The reverse mortgage industry is on the cusp of change, and few people understand that better than Jesse Allen from American Advisors Group. As executive vice president of alternative distribution for AAG, Allen is accountable for vision, strategy and execution for the company’s national field sales and wholesale originations business.
Using his 30 years of experience in financial services across mortgage, consumer and business banking, and he’s taken an interesting path in and out of reverse mortgages, and sat down for a discussion this month at RMD’s virtual event HEQ: The Future of Home Equity in Retirement.
Reverse Mortgage Daily: Jesse, I would like to start by just having you tell us a little bit about how you came into the mortgage market, and then into reverse mortgages specifically, for those who don’t know your story.
Jesse Allen: I was first introduced to the industry in 2006. At the time, I had been in financial services for 20 years [including] consumer banking, business banking and mortgage investment and insurance sales, all in the retail bank environment. And, I was immediately intrigued with the industry in two big ways: one, the opportunity to be on the ground floor of, I think, a growing industry is something that I thought was unique at the time. And more importantly, the opportunity to participate in an industry where you could have such a profound impact on the lives of your customers.
So, I joined Countrywide Bank at the time to launch a new, distributed retail reverse mortgage team. And then, with Bank of America as an acquisition of Countrywide after the financial crisis, we all transitioned into Bank of America. And at the time of Bank of America’s exit from reverse mortgages in 2011, I was running the VA reverse mortgage business, and we had a strong number-two market share position. At the time, 50% of our business was wholesale correspondent lending, and the other 50% was retail driven primarily by a distributed retail team of over 350 loan officers.
So then, after our closing of the reverse mortgage business at BofA, I held several leadership positions within our traditional mortgage business until leaving in late 2016, when I got back into the [reverse mortgage] business and joined American Advisors Group.
What made you return to reverse mortgages then, and what led you to AAG?
Ironically enough, it was a conversation I had with the CFO of a fairly large builder that put the industry back on my radar in a meaningful way. Obviously, I had run the business at BofA, so I stayed in touch with loan officers, sales leaders, just folks that were still engaged in the business. And then after that conversation, I decided to hit the books, and start some research and really get fresh on the industry that I really hadn’t been a part of in five years. So, I started reading through all of the regulatory changes, specifically the consumer safeguards that had gone in post-financial crisis.
Hitting the books on all of the recent academic research and think tank research around the retirement crisis, [highlighted] the idea of leveraging housing wealth as a part of that solution. And so at the end of the day — it wasn’t really my intention — but when I was done with this due-diligence, I was in a place where it was very clear to me that the opportunity and the importance of this industry and the work that we do could not have ever been stronger. And, it was also clear to me that we weren’t going to be able to fully reach, as an industry, our goals by just riding the demographic wave. That things had to change and we have to take different approaches.
Shortly after coming to that realization, I met AAG CEO Reza Jahangiri, heard more about AAG’s story and that journey. Reza and the team were really committed to this idea of leveraging housing wealth for better retirement outcomes. And so, we had good strategic alignment. The culture of AAG of ‘caring, driven and ethical’ resonated deeply for me. So, I had good alignment on the strategy, there was a good cultural fit, and so it felt like a great place to come and accomplish the things that I thought we could accomplish as an industry and be a part of a great team. And so that’s where we are today: we’re a very purpose-driven business, supported by this foundation of what is really the dominant brand in the industry.
You touched on a couple things that are noteworthy given the theme of growing the adoption of home equity conversion in today’s landscape. What are you doing at AAG to grow that ‘pie’?
I think first and foremost, it won’t surprise you to hear that I think it’s really bigger than HECM, or the Home Equity Conversion Mortgage, our product specifically. Now product innovation, whether it’s proprietary or other products, is certainly a part of the journey that we need to go down to grow the pie and expand adoption. I think AAG and the industry overall has done a great job of continuing the work to clear up myths and misconceptions about reverse mortgages as a product class.
But even more importantly, the thing that I find most exciting is that the conversation has really shifted away from product, to a more global idea around thinking about home equity differently in the context of retirement planning. And I think AAG here has really become an educational hub, where we teach seniors, their families, other lenders, stakeholders and general communities about the idea of accessing your home equity as a part of that retirement plan to really drive better outcomes. And we do this through a host of free online information, articles, webinars, seminars (pre-pandemic), all of these tools out there to educate and reinforce learning, and I think very importantly, empower people to then take action.
