FAR’s Norman Talks Present and Future of HECMs, Proprietary Loans

The reverse mortgage industry is approaching the one-year anniversary of last year’s principal limit factor reductions, which continue to have an effect on originations and the overall outlook for the space into the future. But 2018 has also been a year of innovation for lenders and originators, with a slew of new proprietary loans hitting the market and major players reinventing themselves as retirement service providers — and not just Home Equity Conversion Mortgage lenders.

To get a sense of where the industry might be headed as we enter the Department of Housing and Urban Development’s new fiscal year on October 1, RMD sat down with Scott Norman, vice president of retail sales and government relations at Finance of America Reverse. Norman, a past president of the Texas Mortgage Bankers Association, had recently celebrated the organization’s 19th annual Reverse Mortgage Day conference outside of Dallas, and he weighed in on the industry’s present and future.

What are some of the biggest opportunities for the industry over the next fiscal year?


I think that if you look at the industry and just look at the volume, clearly there are reasons to be frustrated. But I think that if you look at where we are over the next two to five years, there’s a ton of reasons to be very bullish on the industry. Aside from the fact of the 10,000 borrowers that are retiring every day, we know a couple things. We know a majority of the country has a majority of their net worth tied up in their home’s equity. We also know that a majority of the country has less than three years saved for retirement.

So at some point there is going to be a tipping point when members of Congress, members of the [state] Legislature, and city councils all across the country are going to need to start looking at home equity as a retirement source. I think that’s more than evident, and I think there’s enough research out there to show that this is is where we are. So we’re really evolving into a new world where home equity and looking at ways to monetize your home equity are going to be at the forefront of retirement planning.

And so I think that the most exciting piece for me is really this aspect of: Look at the financial planners. Look at the CPAs. Look at the legal professionals that are really starting to look at alternative methods. And while a reverse mortgage may be a niche product, I think you can see clearly in the future that it will not always be a niche product, and so to me, that gives me great reason for confidence that we’re still on the right page. It may be a little frustrating right now. We’re going through these growing pains. But there is a lot of reason to be optimistic.

We’ve seen a huge influx of proprietary loans in the marketplace this summer. What role will private products play in the future reverse mortgage landscape?

I think the proprietary market will absolutely represent bigger and bigger chunks of the overall marketplace. I think the evolution of that product will continue to change the difference between a traditional HECM product and a proprietary product, and I think the evolution of just the number of people that have gotten into the business, and how much the product has evolved even over the last 12 months. So if you look at where we were 12 months ago, you can only imagine, if you extrapolate that out over the next 24 to 36 months, this is going to be a new product. And it’s really going to be something that I think will coincide and cooperate nicely with the HECM business. But I think that you’re almost going to be looking at two different variations of product development over the next two, three, four years.

What kind of market share will private products have going forward?

I can certainly see the proprietary product representing a third of the overall [reverse mortgage] business. It’s certainly not going to be the end of this decade … [but] five, six, seven years from now, or 10 years from now, I think that’s more of a realistic number. I could see where the proprietary product represents a third of the marketplace.

Is that potentially a reason to be less concerned about changes to the HECM product?

Certainly, today, the industry is still defined by HUD to a degree that is not as healthy as we might want it to be. But I think there’s always going to be a place for a HECM product. I don’t really see that going away. I just think that evolution and looking for different ways, different products, will get [the industry] into a competitive mode. When you’re in a competitive environment, good things always happen.

Any predictions for the coming fiscal year?

I think we’re in a position now where HUD has publicly stated that they are pro-reverse mortgage, and I think that there are a number of things that we’re going to see — a lot of evolutions to the product — over the next 12 months. I’m certainly cautiously optimistic that a year form now, we’re going to be in a significantly better place. I think as it relates to volume, that will be somewhat of a lagging indicator. But if you say: Where are we going to be at the end of this decade? I think that it will be a drastic shift in the positive as it relates specifically to HECMs and the industry.

Written by Alex Spanko

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  • The percentage of potential clients that would have qualified for a HECM a year ago, but no longer do today, specifically because of the lowering of the Principal Limit Factors, is astounding to me. Just yesterday, I sat with a couple who were both 75 years old; own a $485,000 home; owe about $275,000; so, over $200,000 in equity. Could not help them, without them having to come in with $28,000 (after waiving a $6,000 Origination Fee and giving a $7,000 credit, so would have been $41,000). A year ago, they would have been able to pay off that mortgage and have about $20,000 available for other needs.
    Needless to say, they will not be benefiting from a HECM. That 10% reduction (following other reductions) has just made a HECM out of reach for many who could have benefited. Not sure this was Congress’ and President Reagan’s intent back in 1988 – to make them so restrictive, they really aren’t a viable product for those they were meant to serve.

  • Scott, thanks for the insights and positive outlook for the industry! We need to have the innovations of the proprietary products creating a variety of options to be offered along with the HECM. I’m remaining optimistic and hanging in through the changes and challenges.

  • Scott seems to have it about right. By nature, I am a little less enthusiastic about the proprietary reverse mortgages but they are needed and will make a positive impact. Unless HUD makes some major increases to PLFs, how will endorsements be much different than now (even 5 years from now in September 2023)?

    For the last nine years, this industry has lived for the next fiscal year. It seems Scott gets that about right as well although there is much question if the total HECMs for fiscal 2019 will be less than those for fiscal 2018.

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