Origins: RMI’s John Lunde on Reverse Mortgage Education and More

Reverse mortgage lenders large and small have come to rely on the data and analysis of Reverse Market Insight over the years, since the company launched in 2007. Under the leadership of co-founder John Lunde, the company offers industry data analysis including market-level data lenders can use to help drive their business forward.

John Lunde

What many may not know is how Lunde got his start in reverse mortgages, and how he brought experience as an analyst for other industries to the reverse mortgage industry.

This Origins interview gains insight from Lunde on his beginnings in the business as well as the ways in which he has seen it change, improve, and gain traction for the future of retirement in the U.S.

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How long have you been working as an analyst, and when did you specifically turn your attention to the reverse business?

I started as an analyst with a mutual fund company in 2000 and worked in several other industries (arbitrage trading, wireless telecom, title/escrow) before entering reverse with Financial Freedom in 2004.

How did you first learn about the reverse mortgage product, and what was the process like for your “reverse mortgage education,” so to speak?

I learned about reverse as part of researching Financial Freedom before my interview. I thought it was an interesting concept but didn’t fully appreciate the appeal until it was explained to me in the interview by [then-Financial Freedom executives] Dick Hadik and Bart Johnson.

What was the major need you identified for the reverse industry as the reason behind founding RMI?

Together with my business partners, it seemed in early 2007 that the fast growing industry (~50% annual origination growth prior 3 years) would need more sophisticated market data and tools to continue growing.

We looked around at what existed in the forward mortgage industry at the time, in particular McDash Analytics, Black Knight, Corelogic, Stratmor, and others and thought a data cooperative would work well in reverse to meet industry needs. The growth part of that industry vision hasn’t quite played out yet but we’ve still been able to serve the industry in meeting many servicing, origination, PR and awareness moments over the years.

Your job gives you a unique perspective over how much the business has had to change over the years. What’s the biggest change you’ve observed so far, and how good do you think the industry is at reacting to change?

You asked for one change, but I really think there are two enormous changes I’ve observed as the industry has become very good at adapting to survive. First is the change in the customer from a “last resort” profile up the credit and risk spectrum as losses in FHA’s HECM insurance forced tighter product guidelines.

Second is the change in focus to place much more attention on servicing issues as the housing crisis caused tax and insurance default and foreclosure challenges, but also as so much more of the risk is retained by the industry as secondary markets moved to HMBS and proprietary from selling whole loans to FNMA initially.

How would you classify endorsement levels during this unique moment for the country? Do you think the industry is prepared to meet the needs this situation will create for seniors?

HECM volumes are trending upward in general, buoyed by low interest rates but the pandemic is distorting the actual endorsement figures a bit in March and April. With rates having dropped even further and the industry having laid the groundwork for borrowers and financial planners to look at reverse as an option for liquidity with investment markets in a volatile state, I’d expect we’ll continue to see growth.

The industry is well-positioned to meet this growth, having put people and tools in place to help customers even as the situation around all of us keeps evolving.

Where do you see the reverse mortgage industry in 5-10 years?

I believe the industry will cross the chasm to being a mainstream product this decade.

The combination of greater product development through a focus on proprietary enhancements, the effects of a prolonged period of low interest rates and generational cohorts [being] much more comfortable with debt will reduce the stigma of borrowing in retirement, unsustainable pressure on public retirement systems leading to an inclusion of home equity in asset calculations, and continued appreciation amongst financial planners and realtors that reverse is a viable financial tool to implement basic strategies will combine to meet public need for financing longer lives at home.

What is the industry’s biggest challenge today, and how can it be overcome?

The lack of appreciation among many forward mortgage originators of the role reverse can play for many of their past and present clients.

I think it will be overcome through a combination of technology (loan scenario tools demonstrating forward, HELOC and reverse side by side) and corporate integrations where reverse becomes less of a separate entity and more of a partnered approach for large mortgage companies.

Complete the sentence: If I could change one thing about the reverse mortgage it would be: __________

This isn’t specific to reverse, but I’d love to see borrowers access lower interest rates and/or higher home values without a refinance transaction. If a balance could be struck to minimize the fraud risk to a lender while offering additional value to borrowers, significant costs associated with churning could be avoided for both sides.

That would change the focus of refinancing to customer service for both lenders and borrowers.

If I could erase one reverse mortgage misconception it would be: __________

That reverse mortgages are the last resort of a financially desperate customer.

It was more true than not at one time, but we’re years past that being the case with underwriting closing the door on desperate situations that were unsustainable and new use cases outlining effective financial planning strategies that reverse mortgages can dramatically improve investment portfolio performance.

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  • Liz,

    Thank for the great article based on your interview with John. While my accounting, auditing, and tax education along with my CPA training focused on skepticism and conservatism, John’s education and training has left him with an optimist outlook.

    “‘…a data cooperative would work well in reverse to meet industry needs.'” 13 years later, there is little data cooperation in the industry as seen by the lack of crucial data on proprietary reverse mortgages. Without HUD, it is expected that the industry would have little industry wide data.

    Yes, through the first six months of fiscal 2020 there has been a 3,196 increase in HECM endorsements (for a 20.5% increase) over the same period last fiscal year but taking a hard look at the sources, 72% of that growth (or 2,300 HECM endorsements) is from HECM refis which at the current low interest rates, is hardly sustainable. Although not mentioned, proprietary reverse mortgages are most likely losing volume when compared to last fiscal year since losing One Reverse altogether and seeing lenders either suspend their proprietary reverse mortgage offerings or change them.

    “…leading to an inclusion of home equity in asset calculations….” That is very questionable since home equity is known not only to be positive but negative as well. No one trusts the approximation of home equity without having data that can be verified such as the home’s value and the total liens against the home.

    By the end of this decade, Baby Boomers will remain dominate as the largest percentage of seniors in the US. So how is it that things will be better with only three years of Gen X in the pool of seniors. If we cannot produce substantial increases in HECM endorsement volume now, it does not seem that less than 30% of Gen Xers who will have just turned 62 years old by the end of this decade (i.e. the end of fiscal 2029) will rocket the industry out of its doldrums. It will take time to see fundamental change in demand due to a younger generation turning 62; in fact Baby Boomers proved that things could get far worse (the first started turning 62 on January 1, 2008). HECM refis are not the sustaining fuel for such a liftoff. The industry must obtain sustainable growth or another decade (i.e. the one ending 9/30/2039) will not reach the level of HECM endorsements seen in fiscal 2011 of 79,106 .

    Fiscal 2018 ended with over 48,000 HECM endorsements but that was the lowest total since fiscal 2005. For fiscal 2020 to return to that level would mean an increase of 54.6% in HECM endorsements (from the 31,274 endorsed in fiscal 2019) during fiscal 2020 over the HECM endorsement total for fiscal 2019. How long will that take to recover? And all that effort that is just to get back to a fiscal year that was the worst seen in the 13 years before 2018.

    As a major proponent of the four month lag rule (which states that it takes the average endorsed HECM to go from case number assignment to endorsement four months), it is clear that few HECMs that receive case number assignments after May 31, 2020 will be endorsed in fiscal 2020. As of today, the industry has less than 4% of this fiscal year left in which to gain more HECM endorsements than will be produced from the applications that have received cash number assignments starting on June 1, 2019 through today. Let us hope that lender loan processing and the FHA endorsement will have caught up before October 1, 2020 or we will end up with a distorted picture of how we really did this fiscal year.

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