RMD Report: Strong Business, Favorable Demographics Drive 2019 Optimism

Earlier this year, RMD had a range of discussions with reverse mortgage industry participants in which the majority of them described a feeling of optimism about the trajectory of the business, despite the depressed industry volume in 2018. Now that the midpoint of 2019 has come and gone, the sentiment remains in optimistic territory for the year.

While reverse mortgage originators tend to be optimistic by nature, a number of factors could easily put that optimism to the test: the exit of major industry companies and a new round of critical media coverage being two of the most visible ones.

Be that as it may, these reverse mortgage optimists were more than ready to back up why they feel the way they do.

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Fewer restrictions from financial planners

In terms of the overarching trend of the business that was observed at the beginning of the year, Shelley Giordano of the Academy of Home Equity in Financial Planning (formerly the Funding Longevity Task Force) expressed in an RMD webinar that the entry of a new player in the space in the form of Mutual of Omaha Bank would help to increase accessibility to the product and be a positive force for the industry in 2019.

Giordano pointed to the bigger picture elements of the business that seem to be progressing in a positive direction as the foundation for her continued optimism. Among these elements is the ability of financial advisors to discuss reverse mortgages with their clients.

“We certainly have had an improvement in regard to the compliance end,” Giordano tells RMD in a phone interview. “The broker dealer compliance folks have made it so difficult [for reverse originators] to have conversations with financial advisors over the years, and we had a significant boost in December when LPL Financial removed their prohibitions on having discussions about reverse mortgages. There are some other broker dealers that have done the same.”

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The addition of some financial advisors having the ability to use illustrative software to show clients how their financial condition can be improved, particularly in a scenario involving the exchange of a forward mortgage for a reverse option, has also made a big difference, Giordano shared.

Also helping matters is optimism that government officials, including FHA Commissioner Brian Montgomery, have publicly expressed concerning the Home Equity Conversion Mortgage (HECM) program’s activity within the Mutual Mortgage Insurance (MMI) Fund, Giordano says. As more in the financial community continue to read the work of others in the arena of incorporating home equity into the financial planning process, the harder it will be to ignore the use of the housing asset to offer greater financial stability for the long-term.

“The message is so compelling: the home asset represents at least two-thirds of the average person’s net worth, and doing things with your home equity can improve retirement security,” Giordano says. “There’s just no doubt about it.”

Industry volume

In terms of the raw data that informs the trajectory of the reverse mortgage business, Reverse Market Insight (RMI) President John Lunde told RMD that he’s managing to feel largely optimistic about how the year is shaping up.

“It’s been an interesting year for the industry for lots of reasons, but the lower interest rates on the 10-year swap [rate] (down a point in the past 12 months) have brought down the pressure from product changes implemented in October 2017,” he tells RMD in an email. “It enables more proceeds to borrowers at rates that don’t strangle lender revenue.”

Proprietary products also continue to prove to be a point of general positivity, primarily because they bring with them consistent growth and diversification in the kinds of business that reverse mortgage lenders can provide people.

“Proprietary products are really helping the industry evolve even as growth is still very hard to come by on an overall basis,” he says. “The next challenge might be lower home price appreciation or even home price declines, but for now there’s a reasonable landscape for stability and – hopefully – growth.”

As the year has gone on, Lunde feels more optimism, he says, since at the end of 2018, it was difficult to tell whether or not industry volume had bottomed out in the wake of the October 2017 product changes.

“I was reasonably confident we had seen it or weren’t far from it, but we didn’t have the monthly data to show a clear trend there yet,” Lunde says. “Now we have that and can see a favorable interest rate and home price environment for origination.”

Originator perspectives

A panel on sales challenges at the National Reverse Mortgage Lenders Association (NRMLA) Western Regional Meeting in March related overall positivity concerning how the business had been shaping up by then, and two participants on that panel continue to feel optimistic concerning what they’re seeing in their own proverbial backyards when recently asked to provide an updated perspective.

