In 2006, the reverse mortgage industry originated more than 50,000 loans for the first time, and by the end of 2007, that number had risen to more than 100,000. That held steady in 2008 and 2009. But in 2012, we dropped to originating just over 54,000 loans. Volume has been cut in half in three short years.
Why? There is one little-discussed theory that has a major bearing on the decline. I believe the introduction of the closed-end, lump sum loan changed the sales strategy of the industry in a way that reduced the value proposition to the borrower.
The original intent was to provide a product that could help seniors age in place, but the emphasis on the closed-end, lump sum loan changed the market’s perception of the product. In the public’s view, a reverse mortgage means that a lender gives a senior cash in exchange for the senior’s house. The public thinks that a reverse mortgage is only for seniors who are in desperate situations and not required for seniors who are in stronger financial positions.
Generation Mortgage Company research shows the reality behind the perception. A recent GMC borrower survey showed that 70 percent of borrowers took out a reverse mortgage to rectify an unsustainable situation.
That is not the only issue facing the industry; it is also subject to continued regulatory scrutiny. The FHA has been watching the industry for years and, last month, we lost the ability to offer seniors the fixed Standard product. Fixed Standard has made up roughly 70 percent of the overall production volume every year for the last three years. Furthermore, the FHA has made comments signaling that more changes could be coming.
Still, we can reduce the need for additional regulation by broadening our transparency, providing proper education to potential borrowers and their heirs, and devising tools to assist prospective borrowers in planning to age in place.
If we take those steps, borrowers making educated and planned decisions regarding their home equity consumption will greatly increase the probability of successful aging in place, which is the original intent of the program.
The potential market for reverse mortgages is enormous. Approximately 80 percent of seniors say they want to age in place, and about half are considering using their home equity to help fund retirement. At this point, there are 24 million households with residents age 62 or older, and half of those hold more than 50 percent of their net worth in home equity.
If we adjust our sales strategy to show seniors exactly what a reverse mortgage is and how it can provide extremely valuable supplemental retirement income through a transparent presentation, we will greatly expand our target market while achieving the mission to help the nation’s seniors age in place.
This mission is too critical to only assist roughly 50,000 borrowers. Let’s go out and show the public that they have misunderstood reverse mortgages for too long and let’s show them the virtues of the reverse mortgage. If we are able to do this, we will not only alleviate concerns about the industry, but also ensure that reverse mortgages are recognized as the smart retirement tools that they are.