Open Mortgage CEO: Reverse Mortgage Volume ‘Exploding,’ Tech Preparation Pays Off

The ability to conduct business through non-traditional means has become a necessity for virtually every company that has continued operations throughout the COVID-19 coronavirus pandemic, and reverse mortgage companies are no exception.

Scott Gordon

One reverse mortgage company that has continuously reiterated its dedication to technological innovations is top 10 lender Open Mortgage, as CEO Scott Gordon started work as a computer programmer and engineer.

Gordon provides updates on what Open Mortgage has been seeing during the pandemic, how volume has notably increased for the company on the reverse mortgage side as well as the ways in which its focus on technology helped the company not to just weather the economic shock of this crisis, but to thrive in it in this exclusive interview with RMD.

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RMD: The pandemic has been something of a roller coaster for the entirety of American business, and of course the reverse mortgage industry has not been spared from its effects. How has Open Mortgage been most affected by the pandemic?

Scott Gordon: We experienced a fairly short period of market shock, like everyone. But after that we saw renewed interest from clients, and a big surge of fence-sitters reviewing the reverse again. We are a very distributed company, so the virus itself has hardly slowed us at all.

How would you characterize Open’s reverse volume during this time? Have you noticed an increase in reverse business, have things stayed about the same, or have they stagnated?

We have seen volume exploding due to low interest rates. The crisis has people looking for solutions and has increased applications. But we do see some folks not moving forward because of COVID-19 and the general uncertainty about what’s next.

How has the company been adapting to the new kinds of difficulties and opportunities that have come up since the onset of the pandemic earlier this year?

One of the first things we did was set up a Coronavirus response team at Open. We included sales and operations from every channel. That team has done a great job at spotting issues and opportunities and finding solutions fast.

We also have our continuing education (CE) school, Dexterity CE. At Dexterity, we have adapted the in-person model to virtual CE courses. This will supplement our in-person classes with or without the virus. Lastly, the switch to electronic binders was a welcome change for Open.

You’ve mentioned before that technology is a key component of Open Mortgage. How has the greater reliance on technology that the pandemic has created affected that side of the company?

I don’t want to sprain an elbow patting us on the back, but we were really ready for this. We do like tech and were happy to see the adoption of things like electronic binders. We were so spread out that we already video chatted all the time. So isolation was pretty easy for us, but we do miss being together.

How has this whole ordeal affected the company’s outlook for the remainder of 2020? How does the current outlook compare with what the plans for the year may have been at the start of the year and prior to the pandemic?

We thought 2020 would be great, and it’s going to be even more than we expected. But we know there is still crazy uncertainty waiting around the corner. All we can do is be ready for anything.

What would you say is yours and the company’s biggest takeaway when it comes to this whole situation? Has it strengthened you guys to absorb other shocks in the future? Has it exposed business operations that can be improved?

Business ops can always be improved, and we were, and still are, in the middle of that throughout the crisis. The aspect of the crisis I love the most is to see people realize how strong they are, how much they can take and how much they can give. You don’t get that in a ‘normal’ year. It’s been galvanizing for the team.

How do you foresee the industry at-large adapting to these difficulties? Can the industry as a whole learn anything from the ways in which Open Mortgage has handled it?

This industry needs to keep improving and using technology. We need e-closings. Jim Cory pointed out that we really need to adopt Remote Online Notary, or RON. There are so many things like that that will improve the process for seniors, and for us. The virus will be gone, but the need to keep evolving won’t.

Anything else you can share in terms of what the company is up to? Any product additions/changes or new initiatives?

Nothing that I can talk about yet, unfortunately. Stay tuned.

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  • OPEN MORTGAGE’S HECM ENDORSEMENT GROWTH THIS FISCAL YEAR — EXCEPTIONAL

    Scott is right — interest rates are the key to the growth in HECM endorsements we have seen in fiscal 2020. Open Mortgage has done much better in the way of HECMs so far in fiscal 2020 over how it did in all of fiscal 2019. Through the first eight months of fiscal 2020, Open Mortgage has had 777 HECM endorsements per the FHA HECM Endorsement Summary Report (HESR) while in that same time period in fiscal 2019, Open Mortgage only had 349. That is an increase of 123%. For all twelve months of fiscal 2019, Open Mortgage only had 542 HECM endorsements per the HESR.

