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