And on the the heels of major product changes implemented in late 2017, many longtime reverse mortgage players have adapted their businesses accordingly. Yet there are several challenges that remain in light of rising interest rates and public perception of Home Equity Conversion Mortgages, as lenders look toward a new year for the product and the senior market it serves.
“It comes down to one thing: customer acquisition cost,” David Peskin, president of Reverse Mortgage Funding, told RMD in a recent interview.
Customer acquisition cost has always been a consideration, but particularly in light of today’s market, reduced principal limit factors and lower margins for lenders, this cost is all the more prevalent.
“In the past, when you had higher margins, you didn’t have to close as many loans. Today we have to understand the business from every aspect,” Peskin said.
Lenders are also looking closely at the impact of rising interest rates specifically—a phenomenon not experienced since prior to the Great Recession, which began in late 2007.
Markets were buoyed in November after Federal Reserve chairman Jerome Powell appeared to imply that more hikes may not be on the horizon during 2019, yet The Federal Reserve has raised interest rates three times in 2018 and said it plans to raise rates for a fourth time in December.
“The reality is, it will be harder,” says Bruce Barnes, executive vice president for Live Well Financial, of the rising interest rate environment. “You’ll have to work longer to get the same amount of business. There isn’t a rosy picture when you have a shrinking market because of interest rates.”
Lower volume may be a challenge for individual lenders and originators, but it also presents a hurdle for the industry as a whole, in terms of garnering the interest of investors that seek opportunities of a particular scope and size.
Despite the challenges, lenders and longtime originators remain positive. It may be a different business, and a different consumer, they say, but the coming year should present opportunity.
“It’ll be better than 2018,” says Richard Pinnell, a reverse mortgage originator with Vitek Mortgage Group, based in Redding, Calif. “We have to adjust to the new PLFs, so I’d guess half of all of our pipelines became non-doable loans because of the adjustments. We have to look for a different motivation to do a reverse mortgage…It’s a completely changed marketplace. Originations are way off, but I think that’s a temporary situation and we just have a few bugs in the system to work out.”
This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.