The reverse mortgage industry has undergone significant changes since I first entered it nearly 20 years ago. In the early 1990s, the number of reverse mortgages funded was in the dozens, not thousands, as is the case today, and our mission was a very passionate pursuit of “taking care of seniors in need.” I still believe our industry’s primary mission is to take care of seniors. However, in these constantly changing times with incredibly volatile financial markets, it seems highly appropriate to ask ourselves, “How well are we doing?”
Financially Rewarding, Emotionally Satisfying I could wallpaper my entire home with the testimonials I’ve read over the years from seniors whose lives were positively affected when they made the decision to get a reverse mortgage. One of my favorite stories is of an elderly widowed woman who cried at her HECM closing and said her loan officer was an “angel sent from God!” She was overwhelmed by the independence and peace of mind that her reverse mortgage afforded her.
Amazingly, her story was not unique and the impact this had on those of us in the industry was profound. The knowledge that we were doing something good, to provide a solution to someone who had no good answers, was intoxicating. It brought real meaning to our lives.
One of the best salesmen I’ve ever known in the reverse mortgage industry is a man I had the privilege of working with for several years. He saw it as his responsibility to share his vast financial knowledge with his senior clients. He continually preached that your first job in sales is to listen.
He would spend hours on the phone with clients before he made the trip to their home. There, he would use an approach called “The Kitchen Table.” He would meet face-to-face with his potential clients to listen and lead them through the specifics of how a reverse mortgage might provide a solution for whatever need they had. He never rushed the application – even when the senior expressed a desire to move forward. He listened and explained each disclosure to ensure his customer was comfortable with their decision. Mind you, he knew how to ask for the decision and he trained many others how to follow his lead. But, the difference is that the “sale” was not his main goal. The driving force for him each day was simply serving the senior.
In our industry’s founding years, the loan officer who found success was not your typical high-powered salesman. This salesman was more like a social worker, spending double or triple the time with a client than his counterparts in the “forward” mortgage world. However, this was not really seen as a negative. When you have a higher mission and receive rewards beyond monetary gain, your priorities shift. Surviving the Middle Years Our little cottage industry continued along for more than a decade, providing solutions for older homeowners, always expecting that “next year” we’d see an explosion of acceptance and growth. As our industry grew, the opportunities for helping seniors grew. We fought a few early issues of greed with unscrupulous home repair scandals and ill-advised sales from consultants outside our niche industry. Yet, I’m proud to say the reverse mortgage industry handled these issues swiftly and decisively and implemented guidelines and disclosures to ensure loopholes were addressed and seniors remained protected.
A few early changes contributed to our industry’s survival. • Around the mid-1990s, the two major lenders/servicers began to train and accept loans from FHA-approved mortgage correspondents (brokers).
• The origination fee for a HECM loan was increased from a flat fee of $1,500 to 2 percent of the Maximum Claim Amount.
• NRMLA (National Reverse Mortgage Lenders Association) was formed. Before NRMLA, we had no collective voice and certainly no ability to affect any positive changes within our small industry.
Fast forward a few years and you’ll find that evolution continued within our industry: some good changes, and some perhaps not so good, depending on your perspective. • Reforms allowed the application or counseling to be conducted in person, which was also later allowed over the phone. Finally, face-to-face counseling was no longer required.
• No face-to-face meetings for the application process brought new marketing approaches and channels to our industry. Call centers, purchasing leads, or cultivating your own leads via the Internet became successful and the “on-the-street” loan officer providing personal service to seniors began fading from business plans.
• Wall Street investors enter the market and force Fannie Mae to meet the market with premiums available for FHA HECM loans. For the first time, back-end premiums are available to augment the origination fee and provide additional money for marketing budgets, while attracting new lenders, new investors, and expansion for many in the industry.
• A dramatic shift toward younger reverse mortgage borrowers in the past few years, and particularly in the most recent year. Reverse Mortgage Insight (RMI) reports that in 2000, there were more borrowers age 76 than any other age with that figure dramatically shifting downward – 74 in 2003, 71 in 2006, and 63 in 2009. RMI goes on to point out that baby boomers seem much more likely to use reverse mortgages than the WWII generation and those before.
• On a year-over-year basis, reverse mortgage volume has been declining. Overall, the total reverse mortgage volume fell 35 percent to 72,748 in 2010, compared to 111,924 in 2009, according to RMI data. This marked the second consecutive year of decline. It’s difficult to pinpoint all the contributing factors – the most obvious, however, is the drop in home prices in recent years. The decline in home equity resulted in a large proportion of potential borrowers – those who couldn’t borrow enough to repay their primary mortgages – completely ineligible for reverse mortgages. Reduced equity also made reverse mortgages less attractive for other borrowers by making it less likely that they could borrow enough to offset the upfront costs.
“Suitability” – The New Catchphrase I firmly believe our industry’s integrity remains intact, but it’s most troubling that we seem to find ourselves in a defensive position these days. With so many new financial regulations and state reverse mortgage laws, it feels like the mindset has become contrary, and the very people and lenders who sacrificed to see the industry grow are now perceived as the “bad guys.”
The concept of “suitability“ has become the new industry catchphrase. Instead of lenders simply providing borrowers education and possible solutions to make their own financial decisions, lawmakers, as well as other consumer advocacy groups, seem intent on “protecting seniors from themselves.”
Consider one report issued by the National Consumer Law Center (NCLC), which suggests the implementation of a “suitability standard” requiring lenders to offer reverse mortgages that are in the best financial interest of their clients. Would not a standardized approach steer us too far away from the more one-to-one sales consultation that so naturally occurs with our “Kitchen Table” lender-borrower interaction?
There’s also the 2010 Wall Street Reform bill, which calls for a reverse mortgage study designed to determine whether any “conditions or limitations on reverse mortgage transactions are necessary or appropriate for accomplishing the purposes and objectives of this title, including protecting borrowers with respect to the obtaining of reverse mortgage loans for the purpose of funding investments, annuities, and other investment products and the suitability of a borrower in obtaining a reverse mortgage for such purpose.”
The 2008 FHA reform bill, which banned reverse mortgage lenders from also selling annuities to seniors, addressed the part about funding investments. But, with a suitability standard, lenders would be on the line to demonstrate that a loan was appropriate for a borrower – seemingly possible to determine only in the case of borrower foreclosure. If it turns out that the loan was not “suitable,” then the lender would face financial penalty; the amount still undetermined awaiting completion of the study.
This less-than-positive business climate most certainly contributed to the significant decline in the number of active reverse mortgage lenders. RMI reports a 47 percent decrease in the number of active lenders between December 2009 and December 2010. RMI also reported that the top 10 lenders grew as a share of retail volume from 40.5 percent in January 2010 to 64.5 percent in December 2010. Obviously, the smaller brokers and lenders in our industry have been the most adversely affected. If lenders can’t survive in our current economic and legislative reality, the senior will ultimately suffer! Fewer brokers and fewer lenders translate into fewer choices and less “free market competition” that historically provides better options for people. I’m hopeful that our industry is successful in working with lawmakers to find a balance in regulation and a balance of protection that ultimately leaves us better.
Continuing to Make a Difference For an industry that initially grew and evolved so slowly, it hit warp speed in more recent years. As an industry veteran, I’ve been privileged to be a part of something special, a part of our history, and to have performed a job that made me proud, providing positive solutions to seniors in need.
I believe all of us committed to ensuring the future success of our industry must follow one mandate: Accept the responsibility to truly listen and ask the probing questions that are necessary to ensure every senior is truly served and every loan leaves us with the positive feeling that we’ve made a difference and provided a good solution for a senior in need.