Reverse Mortgage Originators Expect to Work Harder, Make Less in ’18

New reverse mortgage rules that reduce principal limits have originators anticipating a decline in profits. Many expect that fewer consumers will qualify for the loans — and for the loans they do close, they expect to make less money per loan than before. Some say they plan to work harder in the coming year, generating more leads in order to close more loans, to help bridge the gap.

Bob Tranchell at The Federal Savings Bank in Massachusetts says he expects his closing ratio to shrink from 20 to 18 percent, and to make about 20 percent less per loan.

“I essentially need to get four or five more loans per year to match my profitability. Given my closing ratio, that means I’ll probably need to have three or four more leads per month,” he says. 


Brad Bennett, manager of reverse operations at GSF Mortgage in Pennsylvania, also says he’s making less money per loan.

“We’ve seen about a 25 percent decrease in profitability on each individual loan across the board. We’re having to give lender credits,” says Bennett. “But a bird in hand is better than none, so we’re just originating as much as possible.”

Richard Wills, who works for Open Mortgage in Maryland, says he expects to see origination fees return in this climate. “The amount of money has gone down pretty drastically. You can make up for that by charging an origination fee… I eliminated them in the past two years, but now I believe origination fees will be somewhat mandatory.”

A better product

Even though some originators expect to work harder and make less, most say they view the changes as a positive for a product that has long struggled to find its footing. 

Tranchell says the changes make the HECM a more competitive product.

“The lower interest rates and lower MIP put us much closer to competing directly with the forward market in terms of interest rate,” he says. “While the 2% across-the-board upfront MIP hurts those looking for a check or line of credit, it lowers the costs for those paying off large mortgage balances.”

Bennett also says the product is improved: “All in all, it is a safer product for the consumer, lender, Wall Street and FHA.”

All about the referral

Many say those with strong referral networks won’t be hit as hard.

“If you’ve built your business on buying leads, I think you’re going to have a tough time making it,” Tranchell says. “If you’ve built a referral network and you have trusted advisors who are looking out for you, I think you’re going to be fine.”

Philip Lipp at Allwest Mortgage in California says his referral-based model will not change. He and his wife, Ilene Fischer-Lipp, have been helping people in their community get reverse mortgages for 17 years.

“People know us, trust us, and we get calls all the time. Whether we can help those people now or not is another thing, but we do get calls,” Lipp says. “We will continue to do the same outreach we always do.”

Wills says that strong networking skills will be key to survival. 

“To be successful in this market, you’re going to have to have a very strategic marketing plan that will get you out in front of professionals so that you can increase your referrals and increase the amount of loans that you do,” he says.

Wills also says the rules give originators an opportunity to introduce the loan in a new light.

“You have to go forward and emphasize how this is a better program for the borrower, how the borrower will be paying less money in most cases over the life of the loan,” Wills says. “I think that message will resonate.”

Finding the cheese

Some reverse mortgage originators say they have grown accustomed to constant regulatory change and that for them, the cheese has simply moved again.

“You can’t sit there and say, ‘Wait, wait. No, this can’t be true!’” Tranchell says. “You have to say, ‘All right, where is the cheese? Let’s go find it and make it happen.’ If that’s not your mindset, it is probably a good idea to find another way to make a living.”

Bennett echoes this idea. “If you’re worth your salt in this industry, you know how to adapt and quickly move forward,” he says. “We’re fighters; we’re extremely resilient. We have been through a lot and we’ve always managed to survive.”

Written by Jessica Guerin

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  • >> “If that’s not your mindset, it is probably a good idea to find another way to make a living.”

    Or do like AAG has done, and supplement your Reverse Mortgage business with Forward Mortgages.

  • “By the numbers,” Tranchell is telling us that if his volume of leads was the same, he predicts his 2018 gross income will be 72% of what it was in 2017. To get back to 100% of 2017 gross revenues, he will need to increase this year’s leads by about 39%. That is 72% times 39% is 28%. As is obvious 72% plus 28% gets us to 100% but the problem is fewer loans are being closed and revenues per loan are down by 20%.