“I am still optimistic about the industry’s landscape,” says Galen Call, manager of the reverse mortgage division at TreeHouse Mortgage Group in Monterey, Calif. “It is the business community who are [increasingly] coming around to refer their clients to explore the reverse option. Financial and tax advisors specifically are learning how this vehicle might work for supplemental cash flow and they see the benefits, and I think this is a trend that will continue.”

Also maintaining his expressed positivity from his appearance on the panel is Michael Zwerling, sales manager at New American Funding in Tustin, Calif.

“My optimism remains high since the Western Regional NRMLA Conference,” Zwerling says. “In fact, my position has only strengthened since March.”

Because the underlying issue of retirees not having sufficient finances to sustain them persists, the need for the reverse mortgage product is not going to disappear anytime soon, he says. Compounding this is the underfunding of Social Security, continuously low savings rates among seniors and the increasingly older shift of American demographics, as well as the increasing prevalence of more diverse proprietary offerings.

“The increased competition that has come as a result of more proprietary products being introduced into the market has allowed high home value borrowers to access more of their equity than ever before, with lower closing costs and lower interest rates,” he says.

This edition of the RMD Report is sponsored by national appraisal management company Class Valuation.

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  • My simplistic suggestions are as follows:

    (1) Stop including commentary in your articles regarding reverse mortgage origination & lead generation suggestions and advice from anyone who does not actually originate reverse mortgage loans themselves.

    (2) Stop including commentary in your articles regarding reverse mortgage origination & lead generation suggestions and advice from individuals who do originate reverse mortgage loans but originate so few of them that their company doesn’t even appear on the top 100 reverse originators report published by reverse market insight.

    (3) Regarding financial planners & other referral partners: No matter how optimistic you may be, reverse lending volume is at an all time low. Recognize that clearly whatever methods of generating quality reverse mortgage leads that has previously been promoted as a viable way to originate reverse mortgage loans has obviously not worked! The definition of insanity is doing the same thing over and over again and expecting a different result. Albert Einstein.

    (4) Advertise the reverse mortgage to the vast majority of seniors who actually need it:
    The retail reverse mortgage company’s that appear at the top of the top 100 reverse originators report and that are closing the most reverse mortgage loans are obviously doing what works!

    • Kevin,

      We have talked before and I am surprised by the following misstatement of fact: “…reverse lending volume is at an all time low.” Please substantiate that conclusion with empirical, verifiable, and historical evidence. The fact is you cannot.

      Let me be clear, the HECM industry had its first endorsement in fiscal 1990. We are celebrating 30 years of HECM endorsements. During the first 14 years, the highest fiscal year for HECM endorsements was fiscal 2003 with 18,097 HECM endorsements. The first 10 months of fiscal 2019 had 26,513 HECM endorsements. That is 10 months versus 12 months of HECM endorsements.

      So again where do you get the idea that “reverse lending volume is at an all time low.” It is not.

      While there is no empirical evidence to prove or disprove your point on not emphasizing referral sources, there is far more credible anecdotal evidence to support the position of those purporting the position of reaching out to referral sources than there is for your view of dropping it.

      While I believe that much of the conclusions stated in the article will be INCAPABLE of being substantiated by the empirical information that HUD will post to its website before January 1, 2020, the worst I can describe those conclusions is irrational exuberance (a typical mistake of optimists). But your pessimistic conclusion about HECM endorsements during fiscal 2019 is a historic claim that is worthless, false, and misleading; it is based solely on emotional reaction rather than rational thinking.

      • James,

        I can look up statistics too but unlike individuals who do not originate, i don’t have time because I am too busy trying to get reverse mortgage loans closed!

        The following came off the NRMLA website.

        According to NRMLA the last time yearly reverse volume was this low was in 2003.

        In fact from the inception of the program in 1990 thru 2001, yearly volume was under 10,000 units.

        I don’t even take into consideration 1990-2001 because the numbers are so very low that they are meaningless in my opinion.

