According to the American Credit Union Mortgage Association, 80% of credit unions assets are owned by members with an average age older than 50. Having this type of demographic makes reverse mortgages a very attractive product to offer but less than 25% of credit unions offer a reverse mortgage product. What is holding the credit unions back?
The reason more credit unions aren’t jumping on the bandwagon may be "because credit unions are scared to death over the housing crisis," said Bob Dorsa, president of the American Credit Union Mortgage Association. "Credit unions are not eager to get involved in a product that involves counseling, HUD, FHA." While there may be a significant amount of training needed to offer reverse mortgages, there is certainly opportunity for credit unions in the product.
"As more members are reaching the age of retirement, they are looking for alternatives to conventional mortgages," said Robert Treadway, reverse mortgage consultant for Credit Union Mortgage Association, or CUMA, a CUSO based here. "There will be more retirements and many will find that they do not have enough savings for retirement," Tun Wai, director of research and chief economist at NAFCU.
Wai does warn that offering reverse mortgages does bring risks, "Like other loan products, the loan has to do with what is going to happen to the collateral," he said. "The real estate market is in turmoil and the residual value of the collateral may not be what was anticipated. This has implications on how much money the credit union will get."
As the product continues to become more mainstream, credit unions will lose customers to other institutions if they don’t offer the product. Scott Toler, president and CEO of CUMA, agreed. "If [credit unions] don’t offer it, the member will go to another lender," he said. "Depending on how the proceeds from the closing are disbursed to the member-lump sum or annuity payment-could potentially lead to increased deposits from that member."
Credit unions may also be able to offer more affordable rates for reverse mortgages than other lenders, Dorsa noted. "The fees associated with reverse mortgages seem to very high," he said. "I would think the way we have done with ATMs, credit cards-I think we could find a way to be affordable to members and profitable to us."
State Employees Credit Union recently came out with their own private label reverse mortgage which it offers to customers. Their reverse mortgage product offers a fixed rate, 1% origination fee, and no mortgage insurance or monthly servicing fee. According to Phil Greer, VP at State Employees CU and chair of CUNA’s lending council, in the 70 days since the product was introduced, the credit union has received 12 applications that it is currently working on.
"It takes a lot of work, a lot of research. Reverse mortgages are more complex. There’s a different set of applications, different account aspects. It’s something that takes due diligence and may require the purchase of software. Our major cost was what it took to create a product that we would be proud of and our members would be pleased to use."
Toler said that the reason many credit unions may not be offering this product is due to the perception of it, such as having a concerned son or daughter question the credit union on offering a product like this to his or her parents.
"But what we’ve found is that the senior members doing this are very knowledgeable about reverse mortgages," he said. "They’re asking a lot of questions that even many younger members are not asking about traditional mortgages. They are very aware and are making informed decisions."