    One cannot argue, fiscal 2020 is a much better fiscal year for total HECM endorsements at Open Mortgage than fiscal 2019. Congratulations to Open Mortgage. Its total HECM endorsements in the first eight months of fiscal 2020 (October 1, 2019 through May 31, 2020) beat its total HECM count for all twelve months of fiscal 2019 (October 1, 2018 through September 30, 2019) by 43.4%. That is quite impressive.

    (It is interesting that Scott speaks in terms of increased applications but not closings. This is very much in line with the anecdotes that others in the industry have shared, such as “increased interest in reverse mortgages” and “increased activity.” There is no reason to hide increased HECM closings since that activity is reflected about four months later in the monthly HESR.)
    ——————————
    THE INDUSTRY’S GROWTH IN HECM ENDORSEMENTS THIS FISCAL YEAR AND WHAT IS EXPECTED FOR NEXT FISCAL YEAR.

    For the industry as a whole, the increase in HECM endorsements in the first eight months of this fiscal year over that same period last fiscal year comes principally from HECM Refis (over 74% of the increase). The most likely outcome from the data for Case Number Assignments for the twelve month period ended 5/31/2020 is that 79% of the increase in total HECM endorsements will come from the increase in HECM Refi endorsements during this fiscal year. The increase in HECM Refis in all of fiscal year 2020 over all of fiscal year 2019 should be about 5,530 HECM endorsements while the increase in total HECM endorsements should come in at about 7,000 HECM endorsements.
    —————————
    PROPRIETARY REVERSE MORTGAGES (PRMs)?

    One has to question if there is any growth in PRMs in this fiscal year. (Or, heretically, based on current industry matra, is there a loss this fiscal year?) HUD approved HECM counselors have stated that their counseling session volume for PRMs has dropped off this fiscal year in a RMD article posted 6/24/2020. Overall consumer demand is weak for PRMs. Is that surprising? ‘No doubt we would have seen the same pattern in fiscal 2008 but the mortgage bond bust caused all PRM lenders to drop PRM offerings, period during fiscal 2008. Without PRM closing data in the aughts decade leading up to fiscal 2009 and no PRM closing data for the last three fiscal years, anecdote is our sole source of information and we all know how reliable that is.
    ————————-
    THE FUTURE BASED PRINCIPALLY ON CURRENT AND PRIOR FISCAL YEAR HECM ACTIVITY

    With Scott’s focus on interest rates it seems very likely that Open Mortgage found much of its growth as did the industry as a whole in HECM refis. The HECM Refi business is very fickle (volatile). The expected substantial loss in industry total HECM refis next fiscal year, the weak demand for H4Ps in fiscal 2020, and the surprisingly modest demand for Traditional HECMs in fiscal 2020 make fiscal 2021 to be another fiscal year of less than 40,000 HECM endorsements and most likely loss when total HECM endorsements for fiscal 2021 are compared to that total for fiscal 2020. In fact, the total HECM endorsement count in fiscal 2021 could be below 35,000 HECM endorsements. There are preliminary indications that for several years after fiscal 2021, the industry could see a renew period of stagnation. Chances of seeing that pattern are far more than remote.

    (As to why fiscal years 2013 through 2018 are considered years of stagnation — see the explanation after the section title “CONCLUSION.”)

    One thing seems clear, the pandemic did not produce the HECM 0r PRM demand predicted just weeks ago by so many in the industry. The penetration into the financial advisor community is at best optimistic exaggerations (in other words, myth) since it cannot be seen in either H4P or Traditional HECM endorsements so far this fiscal year. It seems the only ones who showed much new demand for HECMs were existing HECM borrowers who were motivated (perhaps some by the pandemic but) by lower interest rates which qualified them for a HECM Refi. While individual originators may rightfully take umbrage to these claims, it is the numbers that speak the loudest. Where is there any proof that HECM endorsement volume has increased in fiscal 2020 due to financial advisor referrals?

    Now we come to an old message. In the first eight months of fiscal 2020, total H4P endorsements and even case number assignments (CNAs) have reflected how little increased demand. HECM endorsement data shows that there are but 142 more H4Ps endorsements in this eight month period (through May 31, 2020) than for the same period last fiscal year; YET this fiscal year is a great year for home builders. The total CNA count for H4P in the twelve months ended May 31, 2020 is up just 63 CNAs over the 12 month period ended May 31, 2019.

