A reverse mortgage broker can be defined as an advisor and intermediary, someone who connects a loan-seeking consumer with the right HECM lender and facilitates the loan process through closing. A mortgage broker advises the borrower on what loan option best suits his or her needs, helping to complete the necessary paperwork and shopping the loan among lenders to find the best deal for the client.
In the past, it was common for interested consumers to reach out to a local mortgage broker to discuss their loan options. In the reverse mortgage space, brokers once generated the majority of the industry’s volume, originating roughly 60 percent of all HECM loans. But in recent years, with the rise of nationwide call centers and shifts in the regulatory landscape, the industry has seen this percentage drop closer to 40.
Much of this drop can be attributed to a wave of state and federal mandates in recent years governing the way HECM loans must be handled, with some regulations effectively limiting the amount of compensation available to brokers. Many small broker shops are also straining to stay on top of new requirements while maintaining day-to-day operations.
The result has left some brokers struggling to find a profitable niche in this evolving marketplace. But while the past few years may have been rough for some brokers, many have powered on, determined to make it over this hurdle and get to the other side. Most insist that the broker’s role in the reverse mortgage market is essential, and that once program changes are solidified and the industry adapts, the market will see a greater penetration rate as more consumers turn to the product. They believe that when this happens, there will be senior consumers out there who will prefer to talk to their local broker about their best financial path toward a secure retirement.
The Broker's Advantage
One of the biggest benefits of working with a broker to obtain a reverse mortgage loan is the fact that brokers have more tools at their disposal. Rather than being beholden to the rates and offerings of a single lender, brokers often work with several lenders and will shop a client’s loan among them to find the best deal.
According to Richard Wills, co-owner of Retirement Life Funding in Sykesville, Maryland, the ability to shop for the best price is a huge advantage. “I think the broker plays an integral role in making sure the client gets the best deal possible,” Wills says. “If I’m an independent broker and I’m affiliated with three or four different companies, I can get companies that may offer products that their retail person cannot offer from their bank. And that happens a lot. Sometimes people eliminate better margins before other companies eliminate them, so therefore you get to ride out the better interest rate for a longer period of time. That’s a great advantage of being a broker. You can in many instances beat the prices that the competition is offering and you have more independence in what you can offer and the circumstances there.”
Brian Cook, a broker with Washington-based Best Mortgage, agrees. “I had about three loans denied by one lender. I took them to another lender and was able to get them closed, even though they are supposed to follow the same guidelines,” Cook says. “When I’m working with multiple lenders, it’s basically [a question of] who is going to get the loan done right the first time. So having those multiple lenders and choices really goes a long way, especially with a difficult property. As a broker, you can take a step back, work through the pricing and shift through different lenders if you need to.”
Another great advantage to working with a broker is the fact that most are based locally and can meet with clients in person. For many seniors, this face-to-face connection helps them feel more comfortable talking about their finances.
“When you work with a broker, you can sit down face to face with somebody and go line by line over the paperwork,” Cook says. “That can go a long way when you’re working with homeowners, especially if they’re on the fence with the decision.”
Wills also emphasizes the value of an in-person meeting, citing this as a major argument against the call center model. “I think your client can get a better understanding of the program if they’re face to face with someone who can answer their questions. You can get a determination of how well that person will represent you, more so than if you [communicate] by phone or by letters,” he says.
Wills also says that being local has other advantages. “When you have these fluctuations in rates and when they’re going up and down, you can have a much better handle on it when you’re local and you can get to the person’s house that day or the next day to make sure they maximize their benefits under the program,” he says. “I think you can manage cases better by being local, because you can respond quicker to changes in the interest rate, etc.”
Connecting With the Consumer
Effective marketing is an important aspect of any successful broker business, and active shops are utilizing all sorts of methods to connect with and educate consumers about the product. Some brokers focus their efforts on direct mail, while others are testing out Internet ads or creating radio broadcasts. Others have found success with a particular professional community, developing relationships with financial advisors or real estate agents and actively promoting their services amongst these groups. And still others spend money on the purchase of viable leads, hoping the investment will generate enough business to make a decent return.
Cheryl Chargin, a wholesale account executive with AAG who has spent years working with reverse mortgage broker shops of all sizes, says she has seen brokers achieve success with all sorts of marketing tactics. “It is not one-size-fits-all for our seniors,” Chargin says, adding that different approaches will cater to a different segment of the market. “I do think there is a lot of relationship selling and in-person meetings can create a bond. But I also think that there are more technologically advanced seniors coming into play.”
Chargin says she advises brokers to find an approach that suits their personality and run with it. “You’ve got to do what makes the most sense for you, your background and what you are comfortable with, and just be consistent and do it well.”
Regardless of how creative their marketing effort may be, one hurdle many brokers face is the public’s negative perception about reverse mortgages in general. Cook says battling this image is still a persistent challenge. “You can utilize marketing, but you’re still up against the same misconceptions that have always been around,” he says. “It’s tough to get past the bad press out there.”
Wills says he believes members of the industry need to take a stand and be verbal about the good work they do in order to turn things around. “For us to be successful, we have to correct some of the incorrect, negative assumptions people have, not only about our business, but about brokers.”
The broker’s local handle can go a long way to aid in this mission by helping them establish a solid reputation within their community. This reputation could not only help improve the community’s perception of the reverse mortgage product, but also enable brokers to connect with referral partners. For many brokers agree that at the end of the day, it’s all about referrals.
