There’s a deadline looming at the end of the week. Most people probably aren’t even aware of it yet — even though it’s been in the news for months — but as an industry that relies on the government to operate, a government shutdown means FHA endorsements will probably be interrupted.
Great…yet another challenge, in a year full of more challenges.
As we get closer to the end of September, with every passing moment, there is a greater chance that yet another interruption to the reverse mortgage business is coming. To most people, including our clients, a government shutdown can be scary, but not life-threatening. Social Security checks will still go out. The post office will still run since they are funded independently. Some government buildings and all national parks will be shut down, and it will make the news.
There will be a lot of shouting about how “this has never happened before.” Or it’s “the most important shutdown since the last time the government shut down.” Except this has happened before, and it wasn’t that long ago. The last time this happened was at the end of 2018, and the shutdown lasted 35 days. In fact, it’s happened 22 times in the last 47 years. Both sides have done it, and everyone always claims to have their reasons.
The fact is that with a government shutdown, a lot of FHA shuts down, too. HECM endorsements stop. Last time it took 35 days to resolve, but the bigger problem for the reverse mortgage business is that if there is no one home at FHA to approve endorsements, it could be exactly like last time when it took FHA six months to catch up on the backlog.
A time for adjustment
So, what is a reverse mortgage originator supposed to do while staring down the barrel of another potential government shutdown? This seems like the perfect time to ask, “Shall we play a game?,” like the computer voice from the 1984 film War Games.
Unfortunately for our industry, a government shutdown has dramatic effects, which means we need to immediately adjust our short-term marketing plans. I would start by immediately having an educational conversation with every client. As a boss of mine once said: “when you are faced with an issue, start with the truth.”
The truth is, we know HECMs are going to be affected if the government shuts down. That means we need to brace our clients for delays. If there is a silver lining to this, at least it’s not our fault. In the past, the mortgage business has been blamed for issues with the economy but this time, it really isn’t our fault.
All hope is not lost. Business may be delayed, but it will continue. The good news is that there are alternatives, and now is the perfect time to delve into them. There are several non-FHA reverse mortgage products that have come to the market, and this could be a new chance for those to shine. These are programs that allow us to do things that FHA can’t or won’t do. The biggest job for us is to understand the differences in the terms, conditions, and requirements.
It’s the reverse mortgage business. The one thing we can count on is that today will be different than yesterday. That’s part of the game.
Product benefits don’t disappear
Next, I would focus on the benefits of the reverse mortgage. In spite of FHA shutting down and the politicians using the budget to make some kind of political point, the fact remains that no other financial product will do what the reverse mortgage does, and that’s worth reminding clients about.
What other product can do what a reverse mortgage does? Can other products offer increased access to cash flow and the ability to stay in one’s home without having to make principal and interest payments on the mortgage? Plus, what other financial instrument allows a client to stay in their home without a sizable monthly cost? Things may be delayed, but it doesn’t mean the end. It just means it’s time to adjust our messaging.
I was recently reminded by a client that despite the fact that interest rates are up, we are facing a government shutdown that could slow FHA and the endorsements that allow us to move forward in the industry. There are still opportunities, not everything is moving against the industry. Just like everything else, this too shall pass.
I recently had a conversation with a couple that owns a ranch outside of Denver. They had been looking into a reverse mortgage and had questions about it, but overall, they were very positive about the idea.
The couple said that there was a tradition amongst farm families that when the parents get older and can no longer tend to the farm, oftentimes they will sell the farm to either their children, a family member or sometimes even a complete stranger, with a handshake agreement saying that the couple can live in the home for the rest of their lives. But the caveat is that the buyer can work the land, and otherwise use the property, with the exception of the house. Then, when the couple passes away, ownership transfers. The husband asked me: “Fundamentally, what’s the difference between that and a reverse mortgage?”
I thought about it for a minute, and realized, that something similar to a reverse mortgage process has been happening for years and while a delay is not ideal, it’s also not the end of the world either.
Process is key
Focus on the process, while everything works itself out.
Just because FHA can’t endorse HECMs during the shutdown shouldn’t discourage you from continuing the process. Clients still need to get counseled and that could take a minute. Keep an eye on the news around the shutdown and be ready to move as soon as word comes down that it has passed.
But what it really comes down to is that all government shutdowns are temporary. The landscape for HECM lenders continues to change every day, and this is no different than any other challenge we have faced in the last 36 months. We have to keep focusing on the long-term play, while seamlessly adjusting to the new problems we face.
When it comes down to it, maybe our best play is to call our politicians, no matter what side of the aisle you are on, and make your voice heard that you don’t want the government shutting down. Tell them how it could hurt your business for the next six months or more, and that we don’t care what point they are trying to make. Don’t shut down the government.
Of course, things could go on like they did last time. We know the industry recovered, but not before a shutdown took $24 billion out of the economy. We know it took a longer time than we would have preferred. But the thing is, unlike the computer in War Games, our politicians never seemed to learn the truth.
As with cheesy 80’s films and government shutdowns, the computer in War Games put it best, “a strange game. The only winning move is not to play.”
This column does not necessarily reflect the opinion of Reverse Mortgage Daily and its owners.