When I sat down to write this article, I began to reflect on the time I have spent in the lending industry—more than 44 years now, since 1968. In the last 14 years, I have been focused solely on the reverse mortgage market.
In the years that I have been in the business, it is hard to believe all of the changes that have taken place. In fact, very little is the same as it was, except maybe the color of money that has changed hands!
We all know that the reverse mortgage industry has changed drastically. Before the 2008 crash, we were stable in our pricing models. Nearly all the companies were pretty much equals in that area. We marketed our product, our companies and ourselves in pretty much the same way as our competitor next door. Seniors were skeptical about the product and it was still an unknown commodity, even though it had been around
Educating the public and the financial industry was a major challenge we faced. But most of us were up to the challenge and we did our jobs; in fact, many of us did our jobs very well and with pride.
What separated one originator and company from the other, in my opinion, was how well we knew our product, how well we related to the senior and how hard we worked to service our clients. Those of us who could instill confidence in a senior because of our knowledge and patience usually got the loan.
The reverse mortgage industry then did not attract as many originators as it does today. It was different from the forward mortgage world. Our income on a per loan basis was regulated by HUD and based pretty much on the value of the property or FHA claim amount, rather than on the type of product and the interest rate. If we worked hard and did a volume of closings, we made a very respectable income. This is very different from today.
Into the Present and On To the Future
The past is gone and here we are, September 2012! Since the 2008 crash we have seen major changes in regulations, products types and pricing—not to mention changes in how we do business in general.
We now have the fixed-rate standard product, the ARM standard, the fixed saver, the ARM saver and the home purchase program. We had varied programs back then as well (the HECM, proprietary jumbo loans and even the FNMA reverse mortgage called the Home Keeper). They were priced differently as well but not like loans are today.
After the big crash of 2008, the country faced many challenges. Foreclosures were at their highest levels in the history of the U.S. The stock market plunged, record bankruptcies came out of the woodwork, lending almost came to a halt. We were in the greatest economic collapse since the Great Depression.
Lending started to go through a complete overhaul, especially in regard to underwriting and its governing guidelines. We saw the government coming in to bail out banks, auto dealers, Wall Street firms and you name it. What we saw was panicked decision-making at the government level—in fact, we still see that today!
The reverse mortgage industry has always been set apart from the traditional or forward mortgage market in both business styles and in regulation. I believe that because of this vast separation we were a more consumer-friendly industry.
Interest rates were controlled, borrower fees were controlled and even what we could or could not say was controlled by HUD. In my opinion, the senior was more protected then than they are today.
Then FNMA stepped in after the crash and introduced “live pricing” to the reverse mortgage industry. I personally feel this was the beginning of a nightmare that would plague the industry for many years to come.
Live pricing put a reverse mortgage pretty much on the same playing field with a forward mortgage, mostly affecting the fixed-rate loan. We did not see the effects of this for some time. The industry was unfamiliar with this new secondary market tool; it took awhile to figure it out. Originators, especially those who had no forward mortgage lending experience, had a difficult time adapting.
At the same time, new bills were being introduced in Washington—the Financial Regulatory Reform Bill (Dodd-Frank), for one. The passage of this bill brought panic to the entire financial industry, which feared the consequences of potential overregulation. It also gave rise to the CFPB. We then had to prepare for more changes and additional regulations.
Finally, we saw the passage of the SAFE Act, a national licensing act for the mortgage industry that is still causing a ripple effect throughout the lending space.
What do the past, the present and the possible future mean to all of us in the reverse mortgage industry? It means that originators today need to handle things differently than before. They need to be prepared, stay focused and be very well educated in order to survive!
As a veteran of this industry, here is what I recommend reverse mortgage professionals consider doing to help themselves advance and stay on pace with things to come:
*Being well educated in today’s environment requires one to be continually in tune to all the changes taking place. This especially includes underwriting changes. Yes, underwriting changes! Read, read and read underwriting manuals, and learn all you can from your underwriters. Underwriters are the most knowledgeable people in our industry, and knowledge is power!
*Originators need to take advantage of any training courses given by their lenders or varied industry organizations.
*Originators need to subscribe to as many industry publications and news sources as they can. Most all of them are free to you!
*Get familiar with HUD’s manual and all the parts pertaining to the reverse mortgage. Read every HUD mortgagee letter that comes out pertaining to the reverse mortgage industry. Have a scrapbook designated for them.
*Read the alerts that are issued by your company and investors. The alerts notify you of their policy changes and those that are occurring and affecting the industry.
*Go to seminars being conducted by your competitor—learn from them! See how they present their format and what they have to offer the senior community. Knowing what you are up against can give you an edge!
These are just a few areas to think seriously about. Whatever shape the industry takes in the future, one thing is certain: Knowledge will make you a better originator. It will give you the edge you need to compete in today’s and tomorrow’s market environment. So educate yourself any way you can. Do it for your senior client, your employer and yourself. The changes in the industry are going to be rough, but they will be the toughest on our seniors. You can make the difference. You can be the one to intelligently guide your client through the difficulties they will be facing.
Remember this: The more you understand the anatomy of our product and how it will benefit your senior client, the more valuable you are going to be to the entire reverse mortgage industry.