Lots of brokers, including Cook, rely heavily on referrals from members of their community, including past clients, real estate agents or other mortgage brokers. “That’s one big referral source for me: other mortgage companies that don’t do reverse mortgages but are looking for a reliable source,” Cook says. By being rooted and active in the communities in which they work, brokers have the opportunity to develop a stable business as the go-to guy for local borrowers considering a HECM. According to Cook, nothing can go further to attest to your credibility than a recommendation from a trusted professional or a satisfied client. “If you do your business right, if you’re trustworthy, if you have the referral partners, there is great opportunity out there.”
Since the housing meltdown of 2008, both state and federal regulatory bodies have upped their scrutiny of businesses operating in the financial services sector, effectively increasing the cost of compliance across the board. The result for reverse mortgage brokers has been a deluge of paperwork and a never-ending list of new regulations that must be interpreted and adapted.
According to Wills, the time and money spent on compliance concerns have impacted his six-person brokerage. “One of the things that brokers in our level have problems with is that it takes an extremely long amount of time for us to work on the regulatory issues, especially if you’re in more than one state. It takes an inordinate amount of time. At one point we were paying someone to deal entirely with it, but in looking at the financial forecast for the business, a lot of brokers can’t afford to pay someone to do the entire regulatory checklist,” Wills says, adding that even if you take on most of the burden yourself, you still need to pay someone to review your work, and the attorney fees can be substantial.
The need to spend considerable time and energy on compliance concerns can be difficult because the broker’s plate is already so full. As Chargin points out, brokers must juggle all aspects of the business at once. “The broker in many shops has to wear all of the hats. They have to be their own compliance officer; they have to be their own marketing department; they have to be their own sales manager and trainer. They also often originate their loans and care about their borrowers,” she says. “They wear all of the hats for every step of the business and worry about profitability in all they do.”
From Broker to Banker
Some industry analysts suggest that 2011 regulations changing broker compensation models prompted some brokers to take steps toward becoming a correspondent lender, sometimes by consolidating with an existing bank or by joining forces with multiple brokers. Under current regulations, correspondent lenders can receive both a consumer-paid fee (like an origination fee) and a lender-paid premium for the loan sale, unlike brokers who stand to make less money on a loan transaction.
Michael Branson, CEO of California-based All Reverse Mortgage, says his company transitioned from a broker to banker late last year after a lengthy back-and-forth with HUD. “The benefit of being a banker is that you get different treatment under Dodd-Frank and we’re not pricing the same way,” Branson says, although he adds that pricing for brokers has improved and is not too far from what his company offers. “The companies that we sell to on a correspondent basis are pricing the brokers real close to what we’re getting anyway.”
Branson says being a banker gives All Reverse more control over its loans, which can be both a positive and a negative. “It gives us a little more control over what we do and don’t do, which is sometimes good and sometimes not as good. Those loans we used to turn in and not worry about anymore, now our underwriter is the one who’s fighting with every one of those deals. And you have different HOC offices that are completely different in their treatment of loans, and appraisals are a big issue with different HOC offices.”
But whether you’re a bank or a broker, one thing is consistent: paperwork. “I joke that one of these days I’m going to get back to the business of loans,” Branson says. “My job is paperwork these days… It’s constant.”
The Future for Reverse Mortgage Brokers
Asked to predict future for brokers, some think that, at least to some degree, consolidation could play a role. By joining forces to develop an economy of scale, brokers could potentially increase their chances of remaining afloat when volume is low and compliance costs are high. But as Branson points out, such a partnership could come with its own set of problems.
“It’s inevitable that some people are going to look at this and say, ‘I can’t do it anymore,’” he says. “I do think that you’re going to start to see a lot of people looking at where they can consolidate, but the problem with consolidation is that brokers and small bankers by nature are entrepreneurial—they don’t really want to have to worry about working for somebody or working underneath somebody. And then you have two different entrepreneurial spirits who may not necessarily be doing the same thing or may be worrying about how they are going to do things the same way. It doesn’t always make a great fit.”
Wills agrees. “I do see brokers getting together with other brokers and putting their companies together, but there are some problems with that,” he says, adding that his company has been exploring that option for the past four years. “There are a lot of concerns about how to share the revenue.”
Still, Wills says that until the market can increase its penetration rate, brokers might not have a choice. “I think that some brokers will be looking to join with other brokers, either formally or informally, to try to get through this period.”
Complicating things further is the air of uncertainty hovering over the industry as it awaits program changes from HUD. Although the first wave of program changes is expected any day, HUD has said some of the other, much-discussed changes like the establishment of T&I set-asides and Financial Assessment won’t be released for several months.
Chargin said a number of the brokers she works with have expressed some trepidation about the coming changes. “These are probably some of the biggest changes that we have had to deal with and weather,” she says, “And I know there is some fear out there.” But Chargin says the industry has a strong track record of adapting successfully to change. “Because our industry has thrown us through loops so many times, those of us who have been in it for longer than we care to admit realize that we’re actually pretty resilient.”
Chargin emphasizes the importance of maintaining a positive outlook despite the fact that there may be a rough patch ahead as the industry adapts. “I think that a lot of people are going to focus on these changes in a very negative light. I would hope that they can adjust their
Chargin also suggests that the coming wave of change could help expand the market down the road. “I think people shouldn’t forget about the private sector and the possibility of propriety products being able to come back in to meet needs that the federally insured program may no longer meet,” she says. “And while that isn’t going to be happening tomorrow, I think we should be focusing on what we can do and the hope of future possibilities we haven’t seen yet, and not what has been taken away.”
No doubt, the industry is on the brink of major change. And although the uncertainty surrounding this change can be taxing for small businesses, brokers have proved their ability to adapt. As Branson points out, “Brokers have always been able to change really quickly with the way the industry has moved. Small operations can move quickly and turn fast and do what they need to do,” he says, adding that he believes this time will be no different. “I think there will always be a place for brokers.”