Originators Debate What to Call Private Reverse Mortgages

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.

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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 options

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.”

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  • These arguments about nomenclature are generally a waste of time. For example, one of the hardest words in our industry to pronounce correctly is tenure because it sounds so much like ten year. Yet have we forsaken the use of that word?

    Reverse mortgage is a legal term defined in the US Code at 15 USC 1602(cc). Is it the fault of the US Code that the term has such a bad reputation? So whose fault is it? Can that bad reputation be turned around? Does anyone have a vision for how that can be done?

    So the whole problem with proprietary is that it SOUNDS like pedatory to someone? We are not the only industry that uses the term proprietary. Why haven’t other industries found this flaw and replaced proprietary with a different word? The reason why is that the term proprietary expresses a specific meaning that synonyms do not.

    So then conforming comes up to replace proprietary. But that has a totally different meaning and as we see more and more differences between proprietary reverse mortgages, how are these reverse mortgages conforming in any way?

    So why not portfolio loans? In looking through financial literature, a portfolio is a description for the group of assets people invest in. A proprietary reverse mortgage is a portfolio asset as to the lender and investors who buy them. They are debt to borrowers, NOT assets. So this but another example of a name that is confusing to most people. Even providers of margin accounts for owners of stocks dare not call their products “portfolio loans.” This is all but asking for new criticism from the SEC and FINRA. There is no way under heaven that proprietary reverse mortgages are “portfolio loans.”

    Finally, there are still many problems with Chris Mayer’s solution when TPOs are offering more than one brand of proprietary reverse mortgages. While Chris’s suggestion is a great solution for his firm where there is a single brand of reverse mortgage being offered, the term, proprietary reverse mortgages, will no doubt survive the complaints of marketing originators who have created more problems for the industry with their use of inappropriate names for reverse mortgage products.

    So in conclusion, I find Chris Mayer’s solution the best answer where originators are offering one brand of proprietary reverse mortgages but difficult for TPOs who offer more than one brand of proprietary reverse mortgages. Yet even Chris’s solution has the potential for a lot of confusion for prospects who are shopping both TPOs and FHA approved Mortgagees who offer proprietary reverse mortgages. But on the other hand, the industry faced this problem over a decade ago and yet the word proprietary still survives.

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