There will hopefully come a time when the reverse mortgage market, currently dominated by Home Equity Conversion Mortgages (HECMs) backed and guided by the federal government, will be eclipsed by the greater availability of private alternatives. Overcoming reputational concerns in the larger reverse mortgage market may also be accomplished by focusing on product features and branding.
These are some of the thoughts expressed by Chris Mayer, the CEO of Longbridge Financial, when he sat down for the latest episode of The RMD Podcast, which is available now.
HECM vs. private products, market proliferation
“I actually hope and expect that the private market will eventually be larger than the HECM market,” Mayer said. “I think we should start with the fact that the HECM is a wonderful program, and it is a program that serves customers, and taxpayers extremely well. That said, I think there are opportunities to design and to manage products on the back-end in ways that offer advantages, and there are things that in the private sector we can do that are harder for the government to make changes to.”
While the government makes changes to the HECM offering with relative regularity, changes are not often processed very quickly. The private market, on the other hand, can move at a faster pace in reacting to the desires of customers, Mayer said.
“I think everybody on the FHA side [has] been amazingly supportive, in terms of the changes they made in the market to try and create a product that works,” he said. “But in the private sector, we’re able to move a little more quickly, and we’re able to design products that meet the needs of customers. So, I do think as we have a lot of investors’ demand for our products, we are going to be able to grow the private market, create hybrid products and other things that are going to get to market more quickly than what the government can do, and to serve broader audiences that expand the number of people who are willing to do a HECM.”
There are some lingering issues that can affect both the HECM and private side of the business at the same time, however.
Focusing conversations on features, not names
One such issue that has dogged the reverse mortgage product is simply the term “reverse mortgage,” which can conjure negative images in the minds of some consumers. Some in the industry have also expressed the worry that certain words can be misconstrued and misunderstood. That’s not an issue for Longbridge, Mayer said, because the company is building a solid brand.
“We don’t ever talk to customers about ‘proprietary’ reverse mortgages,” Mayer said. “We talk about Platinum loans. So, from our perspective, we definitely think that what matters to consumers is not description, but a brand. The consumers really ultimately care about what the product is.”
By focusing less on the nomenclature of the product and instead on what the features of the product are, questions about how such a loan could work for a consumer in improving their financial lives becomes the centerpiece of the conversation, as opposed to using a term that could have negative connotations, like “reverse mortgage.”
“What we’re really trying to do is focus consumers not on the name, but on what the product does,” Mayer said. “And I think if we can do that, then you’ve really effectively picked up the conversation to operate on the grounds that are really most important for the consumer, which is what are their needs? And how can we help solve their needs? That, to me, is the most important thing in terms of what you’re labeling and how you’re talking to your clients.”
The industry has work to do in terms of how to connect with more consumers and grow the reverse mortgage market beyond a relatively low penetration rate, Mayer said.
“I think we have a long way to go in terms of how we’re educating consumers,” he said. “It’s not like we’re starting from an even position. We’re starting from a period where people still have perceptions about the product that are really unfortunate and unfair. They don’t reflect the design of the current product which has protections, on the HECM side for non-borrowing spouses and non-recourse provisions, and we now have underwriting so there are all sorts of things that have changed to improve the product, and we’re fighting a reputation from our past.”
One of the ways that the standing of reverse mortgage products in general can be improved is by, again, focusing on discussing the features that can make a demonstrable difference in the lives of senior borrowers, Mayer said.
“I think we all understand that it’s really important to positively brand the market and the industry, and also to help consumers focus on the products themselves,” he said. “And I think as we build more products, [we] give people more choices. All those things are going to go in the direction of helping people better understand the choices they have. And that is, I think from a marketing perspective, the most important thing.”
For the full conversation, be sure to listen to episode 7 of The RMD Podcast, available on iTunes, Google Podcasts, and wherever you listen to your favorite podcast content.