Reverse Mortgage CEOs Challenge Industry to Expand Past HECMs

With the reverse mortgage industry currently rushing to adapt to the latest principal limit factor changes, several industry leaders challenged stakeholders to think beyond the federally backed Home Equity Conversion Mortgage — or risk falling permanently behind.

Reza Jahangiri, founder and CEO of industry giant American Advisors Group, said companies of all kinds — not just reverse mortgage lenders — can’t expand if they focus simply on adapting to every single regulatory change.

“It puts us in a short-term, reactive response mode, and it’s really hard to invest in those longer-term initiatives and strategies,” Jahangiri told an audience at the National Reverse Mortgage Lenders Association’s annual conference in San Francisco last week.

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Jahangiri’s company has already started a proactive expansion into real estate brokerage services and forward lending, a plan that AAG started developing as long as two years ago. The goal, he said, was to help seniors with their later-in-life financial issues however AAG could: If the company couldn’t get people to buy into the HECM as an option, it should at least put some of its vast marketing dollars to use by converting them into customers of different product lines.

“We don’t want to just be a reverse mortgage company come a year or two years from now,” he said, saying the firm is shifting to a “product agnostic” viewpoint with reverse mortgages as a core product.

While expressing love for Tom Selleck and the company’s current pitchman-based advertising model, Jahangiri also hinted at future shake-ups in the way the Orange, Calif.-based firm markets its products going forward.

“Our current call-to-action model that focuses on the needs-based borrower — that has to change as well if we want high penetration,” he said.

Jahangiri praised the efforts of fellow panelist Kristen Sieffert, president of Finance of America Reverse — which has seen success with its jumbo proprietary reverse mortgage product lines.

“I think what Kristen’s doing, and what we’re working on, is critical,” he said. “This forces our hand to further accelerate the business.”

Sieffert and FAR remain focused on improving and expanding their jumbo offerings: When it was first introduced, she said, the product appealed to homeowners with properties valued at $1.2 million and higher. Given the success of the loans on the secondary market and recent product improvements, FAR expects the jumbo loans to see interest from homeowners in the $850,000-to-$950,000 range and above, Sieffert said.

“We definitely see there’s a lot more to do as an industry,” she said.

Secondary market stability

Despite the uncertainty and concern surrounding the lender community in the wake of the PLF changes, the secondary market remains stable, according to panelist Michael McCully.

McCully, principal at the New York City-based New View Advisors, said the program updates have made HECM-backed securities (HMBS) more attractive to investors: Because the loans grow at a slower rate, investors will see HMBS as a longer-duration asset, he said. In addition, the post-October 2 loans have increased core mortgage servicing rights values, and could help ease issuers’ capital requirements.

“There hasn’t been an exodus,” McCully said of the secondary market. “The investor community really likes this product.”

Those benefits also extend to borrowers, allowing them to seek out the ideal balance of interest rate and proceeds while also preserving more equity: For every $100,000 borrowed at 4%, he said, the homeowner protects an incremental $100,000 in equity over the course of 20 years.

The overall mortgage insurance premiums end up being lower after four years, McCully added, saying these changes helped to decrease “headline risk” — negative attention over high fees, burned-through home equity, and defaults.

McCully also speculated that the changes could, at least in theory, attract renewed interest from banks, credit unions, and other “big brands” in the financial space.

“The product is, to me, a much more mainstream product with the interest rate change,” he said.

Written by Alex Spanko

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  • Reza Jahangir’s comments are very interesting and maybe should be taken vary seriously.

    In short, he is saying don’t just rely on the HECM to survive the future? I foresee many of our GNMA issuers, like AAG and FAR expanding their horizons into proprietary programs. Take FAR as an example, look what they have done to their Jumbo program (HomeSafe).

    This may be the trend and I mean a trend approaching very quickly. I am not saying we should take our HECM or the reverse mortgage and make it secondary to our business model, on the contrary!

    I am saying, push hard to develop new markets for the HECM, take advantage of what we have to capitalize on, look at the rising equity in homes owned by seniors! However, at the same time, lets look to add a different product or two to our menu! What say you?

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

  • I’ve spoken to high up executives at both AAG and FAR. The CEO’s can pound the table and challenge all they want at NRMLA but behind the scenes they are all saying what are we going to do?

    • Yup,

      In it is history NRMLA has rarely if ever been proactive. It was pathetic reading what Peter Bell talked about as one of major objectives of NRMLA in 2017 at the Convention last week, lobbying for changes to the actuarial computations; as usual, it’s a little late. It was like the Extreme Summit all over again.

      It is a little too late to be telling us that NOW NRMLA will be lobbying to get changes to the way that the actuaries compute the value of the HECM portfolio. That is behind us now. What is NRMLA planning to do to stop the move to the GSRI Fund that Peter seems to be so negative about. He fails to explain why he is so negative about what both former FHA Commissioners Stevens (Democrat) and Montgomery (Republican) are recommending.

      NRMLA leadership has never understood the rank and file originator and it shows now more than ever, they don’t SEEM to care.

  • The truth of the matter is that the lenders are now totally “out of touch” with their own core product. The whole point of the HECM program is to help seniors: that’s the source of the very integrity of the HECM’s “life support system.”

    In other words, the attraction for seniors is that the HECM is “a good deal” for them, and the government will ensure that it doesn’t become a money-squeezing, cash cow for banks and lenders. That’s the bottom line; it’s what generates interest, originations, signings and growth.

    The government/HUD, with the recent changes, has pretty much signaled that they’re out of the “protect our seniors business” and have thrown the program to the wolves.

    All that was intended by the article above was to find ways of wringing whatever they can out of it in the profit-driven, financial/institutional end of things.

    Even if new prospects don’t know about or understand the significance of the recent changes, they’ll still, instinctively, know it doesn’t “smell right.”

    That’s how HUD has left their HECM program: smelling bad.

    Unfortunately, as a supporter of Trump, it looks like “seniors-consideration” isn’t a priority of the new, government administration; and, with zero-for-seniors in the new tax proposal, it’s really showing.

    ,

      • In the sense of a total disregard for the original intent of the HECM program, yes.

        Advantages for seniors that were taken away with the Financial Assessment and Principal Limit Factor weren’t “made-up-for” in any other way.

        It’s a lot like the Financial Crisis itself: has there even been lip service given to how those with massive 401k plan losses should now be given improved terms in the plan to help make-up for the losses? No.

        However, it could all even-out with HECM terms, or even go to the “plus side” if property values significantly, and consistently increase under pro-growth economic policies. But that won’t be “thanks to HUD.”

    • McSherry,

      Weren’t you the dude who was calling lenders, the experts, and saying how we should be listening to them?

      With the latest actuarial review and the HUD report to Congress on the MMI Fund, you know the one you have straightened all of us out only has HECMs and does have not forward mortgages, diversification is a step some lenders feel they need to take.

      Maybe you could give us your insights into the actuarial review and the report to Congress for 2017? Then there are the cures that are being kicked around. For example is Peter Bell’s idea better than David Stevens’s and if so, why? No doubt you have an even better idea.

      • No, you have it totally backwards as usual. In fact, I point-out the flaws in the lender-end of things. I have, on the other hand, said that the various researchers of academe who publish articles on improving the HECM program are the ones to listen to, not you.

      • Ed,

        Can you point out how the lenders differ from your academe in even three important ways and who are your academe since they are in conflict at times?

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