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.
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.”
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.”
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.”
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.