Why Forward Lenders Aren’t Offering Reverse Mortgages

There are several concerns among lenders when it comes to the decision to offer reverse mortgages, new research from the STRATMOR Group finds.

In survey results presented earlier this month at ReverseVision’s UserCon in San Diego, a number of forward mortgage lenders ranked four primary reasons why their companies do not offer reverse mortgages. Reputation risk was ranked highest among them, followed by the possible distraction that reverse lending would create for the forward-dominated businesses.

The data was collected from 120 mortgage lenders by the Greenwood, Colo.-based mortgage consulting and research firm STRATMOR, with non-banks accounting for 65% of the total and bank lenders representing the remaining 35%. Among the 120 survey respondents, 42 reported they offer reverse mortgages while 72 do not. Six lenders said they are in the process of developing reverse mortgage lending capabilities.


The lenders that do not currently offer reverse loans were asked to rank four concerns on a 1-10 scale (with 10 being the greatest concern) including: reputation risk, profitability, lack of in-house expertise, and distraction from forward.

Reputation risk held the greatest level of concern, with an average score of 7.4 on the 10-point scale, while distraction from the forward business scored 7.3, lack of in-house expertise scored 7 and belief it won’t be profitable scored 5.8.

“The biggest takeaway for me is reputation risk,” said Jim Cameron, STRATMOR Group senior partner, who presented the findings. Yet reputation risk, he said, should improve based on recent product changes.

“Common-sense regulation is good, and we want to enhance our reputation,” he said. “But if someone says ‘I don’t want to throw an old lady out on the street because of taxes,’ we have to refute that. This is about chipping away. It’s a marathon.”

Cameron pointed to a recent focus group that presented a reverse mortgage versus a home equity line of credit but left the products unnamed. When the focus group did not know the product names, it responded much more favorably to the reverse mortgage versus the HELOC.

The other concerns rated by lenders should be easier to address, Cameron noted.

“I don’t think it’s all that complex,” he said. “I think we’ll get better and better at explaining it. A distraction? On the one hand, it makes sense to stick to your knitting. Be the best you can be and win. But it’s also prudent to think more strategically. What is this going to look like in five to 10 years? A distraction to some is an opportunity to others.”

Written by Elizabeth Ecker

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    • B C

      I have never heard a single lender (or their servicers) ever express a single word of joy over having to do it either.

      It seems you are unfamiliar with why Wells Fargo and MetLife, in particular, left the industry. Most lenders express difficulty with this as has HUD as to its assigned pool of HECMs. No lenders wants to talk about it because no one wants to do it.

      • I am more familiar with why Wells Fargo left the industry than I care to admit. If you have followed the news recently, it appears Wells Fargo is more than willing to risk its reputation and screw the customer at the prospect of increasing revenue.

      • B C,

        It is a risk/rewards business. HECMs gave Wells headaches, these other problems have resulted in revenues before going south.

        My dad only had a CD there and got both a checking and credit card without asking for them years later. Although unused he gets credit cards fee annually. We just found out about the situation a few days ago.

  • Reputation risk should still be high on the list. While we clearly have a much better basis to say that reputation risk is much lower today, the cause of the high incidence of termination by foreclosure when the last surviving borrower living in the home passes away is not readily apparent and thus all foreclosures are generally incorrectly perceived as resulting in grandpa or grandma being kicked out of the home. Education and effective PR will be needed to change this perception.

    The issue of distraction should not be treated so light by responding with the following: “A distraction to some is an opportunity to others.” With only 5% of those surveyed more forward on developing reverse mortgage capabilities and such low industry production, such cavalier comments should be swallowed rather than promoted.

    The question of profitability is best answered in the due diligence phase.

    The issue of expertise should be easily answered with the low volume of HECM endorsements we are expiring. There should be sufficient HECM talent available to easily fill any expertise gap in lending institutions, not currently offering HECMs.

  • I read this article and I have to chuckle! I came from the forward lending world, 30 years worth.

    To say, reputation risk was ranked highest, followed by the possible distraction that reverse lending would create for the forward-dominated businesses has no substance as far as I am concerned!

    Forward lenders that don’t establish a separate division for reverse mortgages are going to face exactly what this article eludes to. You can’t combined them into one and succeed!!

    To integrate the two is the biggest mistake certain forward lenders make and have made. If a forward lender can only realize the potential of expansion and profitable earnings in forming a reverse mortgage division, they will have no regrets in the end!

    Providing however, the forward lender is willing to make a major commitment in developing the reverse mortgage division. When I say commitment, I mean the financial commitment, the commitment to spend money on the right talent, marketing material, software and all the other component parts it takes to make the reverse mortgage division successful!

