Reverse

Originating: Reverse Mortgages: The Time Is Now

Written by Mike Suits, as originally published in The Reverse Review.

The reverse mortgage industry has undergone a transformation over the past several years as the U.S. economy faced disruption and the financial services sector was restructured. Every part of the consumer financial services industry has been examined, re-examined and rebuilt to ensure that past mistakes that allowed inappropriate products to be sold on both Main Street and Wall Street are never repeated. As painful as this process has been for industry professionals and consumers alike, the end result is positive: Reverse mortgages continue to offer essential financial planning benefits to millions of American consumers and are now easier to understand and evaluate than ever before.

The Problem The problem is that home equity is an illiquid asset, meaning it is difficult to turn into cash. Traditional methods of liquidating home equity are to sell a home or to use a forward mortgage and take cash out. For retirees who wish to remain in their homes, selling is not a viable option. While they may gain access to the equity, they lose their homes and must find a new—and possibly more expensive—place to live. Alternatively, forward mortgages require qualification, which for non-working, income-limited retirees is a significant challenge requiring substantial monthly payments.

Reverse mortgages are needed to unlock illiquid home equity and improve the lives of tens of millions of baby boomers over the next two decades.

The Market In 2014, approximately 65 percent of Americans own their own homes. For the median U.S. homeowner, home equity represents 62 percent of their net worth. More than 35 percent of retired Americans, rely on Social Security payments to provide more than 90 percent of their income. In fact, for two-thirds of Americans Social Security represents more than half of their income. The result is that millions of retired homeowners with significant home equity and fixed incomes are unable to meet their daily financial needs, let alone achieve a better quality of life.

There are 72 million people in the baby boom generation (1946-1964). Every day, 11,000 people in the in the U.S. turn 62 years old and become eligible for a reverse mortgage. Sixty-six hundred homeowners per day for the next 19 years with most of their assets tied up in home equity is a market that cannot be ignored.

Not surprisingly, with stricter rules in place and an exploding market of eligible customers, new investors—proprietary investors—are emerging to offer new products. While the HECMs are the dominant reverse mortgage option today, the future will likely include many additional options.

The Opportunity The reverse mortgage industry has been tarnished by the events of the past. Yet, with improved regulation and a rising need there is an unprecedented opportunity for consumer-oriented originators to excel.

Those who succeed in the years ahead will exhibit the following characteristics: Education focus: Nontraditional products sold to consumers at vulnerable stages in their lives must be sold in a consultative manner. This means originators must develop educational resources and spend the time necessary to develop a full understanding of features, benefits and risks by prospective borrowers, their financial advisors and family members. Traditional sales techniques may appear “pushy” and the sales cycle that works in forward mortgage origination does not apply.

Long-term planning focus: Financial and the health care challenges that often emerge during retirement require significant advanced planning in order to be navigated successfully. The most successful reverse mortgage originators will develop alliances with financial advisory organizations and community groups working with prospective future customers, in addition to those customers with immediate needs.

As an industry, our focus must be on the future rather than the past. There are still more challenges to come for reverse mortgage originators, yet the problem the reverse mortgage product solves is real and growing. For those committed to serving customer needs through education and long-term planning, the future is bright. The time is now for the reverse mortgage to claim its role as an important and necessary financial planning tool.

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