Lenders Prepare for 2019 Reverse Mortgage Challenges

Recent program changes and new appraisal rules have led reverse mortgage lenders to update their strategies and approaches in a consistently dynamic market.

And on the the heels of major product changes implemented in late 2017, many longtime reverse mortgage players have adapted their businesses accordingly. Yet there are several challenges that remain in light of rising interest rates and public perception of Home Equity Conversion Mortgages, as lenders look toward a new year for the product and the senior market it serves.

“It comes down to one thing: customer acquisition cost,” David Peskin, president of Reverse Mortgage Funding, told RMD in a recent interview.

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Customer acquisition cost has always been a consideration, but particularly in light of today’s market, reduced principal limit factors and lower margins for lenders, this cost is all the more prevalent.

“In the past, when you had higher margins, you didn’t have to close as many loans. Today we have to understand the business from every aspect,” Peskin said.

Lenders are also looking closely at the impact of rising interest rates specifically—a phenomenon not experienced since prior to the Great Recession, which began in late 2007.

Markets were buoyed in November after Federal Reserve chairman Jerome Powell appeared to imply that more hikes may not be on the horizon during 2019, yet The Federal Reserve has raised interest rates three times in 2018 and said it plans to raise rates for a fourth time in December.

“The reality is, it will be harder,” says Bruce Barnes, executive vice president for Live Well Financial, of the rising interest rate environment. “You’ll have to work longer to get the same amount of business. There isn’t a rosy picture when you have a shrinking market because of interest rates.”

Lower volume may be a challenge for individual lenders and originators, but it also presents a hurdle for the industry as a whole, in terms of garnering the interest of investors that seek opportunities of a particular scope and size.

Despite the challenges, lenders and longtime originators remain positive. It may be a different business, and a different consumer, they say, but the coming year should present opportunity.

“It’ll be better than 2018,” says Richard Pinnell, a reverse mortgage originator with Vitek Mortgage Group, based in Redding, Calif. “We have to adjust to the new PLFs, so I’d guess half of all of our pipelines became non-doable loans because of the adjustments. We have to look for a different motivation to do a reverse mortgage…It’s a completely changed marketplace. Originations are way off, but I think that’s a temporary situation and we just have a few bugs in the system to work out.”

Written by Elizabeth Ecker and Chris Clow

This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.

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  • I’d love to see the number of LO’s who originated 6+ HECMs in 2017 vs. 2018. Personally, I expect the pie to be the same size in 2019 that it was in 2018 (originations not endorsements). The new normal is 2,500 +/- per month. What HUD decides to do next Oct. 1 will determine the future of this industry.

  • Let us not bury and have the funeral for the reverse mortgage industry all! There is life beyond tomorrow if we look hard enough!!

    I am not going to sit here and say, there are no problems out there that we face. I am also not going to sit here and say all you have to do is think positive, however, that would not hurt the wound any!!!

    We do need to ask ourselves an important question, do you do and do I, want to stay in the reverse mortgage space? Are we willing to do what is necessary to still make a successful living out it? Do we still enjoy working and helping our seniors achieve some of their dreams?

    I am willing and I still enjoy working and helping our seniors achieve some or many of their retirement goals and dreams.

    Although, in order to do this and stay in the reverse mortgage space, I must work harder and work a lot smarter than ever before and so do you! I have to stay positive, I must learn everything I can about any and all changes in the products, the software as well as understand and teach myself a new way to approach to our industry! By the way, so do you if you want to hang in there!

    We have products that still work, both with the HECM and the proprietary products. We must understand that we have no choice, other than to look at our senior clients differently than we have in the past! We now must qualify our senior homeowners in many different areas.

    We must also look at reaching out to various referral sources for our business. Referral sources such as financial planners, realtors, small community banks, credit unions, elder law attorneys, CPA’s, long term health care providers, just to name a few.

    More important than ever in today’s age, we need to understand the business world these referral partners are in. Read up on them, talk to some, go to their business organizational meetings. Understand what they are all about and how they interface with their senior clients. Educate and educate yourselves as much as you can about their world, once you do that, you will be in a position to talk to them how your world can interact with their’s!.

    Business is out there if you want to hang in there, work at it and capitalize on the vast market of seniors home owners available to us!!

    This is how I truly feel about it. I will be happy to talk to anyone that wants to contact me about my philosophy and how I will be going about it!

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

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