So, being away from the industry and coming back in, I think this industry has a massive educational effort underway, which is important. Because I think it begins to partially heal the reputation of the industry, and put us in a place where we can create opportunity for folks through enhanced choice, which is always a good thing. And then back to the product topic, I think it’s important, obviously, that’ll be a part of the journey. Some of you may have heard the discussions earlier about the Canadian market, a lot of product variation there.
And so, when you think about our proprietary market, proprietary innovation and distribution continues to be a big part of the story for us in growing the pie. These proprietary products we have today tend to serve a more, what I would call, mass affluent consumer segment. And these are buyers who are also concerned about their quality of life and their lifestyle in retirement. They’re also facing the same economic demands and headwinds as everyone else in retirement. And so, whether it’s the mass affluent segment served by our current proprietary market, or other segments of our addressable market, I think product innovation will continue to be a big part of the answer.
And finally — and maybe most importantly — any conversation around growing the pie has to include the discussion around expanding our sales force. And just to give you a little data to add color for the folks on this, based on the research today — and 2020 as we sit here — we have 30 million-plus potential buyers. That’s our addressable market in 2020. This is based on research that includes 65 and older homeowners who have lendable equity, and may not, based on the research, have enough saved for retirement. 30 million. So, that’s 65 and over based on that particular data set, but now round it up. Go down to 62, 60, or 55, even. And it is a massive addressable audience for us to go out and serve.
In order to do that, we have to have a more inclusive and growing sales force in order to have any chance at legitimately serving that audience. And so, in my role at AAG, I’m primarily focused on growing our national field sales team and our wholesale teams, who are out driving production externally. They’re engaging with customers and lenders and other stakeholders, and able to connect with them locally in their local markets
But, AAG also has done a great job through our centralized retail program of bringing sales professionals from outside of mortgage lending, who have the sales acumen and the right culture, and teaching them the reverse mortgage business. And so, it’s education, its product development, and it’s an expanding sales force. AAG is equipped, I think, to do a lot of great work on all of those fronts, especially bringing in and expanding our sales team across all three of our channels.
When it comes to forward versus reverse talent philosophy, you mentioned being able to train people who aren’t necessarily even mortgage professionals. But for those who may have experience in the forward world, how are you approaching that at AAG? And what kind of tools or training do you offer to people that may be interested in learning and getting onboard?
As far as the tools for our traditional mortgage originators, we first launched the traditional mortgage product more than two years ago. And so, we really have taken our time and been very intentional about making the right investments to build, what I would call, a’ street credible’ traditional mortgage platform. So to the originator out there who makes a living serving borrowers with traditional mortgage today, can we convince them to trust our platform and trust AAG with their business?
This includes using Encompass as a loan origination system, a strong portfolio of product, competitive pricing and — probably most importantly — a very experienced traditional mortgage operations team. Now, when you think about the philosophy [of] getting traditional mortgage loan officers engaged in reverse from a B2B perspective, we’ve actually been working on this for a couple of years at the loan officer level. But really, that philosophy begins with the culture fit.
And so whether it’s a reverse mortgage originator, or a traditional mortgage originator who’s joining us to add reverse as a product alternative so they can serve more folks, it’s really about [asking if] they fit the culture and [whether or not] their business model and their strategy aligns with ours. And so at the end of the day, yes, we’re a mortgage lender, but we’re keenly focused on the older homeowner who’s thinking about leveraging their equity in the context of retirement. And so, if you’re a traditional mortgage originator thinking about joining us, it’s really about being comfortable [with the fact] that we’re dedicated to a very specific consumer segment. We’re dedicated to a very specific sales experience and culture, so [we want originators] to think customer first, [and] product second.
And fortunately, we’ve found a fairly large number of traditional mortgage loan officers [who] are excited about that opportunity, and excited about a less commoditized approach to mortgage lending. We’ve had some success there. So, first is culture fit and business model fit, and once you cross that bridge — and again, this is true with all loan officers — we then focus our energy on helping our team feel our value proposition, really, in five key areas. First, it’s our dominant brand, our legion and our marketing capabilities. We have a robust capability there, and folks know that.
Our strategy is once loan officers come onboard, it’s not to say, ‘hey, here are all these shiny objects go forth and conquer the world, let us know how your month goes!’ No, we work diligently from the minute they start to help plug them into how you leverage our brand in your business. How to leverage the lead gen capability that we have, and the marketing resources as it relates to [the originator’s] business model.
We spend a lot of energy there, number one. Number two, we have multiple self-generated business development platforms. You think about the 30 million-plus potential buyers out there. And then, you think about the ability to attract salespeople. And if you check the box on both of those, then the question is how to help loan officers annuitize their self-generated business. How to help them expand their reach in a systematic way, and reach out to those potential buyers.
