Reverse Mortgage Potential Remains High in a Post-Coronavirus Future

When it comes to the global economic impact of the COVID-19 coronavirus pandemic, no business sector has been sheltered. While service, hospitality and travel industries are making headlines for particular hardship being faced by the pandemic, the economic ripple effect stemming from this outbreak is sure to reach every corner of the global economy to varying levels of severity.

That’s not to say, however, that some industries will not come out stronger after having gone through the difficulty presented by this current crisis. The reverse mortgage industry may be one such industry to come out of the current situation uniquely suited to help seniors manage their retirement finances, especially considering the toll that has been taken on retirement accounts.

Because of that, if seniors are open to looking at their home’s equity to add some additional financial stability to their personal situations, reverse mortgages may provide a necessary tool for some given the current climate. This is according to Longbridge Financial CEO Chris Mayer and New View Advisors partner Michael McCully in a webinar hosted last week by RMD.

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Coronavirus as a reminder of reverse mortgage value

In spite of the uniqueness of the current situation, there are some realities that will always accompany the economy. Shocks come and go regardless of current conditions, and uncertainty is unlikely to vanish. That’s why it can be helpful to have the value of the reverse mortgage product reinforced in times like these, according to Chris Mayer.

“I do think that whether it was coronavirus, or a trade war or something else, there was going to be something that was going to hit the economy,” Mayer says. “We haven’t outlawed recessions, they will occur and will continue to occur and the stock market doesn’t only go up. We have not gotten rid of uncertainty, so in that sense, I think what’s happened is just a reminder of the value of this product.”

The industry and the reverse mortgage product is not exclusively for seniors who have a financial need, but for those who find themselves in a particular situation where releasing their home’s equity can provide some needed stability, the home is uniquely suited to provide it when other assets cannot, Mayer says.

“We as an industry are there for our borrowers in times of need, and their home is there in a time of need,” he says. “[T]heir home provides stability in a way that no other asset does, because no matter what the price of the home, you still get to live in it. And so the value of homeownership, the value of having a stake, and kind of that diversification and safety has just once again been demonstrated in a way that I think is just really important.”

The value that can be represented by a reverse mortgage for seniors finding themselves in a situation where one would be beneficial has the potential to stay with people because of what is happening in the economy right now. The hope is that for those skeptics in the financial services industry, maybe this situation will help illuminate the potential of reverse mortgages, Mayer says.

“I really hope we’re going to see some of the larger institutions like financial planning firms and retirement companies really look and recognize the importance of including housing in financial planning, and creating stability for their retirees and near-retirees,” he says. “And so if that happens, it’s just going to be because what we’re doing as an industry has a lot of value that we’ve long understood in times of crisis, and downturns are when people realize what is really there for [them].”

Reverse mortgages serve the most-affected demographic

The other piece of the current equation is that according to the Centers for Disease Control and Prevention (CDC), seniors are at a higher risk of being susceptible to serious illness stemming from COVID-19, the disease that can result from the coronavirus. For the reverse mortgage industry that exclusively serves that higher risk demographic, the necessity for products and services to provide support for seniors is more pronounced, according to Michael McCully.

“Reverse mortgages serve the demographic most affected by COVID-19, i.e. seniors,” McCully says. “So, the public policy mandate has never been more urgent. And if we as an industry can navigate this pandemic, we really believe that consumer interests in our product will be higher post-crisis than before.”

The difficulty of predicting what may transpire as a result of the general uncertainty that the pandemic has produced may potentially reinforce the value that a reverse mortgage can bring to seniors’ lives, since financial reliability of a home’s equity has significant potential to provide much-needed stability, McCully adds.

“It’s really hard to expect the unexpected,” he says. “So, to have a vehicle in place to immediately access and extract home equity, I think it takes on new importance for a lot of individuals once things return to […] normal.”

Finding the ‘new normal’ post-crisis

While it may be too optimistic to expect that the economy will return to the levels observed in February before many of the mitigation efforts and stay-at-home orders were instituted, the fundamentals of the American economy remain sound, and the infrastructure for a post-coronavirus recovery is in place, McCully says.

“The general financial infrastructure of the country is sound, so if we can manage the health crisis and the medical aspect of the pandemic appropriately, I think we have the basic support for a strong, steady recovery,” he says. “The big unknown I worry about is what the ultimate impact is on unemployment, and how fast businesses can return. What does the new normal look like? […] I think that that’s a huge question, and I don’t think we know the answer to that right now.”

While that uncertainty does still loom, the economic support that is in place to support the new normal that will arise from this situation is still waiting to be exploited when the time is right, McCully says.

“We have the right footing and the right kind of infrastructure to support a return to a new normal that will not look that different [from] what we had before the crisis started.”

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