The state of Texas had been resistant to reverse mortgages, and home equity lending in general, for a very long time before things started to change in the 1990s. Much of the change in the state’s perspective on the matter was due to the efforts of Scott Norman, whose career as a legislative aide for a Texas State Senator first introduced him to the issues surrounding the industry. This began a years-long odyssey to get home equity lending approved in Texas.
Norman shares his perspective on the role he played in getting home equity lending and reverse mortgages approved in the state in the latest episode of The RMD Podcast, available now.
Norman’s start as a legislative aide
“[My story goes back to] the very first job I ever had,” Norman tells RMD. “I was a legislative aide for a very forward-thinking State Senator out of Dallas, and probably the very first day of legislative session when it kicked off, I was assigned to the state affairs committee. [That committee] was to study the issue of home equity lending, and ironically reverse mortgages, in Texas.”
At the time Norman was to begin looking into the issue in 1993, home equity lending in general was not allowed to take place in Texas, and wouldn’t be approved for several more years. Norman was encouraged by the State Senator he worked under to seriously delve into the idea of home equity lending there.
“Senator Shapiro made the comment to me that, ‘Scott, this is something you’re going to need to know in your lifetime. Pay attention to this, because not only is it going to be a trillion dollar industry, but it’s also going to be something that is going to benefit the entire country,’” Norman remembers being told.
Home equity lending in Texas
Several years later, Norman was working in the traditional, forward mortgage space in Austin, but reverse mortgages found themselves once again before the state legislature, and Norman was recruited by Mike Hernandez at the Federal National Mortgage Association (FNMA, or “Fannie Mae”) to lead the campaign to bring reverse mortgages to the state in 1999. Norman’s prior experience made him an ideal candidate for the job, due to his understanding of how the legislative process worked.
“And so, I’ve been working on reverse mortgages, […] really since 1999 full-time,” Norman says. “And then through that process, I was fortunate to get a job with Jim Mahoney at Financial Freedom, and it really changed the course of my life. Because through that process, I got out of the traditional mortgage business and got into the reverse mortgage business.”
In terms of the source of the state’s aversion to home equity lending in general, Norman says it goes back to the earliest days of the Republic of Texas in 1836, nearly a decade prior to the territory’s admission into the United States in 1845.
“In a very real way, Texas was founded on homestead rights, and the ability to protect your home at all costs,” Norman says. “[The founders of the Republic of Texas] really wanted to be in a position where they could start a new life, and that was a real special thing. And so, there were a lot of people that really felt that ‘if that was good enough for General [Sam] Houston and Stephen F. Austin, it’s good enough for me.’”
That long history related to the state’s founding on the principle of homestead rights required the issue to be remedied by amending the state’s constitution.
Changing economic realities
Economic realities slowly began to change the way Texans viewed home equity lending, however, and many began to see that it would be beneficial to allow a form of lending that was permissible in a preponderance of the other states. That fueled a “common sense” argument, Norman says, though there was still a fair amount of resistance to the idea from people who saw home equity lending as generally bad.
“And so that battle, really, was based on old school thinking versus new school thinking,” Norman says. “I think that it’s ironic looking back now that some of the discussions that were used then are still some of the discussions that are used now, in this idea of limited thinking that, ‘well, why don’t you just save more money and spend less money and there’s your retirement?’ It’s not really that simple.”
That battle was waged in the Texas State House and Senate, but the approval for home equity lending and reverse mortgages through an amendment to the state constitution required two-thirds votes in both legislative bodies, as well as approval by the state’s voters. Ultimately home equity lending was approved by voters in 1997, but it would still be an additional two years before reverse mortgages were approved in the state due to specific legal and clerical requirements. Even then, they couldn’t quite be offered yet.
“Even though the voters approved reverse mortgages in Texas in ’99, we really didn’t offer them until November of the year 2000,” Norman describes. “So, it’s really interesting how the evolution of supply and demand works with home equity lending, and how you can go about looking at different ways to look at your retirement. And certainly, home equity lending and/or reverse mortgages were at the forefront of that discussion then, frankly, as they are today.”
Originating the first reverse mortgage in Texas
When reverse mortgages were finally able to begin in Texas in late 2000, Norman had the distinction of being the originator of the state’s original reverse mortgage loan for a couple who resided in the city of Garland, and the entire affair is an experience he proudly looks back on.
“I was fortunate enough to actually have been the originator of that loan. And Financial Freedom was the lender of choice. So, it was fun,” Norman says. “And, it was a great learning experience, to really walk through the process to remember what happened from ’93 through the year 2000, and how much work had been done, really, by so many people.”
Being Texas’ original reverse mortgage originator puts that experience in the context of how long the road was to finally get the loans approved in the state, he says.
“So many people in the House, so many people in the Senate, and so many people around Texas to make that work. So it was a great experience,” Norman says. “I really enjoyed it. And still to this day, it’s really one of my most favorite professional memories.”
The full discussion with Scott Norman in episode 10 of The RMD Podcast also touches on topics including the proprietary reverse mortgage landscape, what it’s like to educate government officials about reverse mortgages and more. The episode is available now.