Proprietary reverse mortgages are becoming increasingly prevalent in the modern home equity release industry, as evidenced by the amount of new products being created by lenders as well as the general optimism the industry is feeling as a direct result of those products’ larger place in the conversation.
As proprietary reverse mortgage products become more of an industry staple, though, so do the questions surrounding what exactly the industry should be calling such products in order to best communicate their uniqueness to borrowers when compared to more traditional Home Equity Conversion Mortgages (HECMs).
John Luddy, SVP of reverse mortgage lending at Norcom Mortgage in Avon, Ct., has a theory concerning what the industry should be calling these products. Tailoring his experience in the industry and his many years working with seniors on other matters to this topic, Luddy’s perspective is rooted in a larger desire to be as effectively communicative as possible with a senior, he says. That way, no one can be confused about what proprietary products will bring to the table when compared with a HECM.
Luddy: why ‘proprietary’ should be avoided
At recent industry events including the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville, Tenn. this past November, Luddy spoke to many of his colleagues about why the word “proprietary” is something to avoid when communicating with senior clients about a private alternative to conventional HECM products. The idea, though, actually came from one of Norcom’s experienced loan officers.
After listening to a presentation from one of the major lenders about their private-label reverse mortgage offering, Norcom senior loan officer Mary Tigno raised her hand, Luddy says. She said that loan officers should not call these products “proprietary,” because seniors may misunderstand and hear the word “predatory.”
“That launched my national campaign to get people to call this a ‘portfolio loan,’” Luddy tells RMD in an interview. “To me, every word means something. […] But, they don’t just mean something to us, they also mean something to our clients.”
It goes back to a lesson Luddy learned when becoming educated as a second-generation funeral director, where using specific words in relation to a permanent concept like death could be misconstrued by members of a decedent’s family. If a child hears that their grandparent is “expired,” they might confuse that with something like their parents’ drivers’ licenses and ask why their grandparent can’t be “renewed,” Luddy says. From his perspective, the word “portfolio” is a much better alternative to use in relation to other alternatives, he shares.
“I think our clients like ‘portfolio’ because, basically, we’re [often] talking about loans for properties of higher value,” Luddy explains. “People that own homes of higher value like to talk about their portfolio. They like to consider [their home equity] as part of their portfolio.”
Since many of those kinds of “portfolio” products are beginning to creep into home value ranges that have historically been associated with HECMs as well, “portfolio loan” also makes more sense than another commonly used descriptor, he says.
“I think it’s a better word than ‘jumbo,’ which people experiment with,” he says. “Because when it comes to using these on some non-FHA condos, we may not exceed the lending limits. So, I think the word ‘portfolio’ just rings better.”
Using specific product brand names
Another approach to describing proprietary/portfolio reverse mortgages is to use the actual, dedicated brand name of the specific product in question as opposed to using a single, catch-all term to describe their differences from HECM loans. One such company taking this approach is Longbridge Financial, according to CEO Chris Mayer.
“We don’t ever talk to customers about ‘proprietary’ reverse mortgages,” he said on a recent episode of The RMD Podcast. “Of course, we talk about Platinum loans. So, from our perspective, we definitely think that what matters to consumers is not description, but a brand. […] What we’re really trying to do is focus consumers, not simply on the name, but on what the product does. If we can do that, then [we’ve] really effectively [narrowed] the conversation to operate on the grounds that are really most important for the consumer. That, to me, is the most important thing in terms of what you’re labeling and how you’re talking to your clients.”
While Luddy personally sees this as a step in the right direction at least in terms of the lenders offering only one private product, it still may be necessary for a larger, umbrella term since in Luddy’s case, he offers private reverse mortgage products from three different lenders.
“We’ve got to do this as an industry because no player in the industry is strong enough to dominate the marketplace,” he says. “[If] I sit down with a client and show them all the different options from all the different lenders, I’ve got to have an umbrella in which to cover all [the products I offer].”
Other loan originators have their own perspectives on what to call the products based on what has worked best in communication with their clients. Laurie MacNaughton, reverse mortgage consultant with Atlantic Coast Mortgage outside Washington, D.C., may change the words she uses as she continues to learn what best conveys concepts to her clients most efficiently, she says.
“At this point I introduce the non-FHA products by saying, ‘in addition to FHA reverse mortgages, there are now non-FHA-insured reverse mortgages, also called ‘conforming’ reverse mortgages. Some people also refer to these loans as ‘jumbos,’ though this can be misleading as these newer types of reverse mortgages are not all limited to upper-value properties.’”
Keeping things simple is also a guiding star for Christina Harmes Hika, originator at the C2 Reverse division of C2 Financial Corp in San Diego, Calif.
“It’s been a work in progress on terminology [for private reverse mortgage products], trying to keep the information we offer clients as simple and clear as possible,” she tells RMD in an email. “I have moved away from using the product name in initial conversations and simply say ‘FHA HECM’ or ‘non-FHA portfolio’ products.”