So for us, we believe in creative innovation around business development. We have various platforms that we use to try to help our loan officers accomplish this all at different stages of maturation depending on when we’ve launched the test-and-learn [phase]. Perhaps our most successful and mature is the work we do with financial advisors. Today, that drives 30% of our new client acquisition. So, the second item there is business development. The third for us is operational excellence, and any lending business I’ve ever been a part of, the ability to manufacture good quality loans with a good borrower experience is paramount. I feel operational excellence is a competitive advantage for us.
And then, support. My experience in distributed sales for over 30 years, and the research, shows that if you have a good, high-performing sales force, and if you wrap them in an ecosystem of good quality support, they’re going to perform at a higher level. So we believe in support from onboarding, to sales coaching, to business development, to pipeline surveillance. We like to have the right positions on the field to help our loan officers.
And finally, engaging leaders. We believe that leadership is an active sport, so trying to help our folks scale their business while maintaining this entrepreneurial culture is so important for creativity and innovation. So, I think for us, all of that together is what we’re doing to support not only our traditional mortgage loan officers, but all of our teams go after business.
I’d love to talk a little bit about the landscape right now, because you at AAG have so many interactions with borrowers, and have such a high level of volume moving through the company. How has the landscape changed this year with the COVID-19 crisis? Are you seeing it as responsible for a shift in demand?
I think it’s not an exaggeration to say that American seniors were impacted the hardest by the pandemic, physically, mentally, financially. Early on, we saw cases surging in nursing homes. We saw seniors self-isolating at home, we saw shocks to their retirement accounts. And so, many have turned to home equity in order to pay for in-home care, modify their homes to live more comfortably and supplement their income. As a financial services company AAG and all reverse mortgage lenders are a part of America’s critical infrastructure, and we had to take steps to make sure that we continue to serve our customers during this critical time.
I couldn’t be more proud of the job we’ve done. From shortly after the pandemic, we got nearly 100% of our employees to transition to remote work, so we were able to make sure that we had good business continuity and were able to serve. I’m also appreciative of the work NRMLA has done. Having been around NRMLA since my time first getting into the business in 2006, I couldn’t be more proud of the level of engagement and the work that NRMLA did on behalf of the industry to ensure that we can all continue to operate and serve, and to do so safely.
On the data topic: around what we have seen in some of the data, we launched a consumer survey during the COVID crisis. We’ve seen an increasing number of seniors who are concerned about retirement and they’re worried about their lifestyle changing due to the uncertain circumstances. And just one data point that I would share, which is interesting. In March, we did the survey, and we saw that 26% of our respondents had less than $100,000 in retirement, so in April we did the survey again and here it moved to 46% of our respondents had less than $100,000 in savings.
So now, with the market recovery lately, maybe that 46 has abated a bit. But what hasn’t abated is, I think, the uncertainty and the level of anxiety that remains out there. I think we’ve witnessed a greater level of interest and awareness, maybe acceptance from the consumer media and the financial advisor community during the pandemic, as well. And then finally, Liz, I would point out — and this is sort of incidental, but I think critical to the future of the industry — I think the pandemic served as a catalyst for lenders and originators to start thinking differently about our interactions with customers, especially as it relates to the use of technology.
And so, when we think about scaling this industry, one of the things on the list has to be to continue narrowing this gap between the reverse mortgage industry’s use of technology and the borrower experience with what we see often happening in a traditional mortgage business. So, the pandemic has definitely impacted in profound ways, and some of those will be lasting impacts on the business.
What is your outlook for 2021 on home equity tapping, and what can this industry do to help support that growth?
This year has certainly demonstrated how unpredictable events can negatively impact retirement savings. So heading into 2021, we believe many homeowners will be thinking about that, and trying to understand how to mitigate that risk. I think our industry is in a very special and unique position to help. And this goes back directly to the [reason] why many of us entered this space in the first place.
For older homeowners, accessing your housing wealth can be a powerful tool. So, the industry needs to continue to be out delivering that message and that education, I think we need to continue being out there delivering a high level of expertise and service to earn that confidence, while at the same time evolving our culture and our capabilities so that our teams are better able to go out and support our customers to take action once they’ve gotten the education they need.
So for us, putting our partners and our people in a position where they can embrace a culture and environment of continuous change so that we can better serve our customers through the use of better technology, business development strategies and improve that borrower experience. And so for AAG in 2021, it’s about building on our strengths and material investments in those key areas to support future growth.