I’ll start off this piece with a disclaimer: I have only covered the reverse mortgage industry for this publication for about a year and a half. I earned a bachelor’s degree in print and multimedia journalism, not finance, from a small liberal arts college that didn’t have anything close to a math or economics department. I’m about 33 and a half years away from meeting the minimum age to qualify for a Home Equity Conversion Mortgage, and I still have to look up old mortgagee letters and info notices pretty much every time I write about a policy move.
But that doesn’t mean I can’t have an opinion on the program and the various efforts taken to improve and expand its reach during my time on the beat — and that’s something that seems to create controversy in the industry and our comment section.
Take, for instance, the recent report from the Brookings Institution that I covered for RMD. In that document, a pair of independent researchers argued that the HECM program was vital for the retirement outlook of equity-rich, cash-poor Americans — a talking point straight from the reverse mortgage industry playbook. In order to reach a broader swath of retirees, the writers suggested a spin on the HECM Saver program, postulating that lower-risk borrowers should be able to access relatively smaller portions of their home equity in exchange for lower mortgage insurance premiums and fees.
The writers even discussed how HECMs can form one of the “legs supporting the retirement stool,” a visual that no less of an industry authority than American Advisors Group has used to advertise its reverse mortgage options through spokesperson Tom Selleck.
And yet the response from RMD readers didn’t really focus on the fact that a prominent Washington, D.C. think tank was endorsing the HECM and offering a solution to some of the barriers that potential borrowers might face. Instead, more energy was directed toward the way the writers simplified the explanation of how a HECM works, as well as how potential borrowers might react to such a public criticism of the program as it currently stands.
This is not how a mature industry functions; this is closer to biting the hand that’s been extended to help you.
This publication has covered the ways that open, honest acceptance of the HECM’s flaws and formerly lackluster reputation has helped move the industry forward. Only by acknowledging the faults have savvy lenders and originators been able to prove the product’s worth to the specific borrowers for whom it was originally designed.
At present, the HECM industry continues to sort out the long-term effects of the October 2 rule changes. Lower principal limit factors and an updated MIP structure have plunged origination volumes to cycle lows, and there are fears that the reverse mortgage may be reverting to a product of last resort instead of a proactive retirement option.
That’s why the industry lashing out at a good-faith plan to develop new revenue streams and opportunities makes no sense to me. Big-picture economists and retirement planners don’t need to know every detail of how the HECM program works, or lace their support of the products with the kind of formal, legal language that an originator or counselor must use — that’s the job of industry professionals on the ground level, not policy wonks and government officials who honestly want to expand the HECM’s footprint.
I knew this industry’s negative reputation when I accepted the opportunity to cover it; frankly, that was part of the appeal, writing about a space I knew little about aside from a possibly dark underbelly. Of course, the reality was far less seedy and more pragmatic, and I specifically credit the upstanding originators and lenders who urged me to think of the product as a loan and nothing more.
Like a car loan or a first-time homebuyer mortgage or a home equity line of credit, the HECM needs to be positioned as a tool not unlike a prescription — very good for some people in specific situations, very bad for others, and something that should be entered into only after consultation with experts and knowledgeable third parties.
But would the automotive lending industry tut-tut a proposal from a leading think tank to improve its products because the writer couldn’t name every situation in which a borrower’s car could be repossessed? Would a forward lender dismiss a plan to reach new customers because its author provided a succinct description of the foreclosure process that didn’t include every potential eventuality?
That’s what I hear every time an earnest proposal is shot down because its proponent had the misfortune of referring to HECM proceeds as “income,” or because the writer hasn’t followed every twist and turn of the program since the Reagan era.
Acting as though the HECM is this precious secret that only those with encyclopedic knowledge of the Single Family Housing Policy Handbook can fathom does nothing to bolster its reputation as a safe, pragmatic means to a necessary end for certain people. Instead, it further shrouds the product in mystery, closing off interest from the greater lending world and giving life to the rumors about predatory banks kicking the elderly to the curb for sport.
The next time someone reaches out a hand, think twice about biting — maybe reach back, make a few helpful clarifications while shaking it, and start working to build something instead of tearing it down.
Written by Alex Spanko