In this month’s Spotlight, two seasoned reverse mortgage professionals talk about coming to terms with changes to the HECM program.

Think in Reverse
By Gregg Smith
President, COO and founder of One Reverse Mortgage

There are two ways of thinking: The glass is half empty or the glass is half full. As a result of the recent economic recession and housing crisis, our industry has experienced many changes to the reverse mortgage program. This constant state of change can lead many to believe that the reverse mortgage glass is half empty. However, with each change, we eliminate resistance from various pundits, improve the fiscal outlook of the program and move the reverse mortgage product toward the mainstream. All of these factors make for a pretty bright road ahead—and in fact, our collective glass is quite full.

So Far in 2013
Earlier this year, HUD eliminated the HECM Standard fixed loan option in order to reduce the number of clients who choose the maximum equity draw from their reverse mortgage. As structured, the HECM Standard fixed, fueled by the great recession, had an elevated level of property charge defaults. Removing this loan option was a good first step toward bringing stability to the program.

In August, President Obama signed the Reverse Mortgage Stabilization Act into law, enabling HUD to “establish, by notice or mortgagee letter, any additional or alternative requirements that the secretary, at the secretary’s discretion, determines are necessary to improve the fiscal safety and soundness of the program.” In other words, HUD now has the ability to react quickly to rapid changes in the marketplace. In fact, within weeks of the act becoming law, HUD published two mortgagee letters that rolled out new risk-management tools for lenders.

Overall, the act will help protect not only the borrower, but also the lender. These changes will help bring stability to the program and, although there will be some restrictions, they will help eliminate the negative perception facing the reverse mortgage industry and provide borrowers with peace of mind in moving forward with the loan program.

Today’s Seniors by the Numbers
According to a recent Harvard study, “Housing America’s Seniors,” older adults have the highest homeownership rates of any age group in the United States. The study also found that as the baby boomer population moves into the 64-70 age range, they will continue to maintain a high percentage of the housing market.

According to a report from AARP, more than 25.5 million seniors over the age of 50 have a traditional mortgage on their home. In all age brackets for Americans with a mortgage, seniors struggle the most as they are trying to live on a strict budget and also pay a mortgage.

Seniors are also the fastest-growing age bracket falling into debt. Between 1998 and 2010, debt among people in their 60s increased from 57 to 70 percent, according to a recent study from Boston College’s Center for Retirement Research. With the onset of debt for this age group, many are concerned about where they will live when they get older, how they will be able to retire and, more importantly, how they will afford to pay for medical expenses as they age.

With the future growth of this segment of the population, it is important to also focus on the needs that will be growing over the coming years. Those needs include things like paying for daily living expenses, medical bills and aging-in-place costs. With these growing trends, it’s important that seniors are aware of the fact that they can defray some of these costs with the proceeds of a reverse mortgage.

How a Reverse Mortgage Can Help
With the safeguards that have been in place for many years and the new options that have been added, we anticipate various critics will now see the reverse mortgage program as a viable financial option for seniors, as it was intended when it was created in 1989. The goal is still to allow seniors to access their largest asset, their home equity, as a financial tool in their retirement years to help:

Cover Health Care Expenses // Time and again we hear the No. 1 cause of debt for seniors is health care costs. Many seniors are living on small pensions as well as Medicare and Social Security that cannot adequately cover all of their monthly costs. According to the 2010 U.S. Census, the average life expectancy is 79 years, which is five years longer than in 1980, so people are living longer and outliving their assets at an alarming rate. Some seniors need help paying for health care costs because of inadequate health care coverage.

Supplement Social Security and Other Investments // Many retirees’ investments have declined in value over the years, leaving them with a need to access other financial support or resources. In fact, there have been numerous studies conducted over the last couple of years demonstrating that a reverse mortgage, working within a comprehensive financial plan, can significantly extend the duration of a senior’s assets.

Support Aging in Place // Older Americans allocate a much greater percentage of their monthly income to paying for housing costs. The 2007 American Housing Survey indicated that more than 8 million households age 65 years and older spend more than 30 percent of their income to cover housing costs.

Support Long-Term Care or Activities of Daily Living (ADL) Services // ADL services assist with basic personal tasks of everyday life, such as bathing, dressing and managing meals. According to the U.S. Department of Health and Human Services, 70 percent of those turning 65 years of age will need some form of long-term care service. Medicare does not pay for this type of assistance.

The reverse mortgage program can help supplement these expenses seniors face and relieve concerns about being able to pay monthly bills and health care costs into their golden years—and maybe even have some extra to enjoy their retirement.