    In fact comparing just the H4P CNA data for the month of May 2020 to the month of May 2019, CNAs dropped by 97 CNAs. No doubt some, if not all, of that drop will be reflected in the H4P endorsement count at the end of this fiscal year. So in what should have been a good month for H4P, we are seeing a true loss in demand as to CNA H4P data for the month of May 2020 as compared to May 2019. Will that kind of loss continue throughout fiscal 2021?
    The H4P endorsement count in fiscal 2019 was the worst such count at 2,282 H4P endorsements for any fiscal year since fiscal year 2014. The first H4P endorsement took place in fiscal 2009, the fiscal year after Congress approved H4P in HERA of 2008. The highest H4P endorsement count was for fiscal 2017 with 2,654 H4P endorsements. Considering the 2008 and 2009 predictions made by the HUD data re-sorters and volume prognosticators (including myself) in or serving the industry about where we would be with H4P endorsements by now, we are only about 91.8% lower than those predictions, i.e., 1,605 H4P endorsements versus 19,634 Traditional HECM endorsements for the eight month period ended May 31, 2020. Unfortunately a few in the industry are still reciting the mathematical dependent myth that there is no reason why the annual fiscal volume in H4P endorsements should NOT be equal to the annual fiscal year total for Traditional HECM endorsements. They have claimed that the biggest reasons why they are not equal is due to over regulation of the H4P by HUD and the laziness of HECM originators Again there are those in the industry who will rightfully take great umbrage with these statements of fact but there is no basis in rational thought which justifies the conclusion that H4P has ever been the product that so many of us thought it was back in fiscal 2009.
    ————————–
    CONCLUSION

    It is quite true that Open Mortgage is phenomenally more successful as to total HECM endorsements so far this fiscal year as compared to any period in last fiscal year. Scott and his crew deserve what their hard work has yielded.

    Look to fiscal year 2021 to see the total HECM endorsement count drop by less than 6% from that count for fiscal 2020. With a subjective probability of somewhat likely, fiscal 2020 could be the start of a renewed period of stagnation (perhaps with total annual fiscal year HECM endorsements sloping slightly upward rather than downward as experienced in fiscal years 2013 through 2018). It could take as long as fiscal 2027 until total fiscal year HECM endorsement volume reaches the total for fiscal 2018 of 48,359.

    PRM growth have already run into resistance. Unlike the prognostications in fiscal 2008 about HECMs, some industry leaders (as measured by NRMLA) declared last year that monthly totals for PRMs were already as high as those for HECMs. That was a shock but due to the high integrity of those who were spreading that rumor, today it is nothing more than a distant memory. For PRMs to be stalled at this point does not speak well for their substantial growth in the future.

    =========================
    EXPLANATION AS TO WHY FISCAL YEARS 2013 THROUGH 2018 (INCLUSIVE) ARE CONSIDERED SECULAR STAGNATION

    It is not the total HECM endorsements for each fiscal year that led to the conclusion that fiscal years 2013 through fiscal 2018 (inclusive) were years of secular stagnation but the pattern of the peaks and troughs in that six fiscal year period. Following the first peak and trough, the pattern of total HECM endorsements in the two subsequent peaks is that neither were lower than 5% of the total HECM endorsements for the peak that immediately preceded it and the total HECM endorsements for the subsequent troughs were never lower than 6% of the total HECM endorsements for the trough that preceded it. So while the total HECM volume each year had much wilder swings than 5%, the peak to peak pattern did not and the trough to trough pattern never reached 6%. So while the year to year swings would never qualify as stagnation under any reasonable measure, the six year pattern very much did. It was all but a textbook picture of a six year pattern of peak to trough secular stagnation. Interestingly the slope for both the two subsequent peaks and the two subsequent troughs were slightly downward sloping adding to the conclusion that fiscal years 2013 through 2018 were years of stagnation.

    The pattern of secular stagnation is clearly seen in graphs of fiscal year total endorsements from fiscal 1990 through now. Even though there is reason to believe that we are entering into a renewed period of stagnation, let us work to prevent that from occurring.

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