The reverse mortgage industry is at a crossroads. Like any industry, we will go through cycles, and right now we’re coming to the end of our first cycle. As this cycle comes to a close, we find ourselves working with a new generation of customers and dealing with some significant issues that threaten our industry.
For some time I have been enamored with the idea of generational cycles, and I find this concept to be very pertinent to our business. My most recent and detailed foray into the theory of generations was through The Fourth Turning, a book written in 1997 by William Strauss and Neil Howe, accepted worldwide as the premier generationalists.
The basic premise of The Fourth Turning is that generations, which each last approximately one-quarter of the length of a long-living person’s life, repeat themselves in cycles. According to the book, each cycle has four seasons, or turnings, with the same four generational archetypes appearing in the same exact order throughout history. Each group acts somewhat similar, not because of some fanciful concept, but rather because of their place in the cycle of up and down, of awakenings and crises. Each generation acts a certain way and tackles the world with a different view that correlates to its place in the cycle. The major cycle is the one marked by crisis; this is the fourth turning.
Like any cycle, there are marked phases that one can track. The reverse mortgage industry is no different. After two initial phases of growth and prosperity, our industry entered a midlife unraveling where its founding ideals were gradually pushed aside as prosperity heightened. The end of this phase marks the industry’s entrance into adulthood, and now we find ourselves at a crossroads—or a crisis, as some would call it. Whether we are beaten by the pressures against us or whether we ascend to new heights and begin a new cycle, two things are certain. First, there will be dramatic change, and second, we will need strong leadership to ensure that we come out of this stronger than ever. Historically, after a tumultuous crisis a leader will emerge to guide the population toward a better end. This leader is referred to as the “Gray Champion,” the elder statesman who shepherds younger generations and conquers the challenges imposed by the crisis.
For all intents and purposes, our business was born in 1988, when President Ronald Reagan, perhaps the Gray Champion of our time, signed the act that made the FHA-insured reverse mortgage a pilot program. For the next several years, our business grew like new green shoots in springtime. The industry remained very small, unknown to most outsiders while we grew into young adulthood.
Young adulthood then began with the creation of the National Reverse Mortgage Lenders Association in 1997. This was our awakening, a time when we learned and continued to grow. This was our summer, a time when people come together, form businesses and make lifelong friendships. Times were good.
In 2005, we saw bigger institutions join the fray and we witnessed a shift from the old, simple secondary market of Fannie Mae’s whole loan purchases turn to a new world of big lenders, bigger banks and even bigger investment banks. We did more loans than ever before and made money like never before. This was our autumn, and we were bringing in the harvest developed over many years of learning and toil. But as resplendent and lucrative as all of this was, the old institutions of our business, once thought sacred, were unraveling. Change was coming, but for most it was accepted, if not outright welcomed, with open arms.
A significant part of this unraveling was a change in our customers. The first of the baby boomers, widely accepted as being born in 1943 or 1944, began turning 62 and quickly became our newest and largest customer base. Whether you accept the Strauss/Howe view of generations or not, there can be no denying that this new group of customers acts far different than our previous set of customers. With more loan production, more money and a huge group of new customers, our industry had seemingly unlimited promise.
The total impact of the housing crisis hadn’t hit the reverse mortgage industry, but it was starting to have a deleterious effect on the number of loans were we doing. Then midway through 2010, Bank of America, which became one of the largest and most respected members of our industry when it purchased Seattle Mortgage, suddenly quit the business. Outside of our niche, the world had been struggling with the biggest crisis since the Great Depression. Our industry began to unravel as it struggled with its own little crisis as one major reverse mortgage participant after another dropped out over the next two years.
While these large lenders exited our business, the worldwide housing crisis refused to rebound and the U.S. economy failed to gain steam. Mounting losses began to impact not only exiting banks and lenders, but also HUD, as the agency began to show severe losses from the pre-housing crisis books of business. Coupled with this was an exacerbation of our toughest issue: increasing tax and insurance defaults. The same customers we set out to save were now finding themselves out of reverse mortgage funds, out of income, out of savings and investments, and just plain out of luck.
Thus in 2013, we find ourselves in our fourth turning, with winter descending into our elderhood. While the world deals with its crisis, we find ourselves battling to keep the most important features and product options available for our customers. Meanwhile, the outside world deals with the fourth turning crisis, a period Strauss and Howe said may last as long as 20 years. Everyone has their own problems in this climate; few seemingly have the inclination or ability to help us with ours.
Into this rides the Gray Champion, the leader of heroes dubbed by Strauss and Howe as the person who rallies the world to break the crisis and lead the world into a new spring and rebirth. Surely in our business of retirees and seniors, there can be no better analogy than that of the Gray Champion. Younger generations must do the figurative or literal fighting, but they need a leader with wisdom, unshakable integrity, unbelievable courage and strength. In the world’s prior crisis, this Gray Champion, at least in America, was none other than Franklin Delano Roosevelt.
What individual or group in this industry will be our Gray Champion, our champion for the grays? Who will take the reins and provide the necessary leadership for us to pull out of this winter of crisis and crossroads, and usher in a new cycle for our industry? With a little luck, an abundance of hope and a tremendous amount of hard work, we will see our reverse mortgage industry, and our elder customers, thrive again.