For about the past two years, the Fixed HECM Standard product has dominated the reverse mortgage market. The transition began rapidly when Fannie Mae priced itself out of the market for LIBOR based adjustable HECMs and then exited the market entirely. Has this led to the best solutions for borrowers?
There are two obvious driving forces behind the fixed products rise to prominence, both fueled by money. The appetite for the HECM mortgage-backed securities on the secondary market has been centered on the fixed product since Ginnie Mae became the sole issuer of HMBS, leading to a much higher premium paid to lenders on these loans when compared to LIBOR based adjustables. Also, since fixed interest rates have been at or below the floor of HECM calculations, the product has for some time provided the highest principal limit to borrowers.
Money has a funny way of clouding vision when it comes to decision making. It may seem counterintuitive to say, but the most amount of money is not always the best solution. An originator may be attracted to the product that produces the most amount of revenue, but that is a very short-sighted viewpoint. Being focused on the revenue of a single deal does not lead to sustainable success. Nor does it lead to the highest levels of customer satisfaction - which by the way leads to the greatest likelihood of earning referrals - this is called residual income, business that leads to more business. This is where careers are made.
Borrowers, however, are also often focused on the total amount of money, and the fixed product has been the answer. It has also provided the ability to reduce costs, which has been the primary objection of prospective borrowers since inception of the HECM product. Did you notice that LIBOR adjustables with a margin of 275 or below are also below the principal limit floor? This means that the principal limit for HECM loans is currently the same for fixed or adjustable loans. The back end revenue is still quite different for lenders, but it certainly presents more options for borrowers without sacrificing gross amounts.
Ultimately, this comes down to solutions. Are you selling a product as if it were a commodity or as a solution. As a commodity, it is more of a one-stop answer, the fixed product may provide the most amount of money, you get to take it as a lump sum, thank you drive through. This approach looks at a client as a one-time interaction, and the level of relationship and service is likely to lead to further interaction, thereby creating opportunities for referrals.
As a solution, this product is one of the more powerful tools available to seniors who have equity in their homes. It is important not to forget about the flexibility offered to meet a variety of needs. Without consideration of revenue or net principal limit, think of the variety of options created by the HECM products, fixed or adjustable, Standard or Saver. When taking the time to fully understand what a prospect is trying to accomplish, being cognizant of their need, you create the opportunity to craft a solution that is customized specifically for that client. Think of the potential level of satisfaction and comfort a borrower can feel if the solution is precisely fit to their need, rather than their need being stuffed into a general solution.
Simple questions can help guide an originator down a path of which product produces the ideal solution for a particular client. How would a borrower manage money received in a lump sum? What other options are they considering? What payment plan creates the greatest likelihood that the borrower will be able to live comfortably in their home with a reverse mortgage? Having the wrong solution can result in stress down the road for the client because it led them to a path of limited options.
Creating sustainable success in the reverse mortgage business is about more than the revenue generated by each transaction. It requires the ability to generate a continuous stream of potential clients and the reputation that grows from each interaction. People who are genuinely satisfied with their experience are typically willing to tell others about it (the same is true if they have a bad experience). How do you want your clients talking about you?
If you are selling a commodity, then you generally only have one type of client and that client will always be in limited supply and will have the most amount of sales people targeting them. However, when you fully understand how to apply the different products to different situations, the door is opened to many different avenues of customer generation. Knowing that you have the unique ability to craft personalize solutions from the various applications of the product will lead others to direct prospects to you. Those who are on the fence about the product will be more likely to move forward when the solution is more customized.
How well do you know your product and the various applications? How well do you know how to identify which solution will create the most interest for each client? What solution would you offer to a borrower struggling with their mortgage payment as compared to a borrower just looking for flexibility and comparing the HECM to a HELOC? How about someone who doesn't manage money well, compared to someone who is a savvy investor.
Do you have a solution for that?