On the heels of a flurry of new proprietary products and product features from the nation’s top reverse mortgage lenders, Liberty Home Equity Solutions last week announced the launch of its EquityIQ to compete in the space.
Proprietary products are currently seen among reverse mortgage industry players as a path to the business’s future prosperity, particularly as data suggests that the depressed industry volume observed in 2018 will largely continue through the end of 2019.
To discuss the new opportunities present with the launching of its own proprietary reverse mortgage option, RMD sat down with Mike Kent, president of Liberty Home Equity Solutions, to discuss what the addition of this new product means for the future of both the company and the reverse mortgage industry at-large.
We understand that Liberty had a proprietary reverse mortgage pilot program before EquityIQ was announced. How long did that program go on, and what did Liberty learn about the proprietary landscape that was then implemented into the final approach for EquityIQ?
[The pilot program started on] January 1. I would say we learned quite a bit. Many of the processes and safeguards that are built into the current HUD program map over to these proprietary products. I’m thinking specifically in regards to things like counseling, and making sure borrowers fully understand and are educated on the product.
I think all of that maps over very successfully to the proprietary products, and tends to make those proprietary products even better.
The announcement of EquityIQ alluded to some aggressive plans for expanding it into more areas of the country. What can you tell us about plans for the expansion? Are there any specific markets or timetables you can share concerning where and when it will be available next?
We have four additional states right now in the queue. I would imagine we’ll have our next state out here very shortly. The goal of the team is to get to [the point] where we roll out a new state around every 10 days. From a geographic standpoint, it’s the usual suspects.
We call it the ‘smile belt,’ where you start up in Washington, you come down and hook around Texas, you hit Florida and then head up the east coast. That’s where the initial concentration will be, into those bigger marketplaces.
I know there are some difficulties inherent in getting product approval in states like New York and Massachusetts. One of your competitors just announced availability for its product in New York, though. Are those states on your radar at all, or is your focus going to remain in those ‘smile belt’ states for the time being?
We have a very significant wholesale presence in Massachusetts. We have a significant market share there, and a good number of our partners depend on us to provide them with not only the HECM product, but also private products. So, we’ll go through the process to get approved in those states, and from there we leave it up to the state regulators as to what their turnover times are.
What features set Liberty’s proprietary product apart from its competitors? Are there any shortcomings to the existing product slate you identified as potentially being shored up by EquityIQ?
I think that one area EquityIQ [solves an issue] is with loan-to-value ratios (LTVs). We bring to the market LTVs that are slightly higher than many other proprietary products, especially in the younger age ranges [of borrowers].
In terms of condominiums, currently we’ve rolled EquityIQ out to FHA-approved condominiums, but we’ll expand that to include warrantable condominiums. We just want to get sufficient training out to our partners and in the marketplace so they understand what warrantability means, and how they themselves can take a look to make sure they’ve got a condo project that would qualify under that definition.
In areas like California, especially in the Bay Area, it doesn’t take much to get to a $2 million home value. There’s a surprising number of people who can own homes between $1.5-2 million, and seniors that could never actually buy the home again. Maybe they’re on fixed incomes, and they’re in the home by virtue of duration. Maybe they bought it back in the 1960s or 70s when homes were more affordable, and now [those homes are] beyond their reach.
What borrower characteristics or needs does this product serve?
It’s a fixed-rate fully drawn loan on day one, so the primary use would be to reduce existing outstanding debt, for example retiring a mortgage. And for many people, especially in California where mortgage balances tend to be higher, [retiring a mortgage] can cause a significant net increase in a senior’s monthly cash flow.
In addition to that, because the loan amounts can be larger, you can tap into a greater amount of equity in your property to pay off the mortgage or other outstanding debts. Nowadays, there are a lot of grandparents who have taken on student loan debt [for their grandchildren], so they can use this to pay that off. Or, [a borrower would] be able to use that money to preserve existing investments. [EquityIQ can be used for] many of the same reasons as a HECM, but in this case it deals with larger dollar amounts.
I think that we’re going to find that one of the top reasons will be to retire existing mortgage debt, and realize what could be significant net increase in monthly cash flow.
What percentage of business does Liberty expect the new product will comprise? Do you have a figure in mind?
Mary Smith, who’s our senior VP of marketing and sales, and her group did a lot of scoping exercises to see what we thought the market and origination volumes would be. I think that over time they’re going to grow, and could become significant. I think that the HECM loan, for at least the foreseeable mid-term future, will still be the staple of reverse lending. I also think that these proprietary products will, over time, garner a larger and larger share of the market as more innovation is brought forward through those private reverse mortgage loan placements.
I don’t know exactly what percentage [of our business it will comprise]. For us, our goal with EquityIQ is not necessarily to compete with the HECM product. Our goal is to both serve a larger customer base, and to use this product in a way to expand distribution, working with many of the forward originators today that already sell reverse mortgages. California is a great place to do that, and this is the kind of product you need in order to do that in California.
Mary Smith: One other important thing that proprietary products give us as an industry is that it helps us overcome the perception that the product has high upfront costs. That’s one advantage [of this product]. We are finding, and one of the learnings on the pilot, is that there is a segment of customers that don’t want those high upfront costs, like the mortgage insurance premium (MIP) [and all of those associated] expenses, and this product really helps to overcome that primary objection.
Mike Kent: That’s a really good point.
When discerning a launch window for EquityIQ, was there anything that indicated why summer would be the best time? Or, was there not really a need to be selective about that part of it?
What really drove the launch window was a couple of things: we wanted to really utilize the pilot to make sure, operationally, all the ‘plumbing’ worked, and worked really well.
One of the things that Liberty prides itself on is the level of customer service we deliver: Incredibly fast cycle times from start to finish, industry-high net promoter scores from our customers because we put them first, and just ensuring that we had everything in place to be able to maintain that extremely high standard of customer service that is foundational to who Liberty is. That was one [driving factor].
The other one was taking the time to educate our own loan officers and internal staff, and make sure we had technology systems in place to support the product and make our partners’ lives a little easier and to give them a one-stop solution, which we do with a piece of technology we call “Portal.” Any one of our partners can go into Portal and literally do all the work they would normally do in a Loan Origination System (LOS) in order to generate a loan application package, and there’s no charge to them [for their use] of that technology. We also wanted to make sure that Portal was fully updated and deliverable to our partners.
Those are the things that really drove the launch window. As we said for a long time, we didn’t want to bring a product to market until we had the right one, and the other part of that is that we didn’t bring a product to market until we were ready, and we could ensure that extremely high level of customer service we [always strive] to deliver.
Is there anything I haven’t asked you about that you’d like to share?
EquityIQ is our first iteration. Certainly, people should know that we continue to work on innovating this product. I would expect that sometime in the not-too-distant future, we’ll be rolling out some additional innovations to go with it.