The experience of working in the reverse mortgage industry in 2020 inspired many different reactions at different parts of the year, from general optimism in the first couple of months to uncertainty during the immediate onset of the COVID-19 coronavirus pandemic.
Soon after that point, things started to take a bit of a different turn as interest in the reverse mortgage product category appeared to increase as more American seniors began to explore additional options in terms of their own financial security, leading to a notable increase in reverse mortgage volume over totals observed in 2019.
Leading a major reverse mortgage lender through all of these occurrences would be an understandably daunting task, but different executives at different companies appeared to embrace both the new challenges and opportunities that have come for the reverse mortgage product category in 2020. This is according to insights shared with RMD during an executive webinar this month.
FAR: Sieffert defines ‘resilience’ as the reverse mortgage theme of 2020
Even before the onset of the pandemic, Finance of America Reverse (FAR) aimed to define a theme for 2020 that would help to guide the company’s efforts throughout the year. What the company didn’t realize, however, was that the chosen theme would be very appropriate considering the initial lows and later highs that would reach the business. This is according to Kristen Sieffert, president of FAR.
“The word that we chose in February, pre-pandemic, was ‘resilience,’” she explains. “And so when the pandemic hit, and people start talking about business resiliency and how to really find ways to make the best out of situations that we’ve been faced with this year, we really looked at this word and [understood that] our team has to really be resilient to get through what we’re going through.”
One of the major components that Sieffert and FAR at-large had to determine was how to meet the new and unique challenges posed by the pandemic to the reverse mortgage business, but also how to ensure that people within the company felt cared for while allowing them to continue to meet the needs of the company’s borrowers.
“To us, that’s the theme of resilience,” she says. “Finding ways to thrive no matter what challenges have been thrown at us. So, when I look back at 2020, I feel like we’ve ended up finding a way to have one of our best years ever. [T]aking March and April out of the picture which were really dire and scary as a business, we’ve really been able to do all of the things that were on our agenda, and then some.”
Taking a more holistic look at retirement has been essential for FAR in meeting many of its goals for the year, as the company aimed to look simply beyond finances and connect with people in a broader way in order to help expand the base of borrowers that the company is able to serve, she says.
“We’ve got to find a way, as an industry, to grow the pie,” she explains. “And we’ve really not done a great job of that so far. So, I think we’ve got to really rethink messages to the consumer so that we can create a much broader dialogue that keeps people engaged, and really helps them in other areas besides just financial.”
A very visible step FAR took in order to meet this goal was the educational program the company entered into with Stanford University research arm the Stanford Center on Longevity (SCL), as well as the partnership with mortgage marketing platform Total Expert to provide third-party originators access to a dedicated platform aimed at improving originators’ reverse mortgage marketing expertise.
Longbridge: Mayer describes higher conversion rates and ‘year of the refinance’
The maturation of the reverse mortgage business is also something that should not be overlooked, since seniors who became more receptive to the product category in 2020 benefitted from improvements made to the HECM program as well as additional proprietary product options. This is according to Chris Mayer, CEO of Longbridge Financial.
“We, as an industry, really are changed,” he explains. “I think the upside is the value that we bring to the table is clearly ever more important today, and is more important than it was before. We had times where borrower draws in March and April just spiked in unbelievable ways.”
Industry leaders earlier this year discussed seeing very disruptive developments from existing borrowers, including some who drew nearly their entire line of credit in a single day to combat the volatility observed in the stock market shortly after the pandemic was declared by the World Health Organization (WHO), followed shortly thereafter with an emergency declaration from the White House. This has led to higher conversion rates that have not let up.
“The security that a HECM brings to the table, there is no question, has become much more apparent with the issues of COVID,” Mayer says. “We found in our call center, for example, that in short order, after March, we saw 50%, or more increase in the conversion rate of people we talked to deciding to go ahead with a reverse mortgage. That hasn’t come down. It’s not quite as high as it was in March and April, but when we look at the call center today, it continues to be very, very high. It takes less selling for people to understand what the product is.”
Another trend observed this year, though, was a sharp rise in the number of reverse mortgage refinance transactions.
“It’s incredibly important for us to try and grow the market,” Mayer says. “If you look at the growth that happened in 2020 and throughout, refis were actually flat to 2019. So, with all of the growth in volume, to some extent, I think we all understand we had people calling wanting to refinance their loans. And like the forward world, refinances were often a really good deal. But, we are going to need to figure out how to grow the pie as an industry, because I suspect that that refinancing demand, particularly by the second half of 2021, is likely to start to taper off. And so, we’re going to have to figure out ways to grow.”
Liberty: Kent says reverse mortgages ‘proved’ themselves
At Liberty Reverse Mortgage, company president and recently elected National Reverse Mortgage Lenders Association (NRMLA) co-chair Mike Kent observed that the pandemic has helped to prove that a reverse mortgage can serve an important role in facilitating additional cash flow for seniors in tough situations.
“The product itself, I think, really proved itself,” Kent explains. “When consumers needed that product, it was there. If you remember what happened in the stock market when COVID hit, there was a [huge] devaluation of the stock market, and many of our customers have 401K’s that are invested in the markets. Part of their livelihood is doing monthly distributions out of that 401K. The idea of taking distributions out of a stock portfolio when it’s at one of its lowest points is very difficult, though, and certainly doesn’t provide for a very good retirement outcome. But if [they] had a reverse mortgage, [they] could tap into home equity.”
Also proving the viability of the HECM category is the performance in the Mutual Mortgage Insurance (MMI) Fund, Kent explains. Government agencies like the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD) absolutely helped provide necessary relief to the reverse mortgage industry, but the industry in turn helped provide additional stability to the government this year, he explains.
“In addition to the help that was provided [to the industry] by FHA, our product helped FHA this year, too,” Kent says. “We had a fairly significant improvement in the MMI Fund in regards to HECM, and most of that is attributed to the work that HUD and FHA have done in conjunction with our industry, and taking the lead on that has been NRMLA helping to to marshal forward some of those necessary changes. And now we’re getting to see the results of those changes.”
This trend should continue in 2021, Kent says, especially as newer, more refined reverse mortgage loans enter the portfolio with the benefit of product changes introduced to stabilize the HECM program, he says.
“As more new vintage loans go into the portfolio that replace the old vintage loans that are coming out of the portfolio, we’re going to see new performance dynamics that improve the value of the HECM side of the fund tremendously,” he says.