A great deal of the optimism that people have for the future of the reverse mortgage industry rests in the potential for proprietary products, largely unbound by the same kinds of regulations that govern the more typical products in the Federal Housing Administration (FHA)-backed Home Equity Conversion Mortgage (HECM) program.
As more lenders continue to invest in additional offerings inside their respective proprietary product suites, the private reverse mortgage market will continue to become more competitive, requiring additional innovations on the part of individual lenders in order to stand out among their peers. This naturally leads to informed speculation from stakeholders at every level of the reverse mortgage industry in trying to determine exactly where
To gauge the status and potential future of the proprietary reverse mortgage market as we prepare to enter 2020, RMD enlisted the input of several industry leaders on-site at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville, Tenn. in November.
Innovation: an essential pathway to growth
An industry focus on innovating in the proprietary space will likely lead to that sector’s growth over more traditional HECM products in 2020, according to Mike Kent, president of Liberty Home Equity Solutions.
“I think we’ll see more [products] coming out in 2020. If you look at it, in a lot of cases, the proprietary product lines up with the HECM product really quite well,” he says. “And so I think, as we see growth in the HECM product, we’re likely going to see more growth in proprietary [compared with what] we’ll see in HECM over the next couple of years.”
Additional growth in the proprietary segment is also predicted by Scott Gordon, CEO of Open Mortgage.
“I think it’s going to keep growing, and [there are] interesting discussions going on right now about current products, new products and other things that are coming,” Gordon says.
Growth will continue to be a hallmark of the proprietary sector because of the necessity to fill a void left by some FHA products, according to David Peskin, president of Reverse Mortgage Funding (RMF).
“I think you’re going to see the market continue to grow, continue to prosper, and I think you’ll start to see some more innovative products coming out,” he says. “I think it’s important that we look to continue to fill the void for FHA has left off, which is obviously, the higher home values.”
Additional product options as a path to proprietary growth
The creation of new products will continue to help drive innovation on the proprietary side, but while no one wants to see an overabundance of products fill a particular market, the availability of options has to be tailored to the needs of a specific customer, Peskin says. This, while also clearly communicating what the potential benefits can be for people in a variety of different financial situations, he says.
“Even though no one wants to have thousands of products out there, look at the forward world,” he says. “They’ve got different products for different clients’ needs based on what they’re looking for. We have to do the same thing. But what salespeople can’t do is try to sell seven or eight products to the customer. They’ve got to narrow down to the one or two that makes sense to that customer can understand how it could benefit them.”
As long as the credit markets “behave,” general optimism is shared by Reza Jahangiri, president of American Advisors Group (AAG). As companies work to create additional proprietary options, the positive result of the growth should start leading into less reliance on FHA-backed reverse mortgages.
“People are working on evolving and iterating on these products,” Jahangiri says. “That should continue, as long as the credit markets are behaving, so to speak. And as a result, we should start seeing, hopefully, more and more production moving away from government. Is it going to reach critical mass where we truly have diversity from government, and less sensitivity to government changes? That’s [to be determined]. But in general, I think we’re headed the right way.”
Part of the growth in the proprietary segment also needs to come from originators, who should think about investing more into proprietary marketing and referral sources to help diversify the industry, Jahangiri adds.
Options need to have a purpose as well, since the goal of meeting older borrowers’ needs must be observed, according to Longbridge Financial CEO Chris Mayer.
“I think the idea of proprietary products is really trying to develop products that meet the needs of older borrowers,” he says. “And in part, looking at the places that people are already going, and asking if we can create reverse mortgage products that are more appropriate for those borrowers. For us, the idea of having a line of credit product, particularly for people with higher home values is essential, because most people don’t need $800,000 or $1 million of cash upfront. That’s really money they should be accessing over time as they needed as opposed to taking all that money out at once.”
Accomplishing the goal of serving more customers
The addition of competition from other lenders and different products types in the proprietary space is also encouraging to Kristen Sieffert, president of Finance of America Reverse (FAR). FAR has a suite of very visible proprietary reverse mortgage products in the form of its HomeSafe offerings, but seeing the business segment expand at-large is exciting for Sieffert, she says.
“The competition coming into the market has been great, because I think it allows all of us to sharpen our pencils a little bit more,” she says. “Us getting our approval in New York and Massachusetts has been a really great outcome for us this year. Next year, we think that there’s a lot more innovation that has to happen.”
In terms of FAR itself, while current levels of product performance are positive, there are still some strides to be made on the proprietary side that it has identified, according to Sieffert.
“We are really happy with the way the products have performed so far, but we think there’s still a big gap in what consumers need, and how we can tailor our products to fill those needs,” she says. “So ideally, I think we’re working on some really exciting things as far as features and terms to the existing product suite. But, we’d like to be able to introduce at least one new product next year, maybe two, that take a different approach to the reverse mortgage industry.”
The ability to serve more customers is the name of the game, and additional proprietary product innovations will accomplish that industry goal, says Chris Mayer.
“I think we’ve seen real growth, and we’re able to serve more customers,” he says. “And I think that’s going to continue into 2020. I think we’ll continue to see new products, not just our company, but other companies will be developing and innovating. And so, I’m looking forward to 2020 because I do think we’re going to have more diverse opportunities, and that’s going to be good for all of us.”
This edition of the RMD Report is sponsored by national appraisal management company Class Valuation.