The path toward a more robust reverse mortgage industry which includes a broader pool of borrowers seeking out home equity conversion in order to expand their financial options in retirement runs directly through the ability for the industry to bolster its distribution infrastructure in the future. This can allow the industry to more flexibly respond to the needs of the growing retirement-aged population, and to answer any concerns they may have for funding their post-working lives.
This is according to Mike Kent, the president of Liberty Reverse Mortgage. In a wide-ranging discussion about expanding the market for home equity access, Kent details the different ways that his own company has explored expanding distribution, while also looking more broadly at the industry for ways that such infrastructure can be scaled to meet the needs of clients.
This is according to comments made by Kent during his keynote at RMD’s event HEQ: The Future of Home Equity in Retirement which was held this week.
Folding into PHH, the evolving retirement timeline
Earlier this year, Liberty Reverse Mortgage made some operational changes by both returning to its original name from its 2004 founding, and by becoming a division of PHH Mortgage which was acquired by parent company Ocwen in 2018. These changes were important in terms of streamlining some of the company’s operational elements, but the consolidation also proved helpful by increasing the direct resources that Liberty now has access to, Kent explained.
“[PHH Mortgage] is one of the largest non-depository servicers of forward mortgages in the space. They have over 1.6 million customers that they service loans for,” Kent explains. “And that’s really where I think the opportunity lies in, what I call, expanding distribution of the reverse mortgage product. And I want to be clear because I think your conference is well-structured for this. This is really not just about reverse mortgages. It’s about a senior’s ability to tap their home equity to assist in having a better retirement outcome.”
That outcome can include seniors’ goals for aging in place, paying for assisted care in the home, covering medical expenses or helping to send grandchildren to college, Kent says. Or, it can just come down to increasing the quality of retirement.
“Having a better way to tap your assets to allow the duration of those assets to extend out is what this is about,” he says.
As the conversation around the length of retirement has shifted from speaking in terms of years to speaking in terms of decades as people continue to live longer, part of the mission lies in making sure seniors are adequately informed about home equity options to meet those ever-expanding lengths of typical American retirement, he says.
Expanding distribution, raising the volume ceiling
When looking at the broader mortgage market’s performance alongside the performance of the reverse mortgage market, a very clear distinction gets painted in terms of overall scale, Kent says.
“There’re almost 600,000 forward MLOs in the United States,” Kent explains. “In 2020, they’re going to have a new origination market of about $1.9 trillion from those people. And right now, the size of that overall market is $11 trillion.And then if we look at reverse, I think the reverse industry has done an incredible job for what they have. But, what they don’t have is enough scale to get enough of the message out to enough of the people.”
In comparison, the reverse mortgage industry did $3.8 billion of new production through July 2020, compared to the $1.9 trillion observed on the forward side, Kent says. The general disparity between the industries is even larger based on other statistics.
“78% of that new HECM production goes through 10 companies,” he says. “And then about 80 to 87 companies in total account for 96% of all all of the new HECM production annually. That’s what it’ll look like this year. So, you just don’t have the depth and breadth of distribution to really expand that marketplace.”
Expanding distribution on the reverse side is something that will be pivotally important to expanding the proverbial “pie” of the reverse mortgage industry, Kent says, and that can start by looking at potential paths toward utilizing pre-existing forward resources. PHH, for instance, has seen a lot of success in a correspondent forward lending program which was seeded with reverse mortgage customers. This is just one example.
“When I think of expanding distribution, it’s not just about doing more reverse mortgages,” Kent says. “It’s about showing more seniors that there are options available to them to have a better retirement outcome. That’s really what it’s about. […] There are a lot of different choices you have to make when you have a limited amount of assets that have to last you over a duration of time. If we can impact those decisions. If we can expand the duration of that asset depletion, then I think we’ve done something significant in our industry.”
Acclimating forward loan originators to reverse
With additional collaboration between companies that have both forward and reverse resources can also come issues related to getting forward personnel up to speed so they can adequately work in the more consultative reverse side of the business, Kent says.
“I think what will probably happen in 2021, we’ll start looking at ways to kind of accelerate the sharing of leads between forward and reverse,” Kent says. “And then possibly […] starting with a pilot, where we try out a few of our loan officers to handle both forward and reverse leads, and see how that works, see if they can successfully make that transition.”
While the technology exists to actually manage both types of leads, it can likely come down to more of an issue of education, and understanding the nuances which inform the different sides of the business sectors, he says.
“The question would be from an educational perspective,” he says. “How do you educate towards that? And then from a process perspective, how do you [add in the reverse] piece? But it’s certainly the direction I believe that will move our retail lending environment.”
Attendees of HEQ can view the full session with Mike Kent at the event website.