    I will go on to further say that the forward lender must have patients, starting a reverse mortgage division is similar to the Turtle and the Rabbit! Guess who won the race in the end?

    Another thing to keep in mind, if the forward lender sets up the reverse mortgage division properly, the two will compliment one another! A referral fee platform should be set up for both divisions, this will give the opportunity for both divisions to capitalize on one another!

    I can speak from experience, I not only did this with my own company but with other lenders I consulted for! That is my two cents for the day, for what it is worth.

    John A. Smaldone

    • John,

      You can get all of the commitment of cash and people you want. The real problem is the full support of management. In other industries it is known as “the buy” or “the buy in.” Without the full and unwavering support of board members and executive and senior management, a division is expendable when it becomes a perceived liability for any reason.

      Neither money nor people were a big deal to Wells Fargo, Bank of America, MetLife, or to several of their predecessors. Where are their reverse mortgage origination operations today. I have personally observed such casting off of divisions at a Fortune 250 company and a Forbes 100 company. As the head of the income tax department at one and overseeing the preparation of major income tax returns and IRS audit aspects at the other, I observed as both held onto the operations their executive core were committed to and spin off or liquidate those that they were not. This is NOT new in industry

      Yet without the “buy in,” all monies and most people going into new ventures outside the core are entirely dispensable even at a whim in some cases. At one of these companies we had a slogan, “Buy high, sell low.” That policy was truer than most of us wanted to believe.

  • This article highlights the real problem with the reverse
    industry, the problem no one ever wants to talk about.

    And that is, what a terrible job our industry has done in
    representing this great product…

    According to the stats, furnished in this article, “reputation
    risk” was the #1 reason lenders were staying away from reverse mortgages.

    What an insult? And let me be clear, this is not an insult
    from the mortgage professionals that took part in this study, nor the
    professionals that published the results. It is an insult to the reverse
    mortgage industry!

    This is not the opinions of our many detractors outside the
    industry. This came from INSIDE the mortgage industry!!!

    If that doesn’t make our industry bow their heads in shame
    then nothing ever will.

      • John,

        I hate the blame game. Let us find the ways to respond that will alleviate our difficult past.

    • Mike,

      What you cannot change is the high percentage of foreclosure this industry has and will continue to have.

      Until 2002, there was NOT one single fiscal year that saw 10,000 endorsements. Volume was low back then and only a handful of HECMs had terminated. Stats were vague as to any foreclosure patterns. Total lifetime endorsements were only 63,200 by the end of fiscal 2002

      Five years later over 100,000 HECMs were endorsed in fiscal 2007 but over 280,000 endorsements in that five year period. There were few terminations in that five year period yet lifetime endorsements were up almost 6 times what they were at the end of fiscal 2007.

      Throughout the last part of the following five years, rumors began to leak like a sieve about taxes and insurance defaults. Then the truth began coming out and the facts were worse than many of the rumors. Now the noise of throwing grandpas and grandmas out of their homes with all of their personal possessions began swelling in the press. This despite the fact that the five year period ended 9/30/2012 saw the highest endorsement year ever in fiscal 2009 but endorsements for the five year period exceeded 1/3rd of one million endorsements. Yet the gloom of the third consecutive year of horrendous losses was winding up in fiscal 2012. These years saw ever increasing terminations with far too many ending in foreclosure due to non-cooperation from heirs. Yet there was no clear separation of foreclosures due to defaults caused by the death of the last surviving borrower and those from failure to pay taxes and insurance.

      So the period of the last five years started with a very bad reputation for casting out grandma and grandpa (even to some degree unfairly) and seeing a very miserable time for origination. Even though the last five year period produced over 274,000 endorsements, we were caught in five consecutive years of downward sloping hill to valley secular stagnation with little hope of turning things around in 2018. Fiscal 2017 was a hill year in the current pattern but had less than half of the endorsements we saw 8 years before (fiscal 2009).

      It took decades for us to see the pending destruction of the positive reputation of the industry. We cannot blame that on the current industry. That was the stuff of Wells Fargo, Bank of America, Met Life and their predecessors. Even as Jeff Taylor did not realize the impact until it was too late.

      Let us stop playing a blame game and find ways to bring in responsible mortgage press to look at our screening structure before and now. Let them understand that early foreclosure due to defaults on taxes and insurance is now a much lower proposition. Let us help them understand why foreclosures are not dropping as quickly as the press might anticipate due to the one default that we experience more than any other mortgage, death of the last surviving borrower who resides in the home. Let us have the mortgage press report on how HECMs save qualified non-borrowing spouses like no other mortgage sector.

      While it is great that we are getting financial advisers and working hard on builders and Realtors, to change reputation is much much harder.

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