The reverse mortgage industry across the United States and around the world is always aiming to try and find new ways to connect with borrowers, since global penetration of this form of home equity release is generally far lower than traditional mortgage options. In the United States, there are certain regulatory realities that only allow for American reverse mortgage lenders to go so far particularly in offering a digital experience, but one new reverse mortgage player in Canada is aiming to differentiate itself by modernizing that nation’s reverse mortgage.
Bloom Finance Company, Ltd. is a fintech company based in Toronto, Ontario and is entering a reverse mortgage industry in Canada that only really has two predominant players in the space. While current Canadian market leader HomeEquity Bank has spoken in the past about welcoming additional players in the space, Bloom’s arrival is one that aims to be different from the other Canadian reverse mortgage lenders in no small part due to its status as the nation’s only non-bank reverse mortgage provider.
To further gauge what potential impact that Bloom might have on the market, RMD sat down with company founder Ben McCabe to learn about what motivated the company’s entry, as well as how the American reverse mortgage industry influenced some of his decision-making.
Differentiation and growing reverse mortgage acceptance
In addition to room being present in the nation’s reverse mortgage industry, McCabe says that there are a lot of developing components that could become meaningful tailwinds for the product category north of the American border. These include rapidly rising home prices, a growing cohort of Canadian retirees, and — as in the United States — insufficient sources of traditional retirement income, he says.
However, McCabe also sees an additional component beyond these developments related to the acceptance of reverse mortgages as a financing option for older homeowners.
“The biggest factor as we see it though, is growing acceptance of home equity release solutions as a powerful and integral part of a fully developed retirement plan,” he says. “We think – like in the U.K. – equity release solutions are going to become a mainstream retirement planning tool for Canadians. As recently as 10 years ago, there was only $1 billion of reverse mortgage debt outstanding in Canada, and now there’s over $5 billion. We think that trend is going to continue and accelerate.”
Playing a role in changing some of the prevailing narratives around reverse mortgages is a priority for the new company, McCabe says, echoing many of the priorities in borrower education that most major American reverse mortgage companies also strive for in their educational initiatives.
In terms of how Bloom aims to differentiate itself from the likes of competitors HomeEquity Bank and Equitable Bank, there are a few key components which will immediately make Bloom a different kind of operator, McCabe says.
“We are the only non-bank provider of reverse mortgages in Canada,” he says. “In addition to [being] a finance company, we’re also a technology company. We’re focused on revolutionizing the process of unlocking home equity to support retirement, and making it as simple, seamless and comfortable as possible. We don’t see why unlocking equity from the home should be any more complicated or intimidating than withdrawing funds from any other retirement wealth account. We are rigorously focused on enhancing customer experience, with that ultimate objective in mind.”
What to learn from the American reverse mortgage industry
In making his decision to enter the reverse mortgage business sector, McCabe explains that a fair amount of information he absorbed was related to the American side of the business, including material previously published on RMD in the forms of news stories and podcast episodes.
“One of the primary differences between the Canadian and U.S. reverse mortgage markets, as I learned from the [RMD] podcast, is the extent to which the U.S. financial advisor community has been engaged in the consumer education process, and ultimately distribution of reverse mortgages,” he said. That, I really believe, is the ultimate path for equity release to become a truly mainstream retirement planning tool, which I fundamentally believe it should be.”
In general, the Canadian side of the business can do more to engage with its own community of financial advisors, which only emphasizes the kinds of opportunity McCabe perceives to be ahead, he says. That said, there are certain regulatory realities present in Canada that could be something of an impediment to the process of expanding.
“The biggest place where regulation (or lack thereof) stands in the way of innovation and market growth is around the open banking infrastructure in Canada,” McCabe explains. “Our banking system remains a relatively closed environment, and while steps are being taken in the direction of opening that up, we have a long way to go.”
A series of regulatory restrictions in the United States also keep American lenders from offering more digital experiences in the reverse mortgage sector, but McCabe says that the general regulatory environment in this area is not very heavily constrained in Canada.
“We are leveraging technology to remove friction from the onboarding, underwriting and fulfilment processes, to create a great customer experience,” he says. “I don’t envision a future where every customer is going to want a pure click-click-fund solution. I think the optimal approach in this market will be a combination of technology applied where it can be to remove unnecessary friction, and a human touch in building the client relationship and facilitating the education and consideration process.”
Competitor relations, referral partnerships
Both Equitable Bank and HomeEquity Bank have described a generally collegiate, if competitive relationship in the current Canadian reverse mortgage market. With the entrance of Bloom, McCabe hopes that the companies in the industry can partner together on unified interests, most especially on the front of borrower education, he says.
“The true size of the ‘pie’ in Canada is so much bigger than what has currently been tapped,” he says. “The best way to grow the market is a concerted effort between all of us to help educate Canadian consumers on the power of this product to allow them to live better lives in retirement.”
In terms of how the company plans to expand its base of referral partners, existing mortgage brokers as well as the aforementioned financial advisor community will likely be key players in growing the new business.
“Certainly the mortgage broker community is a primary focus for us today, and will continue to be,” he says. “As mentioned, we think financial advisory and wealth management partners are going to be critical in realizing the ultimate market potential here.”