        What I am referring too is the fact that our industry hasn’t seen volume this low since 2003 which was 16 years ago.

        You can sugar coat it however you want but I am of the opinion that since our industry hasn’t seen volume this low since 2003 that our volume is at crisis level.

        I really don’t care about statistics from 30, 20, 15 or even 10 years ago because its ancient history and not relevant today.

        What i am focused on is what has happened over the last 5 years?

        What did we do or not do as an industry to get to where we are today?

        I am suggesting that over the last 5 years far too much focus has been placed on the benefit of referral partners as opposed to consistent leads being driven in by marketing and advertising.

        I contend that this ridiculous desire that so many in our industry has to court referral partners as opposed to spending money on marketing & advertising is the primary reason why volume is so low.

        Clearly based upon the current volume how can anyone argue this point?

        Following are the number of HECMs made in each federal fiscal year since the program began. HUD provides data by federal fiscal year (each federal fiscal year begins October 1 and runs through September 30 of the following year. FY 2019, for instance, began October 1, 2018, and ends September 30, 2019).

        FY 2019–26,513
        FY 2018–48,359
        FY 2017–55,332
        FY 2016–48,902
        FY 2015–58,043
        FY 2014–51,642
        FY 2013–60,091
        FY 2012–54,822
        FY 2011–73,131
        FY 2010–79,106
        FY 2009–114,692
        FY 2008–112,154
        FY 2007–107,558
        FY 2006–76,351
        FY 2005–43,131
        FY 2004–37,829
        FY 2003–18,097
        FY 2002–13,049
        FY 2001–7,781
        FY 2000–6,640
        FY 1999–7,982
        FY 1998–7,896
        FY 1997–5,208
        FY 1996–3,596
        FY 1995–4,165
        FY 1994–3,365
        FY 1993–1,964
        FY 1992–1,019
        FY 1991–389
        FY 1990–157 loans

        Total = 1,128,998
        Source: HUD (Through July 2019)

  • Are we really supposed to be guided by the conclusions on HECMs in the article? They are ridiculous.

    I actually believe that margins that close to the 3% floor will produce more closed HECMs but how do we track that? The numbers that are reported by HUD are HECM Case Number Assignments and HECM endorsements. The industry NEVER sees any industry reports on closings that are released to the public.

    The impact of lower margins after June 30, 2019 on application numbers will not be seen at all. We will begin seeing it on applications that receive HECM Case Number Assignments; yet that is not the same as number of HECMs closed. For the 12 trailing month modified conversion rate for July 31, 2019 on HECM applications that had Case Numbers Assigned was 64.6%.

    Based on the four month lag rule we will not see much of the impact on HECM endorsements from these lower margins that went into effect after June 30, 2019 until at least the endorsement count for November 2019, if not calendar 2020.

    In conclusion, it is highly unlikely that the HECM endorsement total for the last half of fiscal 2019 will even be 8% better than the first half. 8% does not match the irrational exuberance expressed in the article; however, as to closings (not endorsed HECMs), it very well might.

  • I read the article as well as reading the comment from Kevin and the comments from Jim Veale. I feel from all that I have researched, Jim Veale is very much on tract with his statistics and opinions.

    I have disagreed with Jim in the past on some things, but here I feel Jim , as usual, has done his homework very well. I am fairly optimistic we will see a better 2019 as well, maybe not a banner year, but one that we can at least express optimism over it!

    John A. Smaldone

  • Great back and forth gentlemen, looks like a lot of research has been done by both of you. Good job to the two of you.

    However, what really matters is what happens from this day forward. Increased origination’s and especially increased closings will be the climate determining factor for the future of our industry. What we need are years like we had in 2014!

    Our focus needs to be on the next 5 years and what we need to do to change the declining pessimism to a positive optimistic attitude as to where we can go the tolls we have and the statistics that are favorable for the reverse mortgage!

    John A. Smaldone

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