these advisors “armed with accurate information about the power of housing wealth and the unique safety features of the HECM. Recently, there has been a big increase in positive media as well as meaningful research by respected academics. Use it to inform,” he says. “People in these roles are not going to recommend HECMs to their valued clients unless they, themselves, understand and trust the product together with the provider.”

Shein says originators should get online to educate these borrowers.

“Education, information and an established presence online is more important than ever,” he says. “The borrower is able to do more research, understand more and come to the conversation better prepared than in the past.”

Whether networking with other financial professionals or promoting reverse education online, most agree that finding a way to connect with this new type of borrower is essential to the product’s success.

“Successfully connecting with the more affluent borrowers, those who fit the FA profile and represent the least risk to the MMI Fund, is good for business and good for the HECM program,” Gruley says.

Browning agrees. “The retirement boom is already underway. Defined retirement plans are far fewer and many are approaching retirement underfunded,” he says.

“For most Americans, housing wealth is the largest balance sheet asset,” he says. “Trust, confidence and changing misconceptions are the challenges. But, the power of HECM to transform lives and retirement viability is overwhelming.”

Written by Jessica Guerin

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  • Today you sound like the negative realist! There will be originators still hanging on to the OLD ways until they run out of business. That is all it is. I already have one originator who is going to get out and is already sending referrals my way. We just have to change our attitude and YES, the origination volume will probably stay down a few more years until the baby boomers really realize they need another alternative. It will not happen overnight!

    • Ms. Hipp,

      In March 2012 we were told by no less authorities than NCOA and the MetLife Mature Market Institute that things were changing: “Among older homeowners who decided to attend reverse mortgage counseling within the last six months, almost half (46%) were under the age of 70 (see Table 1). This age group is significantly more prevalent today than among homeowners who had a HECM loan in 1999 (23%). Even as recently as 2006, an AARP survey of reverse mortgage borrowers and non-borrowers found that most were between ages 70 to 79. These findings suggest that a change may be occurring in this marketplace.”

      Later on the study (“Changing Attitudes-Changing Motives”) states: “Analysts found that the most common age of borrowers in 2003 was 74. By 2006, the most common age had dropped to 71, and fell further to age 63 among borrowers in 2009.”

      While you state: “until the baby boomers really realize they need another alternative,” NCOA and the MetLife Mature Institute were saying in early 2012, that by 2009, the largest number of new borrowers by age were already Baby Boomers who had turned 62.

      Yet as the number of Baby Boomers becoming 62 is rapidly growing, we find overall HECM endorsements sinking.

      Judging by the direction of HECM endorsements, if your theory is right, we should see growing endorsements soon. In all due respect, as to endorsement trends old vs new does not seem to matter. But it does seem like “until the baby boomers really realize they need another alternative” we will stay in further endorsement loss or stagnation.

      • With all the roadblocks thrown at us would-be borrowers now, the original purpose of the reverse mortgage has been lost. I have been trying for a solid year to get one – one obstruction after another, all foolish and designed to make me needlessly spend money immediately so that the lender can take advantage of my being forced to use an upfront draw and therefore allowing them to collect interest on it from the beginning of the mortgage. Also, drawing out the process for such a long time assures that I am closer than ever to dying — good for the lender. I don’t have a lot of years left. This trend of capturing of younger people is designed to phase out the original purpose of the reverse mortgage and represents another method the financial industry has found to squeeze money out of those who are most vulnerable — the same strategies used for the student loan debacle. Indeed, I imagine a lot of the younger targets are suffering from student loan debt and are turning to reverse mortgages as a way to help them survive — and “investors” will be able to profit from them twice. Will the financial industry ever adopt ethical behaviour or is their greed and love of power simply too great?

      • DaisyMaeGnome, your statements are HUGE miss-beliefs: “…the original purpose of the reverse mortgage has been lost.” “This trend of capturing of younger people is designed to phase out the original purpose of the reverse mortgage and represents another method the financial industry has found to squeeze money out of those who are most vulnerable.”

        As I and others responded to your post a couple weeks ago, the HECM was first insured by FHA in 1989, per HUD: “THE HECM IS FHA’S REVERSE MORTGAGE PROGRAM THAT ENABLES YOU TO WITHDRAW A PORTION OF YOUR HOME’S EQUITY.” No where does HUD suggest it was a program focusing on JUST a needs based, poor homeowner or for older homeowners.

        Through my 18 years of originating I have helped borrowers of ages from 62 to 99 get reverse mortgage. Their reasons for doing the reverse mortgage has ranged from needs based, to maintaining lifestyle, to fulfilling dreams, to having funds for retirement planning. All fitting into HUD’s intention of the reverse mortgage.

        HUD has now implemented new regulations to make the product sustainable.

        I am sorry you are having challenges in obtaining a reverse mortgage…I’m thinking for some reason you are not qualifying and it doesn’t have anything to do with HUD’s original intent of the loan or “‘investors'” [who] will be able to profit from them twice.”

        Yes, there is always the “one bad apple who spoils the bushel” but we are an industry who is full of ethical behavior, we are not in it for greed or love of power!

        Have you reached out to your reverse mortgage counselor to see if they can explore and/or explain why you are not qualifying? Maybe they can assist you in understanding your situation.

      • Ms. Paterson,

        Where do you find that HUD has a suitability standard?

        Financial assessment does not test for suitability; it measures sustained ability to afford the payment of property charges and that is it.

      • daisymaygnome,

        It sounds like you are having problems with your lender. It is hard to tell what is going on from your comment. Perhaps you need another lender unless your HECM has closed.

        I am not sure what you think the purpose of HECMs is. If you are saying it is Aging in Place, that is interesting but not to be found in the law creating HECMs. The purpose of HECMs is codified at 12 USC 1715z-20(a) which states in part: “The purpose of this section is to authorize the Secretary to carry out a program of mortgage insurance designed—

        (1) to meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets….”

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