Product Diversification Sweeps Reverse Mortgage Industry

Reverse mortgage giant American Advisors Group’s recent announcement that it’s officially a “product-agnostic” company was sure to prick up the ears of entrepreneurial-minded reverse mortgage originators around the country, wondering what the change means for them.

AAG’s new business model includes a new forward lending division and real estate brokerage. The Orange, Calif.-based firm’s reworked marketing strategy also stands out, with longtime pitchman Tom Selleck emphasizing a more holistic view of retirement — with less of a focus on any one individual product, including the bread-and-butter Home Equity Conversion Mortgage.

The topic of diversification heats up any time the Federal Housing Administration makes a major change to the way the HECM program works, from the Financial Assessment rules of 2015 to the most recent set of principal limit factor reductions in October 2017. Reverse mortgage players tend to see some form of diversification as a positive if it benefits seniors and helps them reach their target market.

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“In general, any time you can serve the demographic you’re focusing on, I think [expanding] is a good idea,” says David Peskin, president of the Melville, N.Y.-based Reverse Mortgage Funding, adding that “it’s very possible” that more originators will follow in AAG’s footsteps. “It’s important that the industry continues to build and enhance new products.”

For the purposes of his own company, though, Peskin sees enough opportunity in the mostly-untapped market of over 16 million homeowners over 62 who have a first-lien home mortgage. His company’s new proprietary product, the Equity Edge, targets people 60 and over with homes worth at least $700,000, with a specific focus on condo owners and homeowners who might want to pay off their existing debts amid rising interest rates.

Randy Davis, who manages reverse lending for Dollar Bank in Pittsburgh, entered the reverse space 11 years ago after many years doing traditional mortgages and continues to originate loans himself.

Although Davis suspects some lenders on commission have to make up personal revenue by doing forward loans, he sees diversification through a slightly different lens: By offering a full portfolio of loans, originators can make contacts with other professionals such as real estate agents, who could become solid referral partners.

That’s a concept known as “generational lending,” which a variety of players in the industry have pushed in recent years. For instance, Mutual of Omaha Bank framed its recent acquisition of Synergy One Lending as a way to offer a fully diversified lineup of products to borrowers, whether or not a HECM is the right fit.

“We’ll be somewhat agnostic,” Mutual of Omaha Mortgage president Terry Connealy told RMD. “If a reverse mortgage is the best solution for that borrower, we’ve got that in our product lineup, but if it’s a traditional forward mortgage, that’s an option going forward as well.”

Elsewhere in the industry, RMF rolled out loan qualification software designed to target forward lenders looking to enter the reverse space, while Baseline Reverse launched a position management program developed to help newcomers navigate the often tricky world of HECM price discovery.

In other words, your business can be both specialized and diversified.

“There’s goodness in specializing if you know all the ins and outs, what to look for,” Davis says.

He also routinely explains to homeowners why refinancing would be a better solution or refers them to someone else for another type of loan.

“Business is a little slower so I can see why [AAG is] expanding and getting into other areas,” he says, adding that some lenders who are on commission probably have to make up personal revenue by doing forward loans.

Written by Clare Curley

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  • It seems the industry is adjusting to new realities as has been its habit for years. For many this is the most drastic since we were led to believe that there was value to originators and seniors in working for companies whose sole focus was on reverse. Mission statements were less ambiguous and lines of responsibility and accountability were less blurred. Of course with such changes come the rational as to why things are not ambiguous and lines of responsibility and accountability have never been clearer.

    The question becomes how deep does this new fade go. Will small TPOs like SIDAC in the Minneapolis region become both forward and reverse?

  • I have to laugh over this “brilliant” strategy and the convoluted verbiage used to market their new loan production plan to keep the money coming in. There are a lot of companies and Brokerages that offer traditional mortgages and if the RM industry somehow “thinks” by wading into this pool of stiff competition is going to improve their production, they are in for a surprise. I have been in lending for over 30 years and I have access to many wholesale “forward” lenders and if i wish to originate a transaction with them, I can. However, if the RM industry somehow thinks it will be easier to originate a loan for a senior going the traditional route, they will find it’s actually more difficult for them to qualify. Seniors generally are retired and on a “fixed” income and they most likely won’t hit the “debt to income” ratios. It’s fine to have these options available, but it’s important to stay focused on one product, know it well, be professional and stand out from your competition. In my 17 years in the RM industry, I have not had one client who would have qualified for a traditional mortgage and besides, they usually are trying to eliminate one they already have and the payment associated with it.

  • George Owens hit it on the head with his comment! However, we need change, and diversification is change!

    We are seeing more players getting into the forward lending arena, it will be different for them just as those have found out crossing over from forwards to reverses!

    I am sure players like AAG will separate their two operations as FAR has. If they play their cards right and plan out their strategy, the two divisions can benefit and compliment one another tremendously!

    The shops that transition into the forward territory and try and mix the two, using the same staff are the ones that will find it difficult to survive, unless you are a MOM & POP shop!

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

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