In life, change is inevitable. While some in the industry look at the changes with trepidation, this should be viewed as a period of growth and opportunity to help the growing population of seniors stay in the homes they love and enjoy their retirement.

The fact that HUD has been given additional authority to control decisions about the reverse mortgage program is a clear sign of commitment to a program that has been proven to help senior Americans nationwide.

Change Is an Opportunity
By Joshua Shein
Vice president of The Reverse Mortgage Network, a division of Maverick Funding

This fall, many of us have been waiting for two things. For tech junkies like me, it was the recent release of the much-awaited iPhone 5S. It was a bit of a letdown, but maybe that was the short-term distraction we needed. For the reverse industry, the anticipation of FHA’s final decision on proposed changes has been agonizing: What will they be? How long will they give us to implement them? What will come next? When will the waiting ever end, the uncertainty, the constant change? Will we get a break? A delay? Good news?

When can we all get back to work—originating loans, working with customers who we know need the product, borrowers whose lives we know are changed by their reverse mortgages? We all know numerous borrowers, and have story upon story, as well as emails, cards and letters, from people whose decision to obtain a reverse mortgage was a truly life-changing event.

It appears that the wait is over: The long-awaited changes, adjustments to principal limits and draws, and the very, very long-debated and discussed financial assessment guidelines and policies have all been announced. Deadlines and implementation dates are set in writing and we may finally have nothing more to wait for, nothing more to wonder about, speculate on or debate regarding the when, where, who and how of more changes.

This is it. This change is good: HUD, FHA and Congress have, at last, confirmed and verified their support for the HECM program. It is here to stay and these changes ensure the product and our industry have little else that can be changed or modified. We also have a product that can be supported by the media and financial professionals at all levels. No longer will they have to denigrate the product and our industry.

Change yet again. This is the new reality. Maybe you like the changes or maybe you are worried about them, but the bottom line is: We all must adapt. The marching orders are clear: Get used to it and get on board with it!

As the saying goes, we either adapt or we die. While we all want to think our industry and our niche are getting hit harder than others, talk to the printing company that used to get paid to print color documents and letterhead (now done at a fraction of the cost, often in-house), or the company that made hard drives and data storage and has watched prices plummet over the years because of companies like Google that give away cloud storage for free. And don’t forget that AOL used to charge money for an email account and Internet access by the hour. All of these industries have undergone transformative change and there are always winners and losers that emerge from the upheaval. Think about where you will be over the next six to 12 months.

Our industry’s new reality only has room for professionals and long-term originators. Short-sighted, quick-income people won’t survive.

So it’s time to get back to work. Now what? Here are seven tips for recharging your originations to maintain your volume and thrive in the new industry:

Educate yourself // Make sure you understand what the changes are, why and how they came about, what they accomplish, and how they will help our industry and product survive and grow.

Embrace the changes in a positive way // Complaining about it will accomplish nothing. Accept it for the benefit of your peers and, most importantly, for your customers.

Be a professional to your borrowers // Ensure they understand the changes and that you are their source for information and education on the new products.

Make a plan // More than ever the professionals with a three-, six- and 12-month plan will set themselves apart from their competition. How do you intend to originate? What methods will you use? How many people will you talk with each day, week and month? What are your goals and how will you reach them?

Promote

and use articles from the media // We can now show our borrowers that the Wall Street Journal and financial columnists, such as Jane Bryant Quinn, are finally able to write positively about HECMs.

Work harder and smarter // In this new world, we all have to work twice as hard to close the same business we did a few years ago. Luckily, technology and efficiencies in the industry allow us to do more, faster than ever before. Be efficient but be working—if you’re not, know that your competition is! Think about new approaches and methods to your business.

Love what you do // If you don’t enjoy it and can’t be positive about it, you will not be successful doing it.

The market penetration for our product and industry remains abhorrently low. The key for us now, with the most credible product in years, is going to be education and knowledge. The need is there and continues to grow, the investments and merger and acquisition activity from outside companies is a testament to the industry, its product and its potential. The business is there, the volume is there and the serious players will emerge stronger than ever. The short-term profiteers will get out of the way knowing this is now more than ever a serious product and serious industry for serious professionals who know they have to be knowledgeable, trusted advisors who work hard.

We have all been through change, year after year, adjustment after adjustment. Each time we worry and debate and discuss, but in the end, the change comes and we all live with it. We still close loans and, ideally, continue to grow our businesses.

I hope and suspect that is what will happen this time, and we can have the confidence and comfort in knowing that we will be clear of any other major changes for a long, long time. So we can all get back to work assisting seniors and improving their lives. And beginning our wait for the iPhone 6!