Reverse mortgage leader AAG has had an eventful year. In 2018 alone, the company has moved to a more product-agnostic model as a full retirement solutions provider, offering forward mortgage products and residential solutions. AAG has also expanded its reverse mortgage reach through proprietary offerings, largely through a partnership with Finance of America Reverse. Through this union, AAG markets FAR’s jumbo products as ‘Advantage’ in its retail channel and ‘HomeSafe’ in its wholesale channel.
RMD had the opportunity to speak with AAG CEO Reza Jahangiri via phone in advance of the annual National Reverse Mortgage Lenders Association conference to learn about his thoughts on the industry’s current challenges, where AAG is headed in the coming months and years, and what keeps him awake at night as the CEO of the largest name in reverse mortgages.
RMD: What successes have you had this year as AAG has transitioned to becoming a retirement solutions provider?
RJ: We’ve had a really big year. We launched a new “retire better” brand message. We completely overhauled the business model — and that whole process has been in the works since post-financial assessment. Back in late 2015 we made the decision to transform our business model because of all the issues of being a mono-line distributor of a government product. It’s been a very successful year in terms of morphing from a single product company to a product-agnostic solutions business, and on top of it, it was even more of a dynamic and successful start of a transformation year because of the success and new iterations of our ‘Advantage’ jumbo loan.
We made a strategic decision to become a partner with FAR. FAR is the clear industry leader when it comes to product innovation and partnering with them on the proprietary side allows us to focus on what we do best — which is marketing and customer service. And it allowed us to focus on expansion into forward lending and residential services as well.
RMD: What challenges has AAG had this year?
RJ: We were going off a record year in 2017 in terms of performance, and we were going to use a lot of those tailwinds to fuel the transformation. After the post-October 2017 changes, we had to shift a lot of focus toward responding to a big government change — retooling the core business while putting resources towards transforming for the longer term strategic course we’re on. Anyone who runs a business knows it’s very challenging to be in short-term response, reactive mode, as well as more disruptive, long-term cycle thinking for a business transformation that is as big, complex and dynamic as this.
RMD: What do you consider the top three challenges to the national growth of reverse mortgages?
RJ: Stabilization of the MMI fund is definitely top three. It’s been a battle for six-plus years, dealing with a lot of volatility in the MMI fund. Addressing that from a fundamental standpoint will allow us to make the changes we need in the value proposition to the consumer, which is of course costs and proceeds. Costs have gone up and there is no more risk-based pricing — and proceeds have gone down considerably. The PLFs have been cut a number of times. I think we have the right people in place within the government, and I think the right focus is being placed on this. Commissioner Montgomery has been talking about this publicly to address the back end. I think it’s number 1 in terms of challenges.
The bigger issue that’s existed since I’ve been in the industry ties into why we’re transforming our business model — the legacy mindset towards not viewing home equity as a retirement planning tool. Seniors historically have not looked at home equity strategically in a way to better their retirement outcomes, and we’re finally starting to see a shift in that at the academic think tanks, with policy makers, and at the consumer and influencer level, too. There’s a lot more work to be done on that front, but it’s pretty exciting to see that the mindset is shifting. That’s a very, very big challenge that we face in our space.
Third would be — because you have the instability of the MMI fund, the value proposition of HECM, and the backdrop of a mindset not supportive of using home equity in the retirement plan — the challenge is for people in the reverse space to change their business model to address those things. We can’t keep doing the same thing we’ve been doing the last 15 or 20 years. We have to look for new ways to approach the problem and shift the mindset. Proprietary innovation helps with that, along with moving to a more product-agnostic model that we’re looking to use to distribute other non-government products. It helps change the message in consumer interaction from, ‘I’m pushing just one product,’ to ‘Let’s see where home equity fits into retirement,’ and opens a discussion.
RMD: Have you had success with providing solutions across channels?
RJ: The biggest uptick we’re seeing was a bit unforeseen and that’s proprietary products. Predominantly it’s been with higher home-value borrowers. Since introducing new products and with partnering with FAR we’ve seen a significant increase in that product penetration. It was great timing with our bridge-the-gap and transformation strategy. In 2018, especially the second half of the year, we’ve started seeing growth in the wholesale channel. We’re obviously the biggest, most recognized brand in the space, but we’ve been underrepresented in wholesale. But at the beginning of the year we decided to put more resources and focus into that channel, making sure service is right, helping partners with a lot of our resources — so we’ve been seeing some growth there. Launching residential services and adding the forward products, we’ve seen very, very positive signs in the first phase of the transformation.
RMD: What is AAG’s growth strategy going forward?
RJ: We’re still in the very early days of home equity being utilized for retirement planning. You have half of seniors almost exclusively relying on Social Security as a source of income, and you have a picture where it costs $750,000 on average to retire and the average liquid savings is about $17,000 for seniors. With home equity being as prominent as it is in terms of an asset for seniors, we’re way under-penetrated in the market and that is where we have to change the discussion from just reverse mortgages to, in general, how can we best use home equity to get a better retirement outcome? And for us, the growth strategy is changing the discussion and becoming a product-agnostic business in which we can market and sell that way — and have the capability to deliver on those products to make sure we’re delivering the best service, supporting seniors in a very educational, responsible, and sustainable manner in terms of how they tap into their home equity.
RMD: What is keeping you up at night as CEO of the largest lender in the reverse mortgage space?
RJ: Obviously coming off multiple years of record growth in terms of revenue, loan origination, and employee headcount, and — as a CEO —making sure you’re investing in the right places to continue scaling, growing, and helping more seniors have a better financial outcome. And the challenges I mentioned earlier — the stability of the MMI fund, the legacy mindset, changing the business model, and responding to the government changes. Those are all the challenges of the current time right now.
Compiled by Maggie Callahan