Over the past 30 years, the reverse mortgage industry has gone through an abundance of change. In fact, the reverse mortgage of today looks quite different from the Home Equity Conversion Mortgage that was first introduced in the late 1980s.
Whether discussing the abundance of new regulations introduced by the Federal Housing Administration (FHA) or the Department of Housing and Urban Development (HUD) over the course of that time, the up-and-down trajectory of the American housing market over three decades or the messaging behind the reverse mortgage product, the reverse mortgage of today is not as it was in the late 1980s.
With that wide gamut of product evolution also comes necessary changes to the ways that reverse mortgage industry salespeople communicate the potential benefits and financial realities of reverse mortgages to potential borrowers. The modern era of reverse mortgages has its own concerns particularly as industry volume has fallen compared with years prior, and as more proprietary options have entered the fold.
Elly Johnson, president of All Reverse Pro and co-chair of the HUD Issues Committee at the National Reverse Mortgage Lenders Association (NRMLA), has had a front-row seat to many of the changes that have taken place in the reverse mortgage marketplace. Having first broken into the business in 1992 at Unity Mortgage, Johnson has become a recognized authority in the industry owing to her over 25 years of experience, and her successful reverse mortgage consulting business All Reverse Pro.
During a recent NRMLA conference, Johnson shared her take with RMD on the ways the reverse mortgage sales conversation has changed, and how it still may need to going forward.
The evolving sales conversations
Engaging in fruitful sales conversations was the topic of a panel moderated by Johnson at the event, and even though it’s been discussed at length in the past, it’s a conversation that continually needs to be refreshed for reverse mortgage salespeople to be successful in an ever-changing climate.
“I do think it’s still a very interesting topic that needs a lot of attention, because we’ve had so many changes in the industry,” Johnson tells RMD in an interview. “With that comes the need for the sales to change. [Salespeople] have to continually reinvent themselves, and find the new normal. That word has been thrown out a lot, but I do think that’s critical.”
The phrase ‘new normal’ has been used often by many in the industry, Johnson says, but that doesn’t make its necessity any less important. This is particularly true of an industry that continues to change on both the government and private sides of the equation with each passing year.
“Once we have a major change, as we did with the principal limit factor (PLF) changes [in October 2017], everyone needs to adjust and needs to be able to find their new normal,” Johnson says. “The product is still viable, and still a good product for many people, so just figure out what that new normal is and figure out a way to sell the product.”
The possibility of both the collateral risk assessment (CRA) and Life Expectancy Set-Asides (LESAs) have also helped to prompt different kinds of sales discussions, Johnson says.
“Discussing the borrowers’ credit in more detail and explaining the LESA and how that would affect the overall available loan proceeds, is just one aspect that has changed the initial conversations with potential borrowers,” Johnson says. “At a minimum, many recommend alerting the borrower upfront to the possibility of a second appraisal and the cost involved if a second appraisal is required as part of the CRA results. In addition, the introduction of new non-HECM products, requires a bit more conversation as well.”
In the end, guiding a borrower through the reverse mortgage loan process is perhaps more essential than ever before to ensure he or she doesn’t encounter an abundance of unexpected surprises, Johnson explains.
“Overall, I think the sales approach has changed as the product has changed and making sure there are no surprises for the borrower is more important than ever.”
Finding the right words for the right products
As proprietary products continue to enter into the fold product understanding by potential senior clients becomes a rising issue. The word ‘jumbo’ being used interchangeably with ‘proprietary,’ for example, could be a breeding ground for potential misunderstanding, Johnson says.
“Jumbo-specific people relate to the large loans, like a half-million dollars or more, or [up to] a million dollars. Generally, that really doesn’t describe what this product is either, because there’s a break point,” Johnson says.
This brings up the issue of semantics, because while some in the industry have advocated moving away from the word ‘proprietary’ in describing loans not insured by the federal government, it becomes important to try and find a term that more easily allows seniors to understand what a private reverse mortgage really is and how it functions compared with those insured by federal agencies.
“I don’t know if we call that product ‘non-agency,’ but that is what it is: a non-agency product,” Johnson says. “It’s not HUD-insured, so non-agency might work. But, I don’t know if a senior would really understand what that is. We certainly don’t say to seniors that we’ve got an ‘agency’ product for them, they wouldn’t know what that is. So, if we were to say ‘non-agency,’ they’re not going to know that, either.”
The word choice matters, and it all has to come back to terms and phrases that better allow for seniors to make easier connections between financial products and their potential applications, she says.
“There is a name we should come up with that makes it easier for them to understand,” Johnson tells RMD. “I do know someone tossed out ‘portfolio,’which might make sense. But I agree that it’s something that needs to be looked at.”