Though the onset of the COVID-19 coronavirus pandemic caused a great deal of turbulence and uncertainty in different parts of the reverse mortgage business, indications from lenders, brokers and originators signify that the economic situation created by the unique moment created additional interest in the reverse mortgage product category. For the new year, that has led to some reverse mortgage companies and leaders to express confidence in the industry’s readiness to meet the needs of seniors during this moment in time.
Generally speaking, optimism seems to be the feeling that many industry leaders have about the prospects for the reverse mortgage industry in 2021. Now that full calendar year volume for 2020 has demonstrated a demonstrable rise in Home Equity Conversion Mortgage (HECM) volume, leaders at some of the biggest and most prominent reverse mortgage lenders are looking to 2021 as a year full of potential, according to insights shared with RMD during an executive webinar.
Fueling optimism for the new year: index transition, need for stability
While the abrupt declaration by the Government National Mortgage Association (GNMA, or “Ginnie Mae”) late last year regarding the restriction of London Interbank Offered Rate (LIBOR)-based HECM-backed Securities (HMBS) was undoubtedly disruptive, the reverse mortgage industry nonetheless managed to adapt quickly to shifting away from LIBOR and toward the previous Constant Maturity Treasury (CMT) index.
Still, the industry preference is and has been the Secured Overnight Financing Rate (SOFR) due to its ubiquity in other areas, and that’s a transition the industry may want to expect according to Chris Mayer, CEO of Longbridge Financial.
“I think probably sometime [in 2021], we’re going to have another transition to SOFR, which hopefully won’t be as painful as this [CMT transition] was,” Mayer says. “But, I think we’re going to see that happen, so we should be prepared for that.”
An industry transition to SOFR would help to bring the reverse mortgage industry further into the realm of mainstream financial services due to the rate index’s use in other industries, Mayer says.
“I think over time, I hope for our industry that we do eventually transition over to SOFR, which is where the bulk of financial services in the mortgage industry are going to be,” he says. “So, we should expect that transition to happen. I don’t know that it will have as much of a financial effect as the transition to CMT, but for all of us who remember what happened when the FHA announced [product changes] in August of 2017, the recent transition to CMT has been tame by that comparison. And so, I think I’m hopeful and optimistic that the move to SOFR won’t be as painful.”
Macroeconomic conditions continue to be beneficial for the reverse mortgage industry, Mayer says, though there is understandable concern related to elements like unemployment and an unclear stimulus strategy on the part of the federal government. Still, those kinds of components being in play tends to drive some additional interest in the reverse mortgage space, which could help some seniors during these unusual times, he says.
“I look at it as we’re providing benefits to the rest of the country to help seniors get through this,” he says. “And we all know, the far and away biggest-hit group by COVID is [the cohort of] older Americans. And so, our product is really there to help people get through what may be another challenging time.”
More advisors entertaining reverse mortgages, need for education
The generally favorable market conditions for the reverse mortgage industry are also manifesting in other ways, including a greater level of amenability for such products among financial advisors. There is also a higher level of inbound requests for educational materials detailing the specifics of reverse mortgage products according to Kristen Sieffert, president of Finance of America Reverse (FAR).
“I think that the volatility introduced by COVID, especially what happened in March and April, really had financial advisors and people approaching retirement, take a pause and ask, ‘what is my backup plan?,’” Sieffert says. “Things had been so good and stable for so long, it’s almost like people forgot that things can go haywire. And so for us, we saw a lot more interest from the financial advisor world than we have ever seen before. We have the partnership with the FPA, and the influx of requests for education have been pretty staggering, and not like we’ve seen before.”
Internal metrics have also proven to FAR that financial advisors appear more willing to recommend reverse mortgages to their clients, Sieffert explains. On top of this, FAR’s parent company is set to make its initial public offering (IPO) to become publicly traded in early 2021, which adds to the company’s opportunities, while also giving FAR a chance to refresh perspectives on reverse mortgages in the minds of some.
“Going through this process, it was pretty eye-opening to see how many people thought about reverse mortgages as though they were the same product from the pre-2008, pre-financial assessment [period],” she says. “All of the things that we know have changed, because we do it every day. The regular people out there that don’t think about reverse mortgages, when you talk to them, think about the products as the negative headline products of the past.
Communicating how reverse mortgages have changed over the years is an important task to help change outdated perceptions, she says.
“The continued education and ability to tell the good story of our product as it is today is so important for all of us,” Sieffert explains. “So, I think that’s something that we’re really looking forward to because our industry has made so many strides.”
‘Best days ahead,’ though innovation is welcome
The reverse mortgage industry has a lot of potential in 2021, but both Mayer and Sieffert at different points expressed a need for additional innovation in the arena of technology for the space. That thought was echoed by Mike Kent, president of Liberty Reverse Mortgage, relating his own recent home buying experience and a desire for parity with the forward mortgage industry.
“I just bought a home, and I never talked to a loan officer,” he said. “I didn’t talk to a person, and did everything online. I love loan officers, don’t get me wrong, but we’ve got to have a process that [can cater to] COVID, or just preferences.”
People do a lot of things like holiday shopping on online stores, and as more components of life migrate to digital platforms it makes sense for the reverse mortgage industry to follow suit, Kent says.
“I can go online, I can educate myself about a product, and then I can execute on that product,” Kent says. “I don’t have to try to catch people on the phone, wait for things to come to me in the mail. I can transact quickly and cleanly. And by and large, my experience is always very good. That’s what I experienced on the forward side, when I got my new home loan. So, absolutely one of our pushes in 2021 will be on the technology side, and that’s trying to bring the market a portal for customers to actually transact at some level.”
Additional innovation is welcome in tapping into the much larger forward mortgage market. As a part of Ocwen Financial Corporation and PHH Mortgage, Liberty easily sees the divide between forward and reverse business, and finding a way to tap into the forward side is of great interest.
“We know what the opportunity is in the forward space, and one of our continued efforts in 2021 will be [finding ways to] tap into that,” Kent says. “You know, we have customers that are doing a 30-year fixed rate [forward] loan, and they’re over 60 years old. And believe me, we have customers who do it that have LTVs that would qualify for a reverse mortgage.”
Making the case to these seniors who readily look at forward mortgage options without considering a reverse mortgage, where monthly mortgage payments are optional, is a priority, Kent says.