As the founder and CEO of reverse mortgage industry leader American Advisors Group (AAG), Reza Jahangiri has a singularly unique and holistic perspective on the past, present and future of the reverse mortgage arena. From a leadership perspective, looking back at what helped shape the direction of the industry in 2020 also helps to mold the direction the business will take in 2021, while also taking new developments into account regarding business trends.
This was the driving force behind the conversation with Jahangiri featured in the latest episode of The RMD Podcast, available now. In addition to sharing what some of the major developments were for AAG specifically, the direction of the broader industry and the new elements of opportunity that are present for it in the new year were also topics of discussion.
The effects of the pandemic on seniors and AAG employees
The general prosperity observed by the reverse mortgage industry in 2020 comes with a caveat in that many of those in the industry’s primary demographic have been inordinately affected by the ongoing state of the COVID-19 coronavirus pandemic, Jahangiri said.
“Seniors have been hit the hardest with the pandemic, and we feel very fortunate that we’ve been able to be there for them when they need us the most, and I’m speaking for AAG and the industry,” he said. “So, I feel very fortunate about that aspect.”
Perhaps unexpectedly, one of the positive developments for AAG as a company came from a transformation of work itself, since the company acted quickly in the early days of the pandemic to allow employees to do their work from their own homes, he said.
“At AAG, we were able to transition to a remote workforce pretty seamlessly, and I was very proud of that,” he said. “[We saw] very little impact on business continuity, and I think the rest of the industry did a good job of that as well based on what I saw from afar. And, in fact, we’re actually seeing greater efficiencies.”
Those efficiencies stem from many AAG employees finding themselves not having to commute into work at the moment, which has led to a little more time being spent on important tasks along with a conscious effort by employees to maintain effectiveness and efficiency, he explained. On top of that, there are also likely to be other business benefits as time goes on.
“Eventually, there’s going to be cost savings from reduced real estate footprints and structural lifts from this when all the dust settles, and we’re probably [moving to] a hybrid model of being in and out of the office,” Jahangiri explained.
An ‘accelerant’ to age in place, an industry inflection point
The increasing prevalence of desire by seniors to age in place has likely only been enhanced in the minds of seniors because of the pandemic, Jahangiri says. Nursing homes and assisted living facilities have been hit hard, but seniors were already making their preference for staying in their homes known beforehand.
“I think COVID is acting as an accelerant to an already existing trend of people wanting to age in place,” Jahangiri said. “People want to live in their homes, they want to utilize things like in-home care. As we know right now, seniors don’t want to be susceptible to the pathogen and be out in a senior living and nursing home-type environment, even more than before.”
Beyond that, the reverse mortgage industry has reached an inflection point due to the increasing acceptance that home equity extraction in retirement has been garnering, a trend not isolated to the United States, he said.
“We’re seeing a changing of the tide and the tune with commentators and experts within our country, and I think there’s further macro factors, helping give tailwinds to the industry,” he said. “Rising home values have not stopped, especially in suburban areas where a lot of seniors benefit. And of course, the low rate environments can be very beneficial, even though I believe we’re a cycle-agnostic market. We do well in up or down markets. I think low rates really do give that extra boost to give consumers greater proceeds. And of course, [there is the] low cost of capital, which is great.”
Government trends, and the future of proprietary products
With the recently-announced rise of the Home Equity Conversion Mortgage (HECM) lending limit to $822,375, it would be understandable for HECM volume to eat into the potential volume of the proprietary market in 2021, at least in the short-term. However, that doesn’t take away from the purpose that those private-label products can serve in diversifying the reverse mortgage business beyond HECM product offerings, Jahangiri said.
“I think the issue is less [about asking if] proprietary volume is going to beat HECM, or vice versa. We’ve got to figure out how to get adoption up holistically for seniors using home equity for better retirement outcomes,” he shared. “I think an important part of that is going to be having a larger footprint for the proprietary product, and we know why that’s important. All of us do: we need diversity away from government.”
Certain attributes and product features that exist now indicates that some consumer needs are not being met, particularly at higher home values, he said. Some of those “HECM gaps” will be able to be bridged in time, but the increasingly positive performance of the HECM book of business inside the Mutual Mortgage Insurance (MMI) Fund also indicates that the reverse mortgage marketplace is growing stronger and more reliable, he added.
“The last several years have led to materially positive shifts in the HECM book, and as painful as the changes have been for those of us that live it in the industry, the changes worked,” he said. “Financial assessment, utilization restriction, MIP and PLF changes, all of them have bolstered the performance of the HECM portfolio. The fund has recovered much in the way of losses, we saw a $15 billion lift the last several years. And now, we’re originating a product even with tighter underwriting parameters and less proceeds highly effectively. The industry is more stable, so I think it’s a more attractive market.”
Listen to the full discussion with Reza Jahangiri in the latest episode of The RMD Podcast, available now.