    So if total leads for 2017 were 120 (to get to 2 closings per month), then he will need 47 more leads in 2018 to get to the same gross revenues in 2017 which is about 4 more leads per month. Mr. Tanchell has done his homework to understand what the expected loss in business means to him. Have you done the same?

    Bennett talks in terms of profits. Tranchell did not. The flaw in the picture Trenchell shares with us is what he increased costs will be. If costs go up (such as lead costs, transportation, and supplies), then merely matching last year’s income does not guarantee the same profit. If Tranchell meant profit per loan then he has looked at the picture as realistically as possible.

    Wills on the other hand seems to have a very low gross income per loan, if bringing back origination fees will make up for his potential losses.

  • I read this article very carefully, the way I see this it is mind over matter.

    Bob Tranchell at The Federal Savings Bank in Massachusetts says he expects his closing ratio to shrink from 20 to 18 percent, and to make about 20 percent less per loan.

    I buy the 20% reduction in what one may make on a loan but the closing ratio shrinking from 20 to 18 percent, that does not have to be!

    Adapt to change, stop thinking negative, think positive. We all have to look at going after different markets, business to business relationships is where the tend is going!

    Go out and originate an average of 1/2 loan more than you are doing now and you will make up for the 20% loss in income!

    If everyone went back in the history books 16 or 17 years ago, see what we were making on the HECM then, we have become to spoiled today! There was a time we had no yield spreads (Back End Fees) to make money on, none!

    We made a good living, we worked hard, we had fun and did a lot of good for a lot of seniors!

    We need to stop the crying about what bad has happened and go forward to make something good happen, now! It is out there, believe me!!

    That is my say for what it is worth my friends, have a great weekend!

    John A. Smaldone

    • John,

      15 years ago, we said we were saving seniors from foreclosure on their forward mortgages when we knew that the seniors lacked the resources to make tax and insurance payments after the first year putting them right back into default and subsequent foreclosure. Stories of that nature were reported over and over giving the public a poor perception of the product and perhaps even us, its originators.

      TPOs have created more fishermen into a smaller fishing hole so that if the proportionate share of HECMs changes geographically, the area of greater closings suddenly seems overwhelmed with TPO and even TOP 4 originators.

      Even today, most originators are NOT paid based on a YSP concept (back end). Many of us used to get SRP compensation until about 8 years ago.

      I am now among those who do not believe we are approaching secular stagnation in a way to see an early end. Since fiscal 2009, we have been hearing that the problem with low endorsements is the fault of originators. Yet since fiscal 2009, we have either been in dramatic loss situations or secular stagnation. Lenders do not want ANYONE saying that we are in secular stagnation as “it does no one any good.” Why this is so is because it puts the blame where it belongs and exposes lenders as unwilling to change with the economic atmosphere.

      In the last nine years, we have seen 1) the population over 62 expand as never before, 2) home equity of seniors over double, and 3) the HECM allegedly becoming more acceptable on main street. BUT why is it we have not gone over 60,000 endorsements since fiscal 2013 and over 115,000 since fiscal 2009? In 2016 we saw total endorsements of less than 49,000.

      So “mind over matter,” when will secular stagnation come to an end and why it will be on that date (or in that fiscal year)?

  • If the FHA can’t insure this loan program and come up with clearer guidelines, risk based underwriting and also reward based underwriting. (Better qualified borrowers-‘should qualify better’) They need to get out.
    It’s long overdue that portfolio and conventional lenders took over the program. If you’re complaining to congress that you can’t lend money at < 60% loan to value because you risk losing money? Perhaps it's time someone at NRMLA needs to stand up to the people at the FHA and HUD and tell them the truth….."get out of reverse mortgages'".

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