Tips for Solving the Reverse Mortgage Industry’s ‘Cadillac Problem’

Making connections with different trusted advisors can be essential for reverse mortgage originators to remain competitive in the current industry landscape. While not all originators see the appeal in making connections with professionals like lawyers, financial planners or Certified Public Accountants (CPAs) in facilitating viable reverse mortgage leads, one originator and industry educator swears by this method and wants to spread the message about why it can work.

Martin Andelman, producing branch manager and trainer at HighTechLending, is based in Orange County, Calif. and is the guest on the most recent edition of The RMD Podcast, available now.

He offers a series of presentations for reverse mortgage loan officers concerning the effective practices he’s gleaned in forging effective partnerships with other financial and legal professionals. He also shared his perspective on how the reverse mortgage industry can find a sustainable path toward greater success by leaning toward potential clients who have some “money in the bank,” so to speak, but who are not necessarily fully secured for retirement.

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Needs-based borrowers

Some of the things that limit the ongoing supply of needs-based borrowers with little-to-no retirement savings is changes in principal limits, and the sheer number of originators looking in the same places for the same kinds of borrowers.

“As it becomes harder for people at the bottom to qualify because of the principal limit changing, or anything else, if everybody’s fishing in that pond then you’re just going to run out of people,” Andelman shared on the newest episode of The RMD Podcast. “It’s like looking for people whose house is on fire…today. There’s going to be some fires over the years, but today there’s a limited number of them.”

Perpetuating the idea that a reverse mortgage is a product of “last resort” is also problematic for the sustainable health of the industry, Andelman says, and going primarily after that borrower profile perpetuates that idea further. Still, people who have some money saved may not have an immediate monetary need, but they still have a need that is just without the immediacy of a typical borrower.

“If people keep thinking this is a loan of last resort, it’s a terrible idea for a number of reasons. That’s why the numbers are shrinking. The reality is that the only difference between people in the needs-based audience that everybody’s so familiar with, and people […] who have between $400,000 and $1 million in their 401K, is that they have money today,” Andelman explains. “Does that mean that they’re totally prepared for retirement? That they have no risks? That everything is perfect? No. But, it does mean that they don’t have a recognized need for cash today, and if that’s the only way we’re going to appeal to people, then you’re never going to talk to that audience.”

Loan officers would also be well-served by putting less emphasis on how a reverse mortgage works, and greater emphasis on practical ways it can be applied to a specific borrower’s financial situation.

“I’ve been out in the field with dozens and dozens of loan officers, and they all talk about how it works. But, that’s not what it’s about. Why would I care how it works if I don’t see any application to my life?,” Andelman says. “Imagine if you walked into a financial planner’s office to give a presentation about food stamps. Do you think they’d be paying attention? The people in the room would be thinking that they don’t have any clients who qualify for food stamps, so why would they listen to this?”

Speaking the languages of different trusted advisors

A big portion of the presentations and seminars that Andelman leads is how to forge connections with referral partners, and how people in different professions think about how to best serve their clients, he says.

“If you walk into the office of a bankruptcy attorney, you’d better have a different presentation than if you walk into the office of a financial planner, and the same thing is true about CPAs and all the different types of lawyers,” he says.

For instance, at the end of the day lawyers exist to solve problems for people. Financial planners are primarily concerned about mitigating losses for their clients. That means that both need to be talked to by a loan officer in very specific ways.

“So, lawyers need to be talked to in a way that [illustrates the reverse mortgage] as a problem-solving tool,” Andelman says. “For financial planners – and this is really important – you have to recognize that financial advisors are far more concerned about the risk of loss than they are excited about the prospect of gain.”

By contrast, CPAs are interested in creative solutions to financial issues, which allows a loan officer more latitude to provide creative applications to a CPA’s client, he says.

“When you’re presenting a reverse mortgage to a CPA, you can be more creative in the applications that you show. So, you have to know who you’re talking to. All lawyers are problem-solvers. So, you have to tailor the use of the tool to solve the problem.”

Reverse mortgages have a ‘Cadillac problem’

In terms of how the reverse mortgage industry is positioning itself, Andelman compares it to an issue that afflicted a prominent American car manufacturer.

“Remember how Cadillac used to be the premiere car in the United States, it was the status symbol of the 1960s and 70s,” he says. “And then, Cadillac became the car for old people.”

Being attached to that kind of reputation necessitated the Cadillac brand to seek a refresh, which was ultimately accomplished when they introduced models like the Escalade to the wider public, which helped the brand to regain some of its former luxury-based esteem.

“But, for a long time it was the car for old people. That’s what’s happened here: the industry has allowed the product to become positioned as a product for poor people, and yet I’m doing a loan right now where the total assets are $1.7 million, and another where they’re $1.4 million,” Andelman says. “It’s not that these people are rich, they just don’t have a dire need for cash. That’s all.”

This tells Andelman that there needs to be a reimagining concerning how the reverse mortgage product is positioned for those outside, and even within the industry itself.

“I don’t think the industry’s thinking about this right,” Andelman shares. “It’s trying to find people that don’t have any money, but that have a lot of equity in the house. And you have to get them at the right moment. It just seems like there’s a better way.”

For the full conversation with Martin Andelman, listen to episode 5 of The RMD Podcast.

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  • Mr. Andelman makes some great points. In my opinion, to move this industry forward, we need a re-brand where the expectation is that clients pays monthly what they can afford to pay. The standard should not be that you make no monthly principal/interest payment, at least to begin with.

    There are a lot of people in their 60’s that are committing to a 30 year payment (forward mortgage) with no thought to the future and what lies ahead (retirement, potential loss of a spouse, etc). For many, they will be able to pay $X amount until retirement, $Y amount until the loss of a spouse’s income, and then maybe nothing (and using the LOC) on the back end of the loan. Treating the loan like an option ARM of the old days, but with a guaranteed line of credit. Should be an easy sell, right?

    I don’t think investors would like a significantly larger percentage of the pool paying monthly, but it would be great for the FHA insurance fund and it benefits the borrower because the downside of compounding interest isn’t there. There are some lenders that have tools out there to reflect payments made on a reverse mortgage, but when I bring it up with borrowers, they are mostly hearing it for the first time.

    Shifting how a reverse mortgage is perceived is not an easy task, but it would be beneficial to the industry to move away from the “no principal & interest payments” to “pay what you can” language. I think that would open up the door to more people that don’t want to let the interest compound for 20 years.

  • It’s still not a good deal for the consumer. You have your banker, financial advisor, and a lawyer all working together to figure out how they can increase thier ivestment

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