It’s no secret to anyone that works within it that the reverse mortgage industry deals, on a regular basis, with reputational challenges that impede the ability of loan officers to connect with potential borrowers. While many of these difficulties have been persistent for years, recent developments up to and including greater acceptance of the product by financial advisors may indicate an evolution of some of these reputational challenges.
While reverse mortgage educators see some progress being made in terms of the products’ acceptance, they also agree on the idea that there is still a fair amount of work that needs to be done in terms of securing more of the public’s trust in the incorporation of home equity into retirement funding.
The greater levels of acceptance among financial planners is generally encouraging, but there is still much work to do on the reputational front according to Jamie Hopkins, Director of Retirement Research at Carson Group.
“It looks like reverse mortgages have made some progress with broker dealers and financial advisors over the past several years, but there is still work to be done,” Hopkins tells RMD in an email. “There still are a ton of misconceptions, low literacy rates surrounding the product, and some hostility. I think the most important thing is to continue to focus on the broader issue of incorporating housing wealth into financial planning.”
Greater levels of acceptance in general shouldn’t diminish the fact that more financial planners and wealth managers will need to put the idea of incorporating housing wealth into actual practice, Hopkins says.
“This is really what needs to change. At that point, products can fit as solutions. It seems better to me to lead with planning and not to lead with product first,” he says.
A shift away from ‘crisis management’
In terms of reputational challenges that may have started to be overcome by the industry, the idea of a reverse mortgage as a “last resort loan” is starting to be diminished according to Dan Hultquist, author of “Understanding Reverse” and VP of Organizational Development at Finance of America Reverse.
“The conversation has shifted away from someone having a major crisis and thinking of a reverse mortgage to bail them out, [and has evolved into] someone having a well-funded retirement and wanting to protect it,” says Hultquist. “That’s a major shift that’s taken place over the last five years, and I think that’s a huge improvement.”
Strangely enough, another way that reputational challenges may have started to diminish is because of reverse mortgage industry personnel becoming so used to the stories, and having the well-practiced ability to rebut them, says Hultquist.
“Those who are committed to the reverse mortgage industry have heard so many of the objections that they’re now better prepared to handle them,” he says. “We used to get that it’s too expensive, that was an objection. I think that people have been pretty comfortable overcoming that one, recently.”
One method that industry insiders have responded to a complaint about the expensive nature of reverse mortgages, Hultquist offers, is asking about less costly alternatives.
“How much would you pay for a non-recourse loan that doesn’t require a monthly and principal interest mortgage payment at traditional and very competitive rates?” he asks.
Challenges with proprietary products
While many in the reverse mortgage industry have seen the increasing prevalence of proprietary products as a potentially saving grace from generally reduced volume, adding these kinds of offerings into the mix could create some additional reputational challenges, says Hopkins.
“People don’t know much about these products yet, which is both a positive and a negative,” Hopkins says. “It makes broad participation harder, but there are not the same reputation hurdles and hostility that exists towards the HECM market. It looks to me that 2019 and 2020 will really be driven by these proprietary products.”
While education is a focus of many industry efforts to expand product awareness, there is still work to be done in making good, accurate information more widely available on reverse mortgage products when compared with the kinds of stories that often break into the mainstream media, usually revolving around foreclosures. The expansion of education on the products is paramount, says Hopkins.
“The industry needs more of an educational push at the highest levels of why housing wealth and retirement planning are so important,” Hopkins says. “This means looking at ways downsizing, H4P, HECMs, LOCs, refinancing, paying off debt, and other mortgage products fit into the bigger picture. I think the more coordinated with the overall planning, the better.”
Part of this lies in emphasizing how these things can fit into an overall retirement strategy, since presence in overarching plans can help get certain messages across, he says.
“Products that stand alone have more trouble than products that really fit into plans to improve the client’s life and situation,” Hopkins says. “That is really the end goal, products should be designed in a way to improve someone’s life.”
The continued availability of inaccurate information from organizations that are often looked to as financial product authorities is also a continuing issue, says Hultquist.
“If you go to the CFPB’s main website, and you type in ‘reverse mortgage’ into the search box, the first thing that shows up is a page titled ‘What is a Reverse Mortgage?’ And there are multiple statements that don’t tell the full story,” Hultquist says. “For example, the phrase ‘borrowers don’t make payments’ is outdated, as there are many financial planning advantages to making voluntary prepayments.”
Another point of inaccurate reverse mortgage guidance from the CFPB is the notion that a reverse mortgage naturally ‘causes home equity to decrease,’ Hultquist says. “This fails to recognize that home value appreciation is a greater factor in determining home equity in today’s low interest rate and low draw reverse mortgage environment.”