When HUD released new guidelines for the HECM program last fall—limiting upfront draws, reducing principal limit factors and instituting a financial assessment of borrowers—the industry braced itself for yet another wave of change. In effect, the new rules largely cut out the needs-based borrower, whose situation often required access to substantial cash upfront to alleviate debt. Many have agreed that, in order to adapt, the industry will have to broaden its reach to engage a larger portion of the senior population. To accomplish this, some originators are reassessing their marketing approach and creating strategies to help them connect with more financially savvy seniors interested in utilizing their home equity.

While this shift in focus may upset volume at first, the good news is that the reverse mortgage remains a flexible financial tool that can be leveraged strategically to support a sound retirement plan, and there are still a substantial number of seniors who could benefit from this loan. The challenge now becomes reaching a broader audience and educating them about the possibilities afforded by a HECM.

Shifting the Focus
The old marketing strategy embraced by many lenders in the industry largely focused on helping seniors tap their equity to access a lump sum of tax-free cash, and this message appealed most strongly to a needs-based audience. Now, lenders are examining how they can revise their message to connect with a more planning-oriented senior.

Jean Noble, head of marketing for Urban Financial of America (UFA), says her company has been taking sizable steps to shift its focus. “We’re really trying to change the conversation with the borrower and trying to cast a wider net,” she says. “We’re talking about retirement and about strategies that delay taking Social Security by utilizing home equity.”

“We just did an overall upheaval of all of our marketing messages, whether it went to our call center distribution channel or to our feet-on-the-street folks,” Noble says. “We’re redescribing the product’s features so it better relates to customers who are not as needs-based.”

AAG’s chief marketing officer, Teague McGrath, says they’ve also revised their marketing materials to account for the new rules. “With the most recent round of changes, we’ve had to go through all of our collateral and update it according to the new PLF changes and utilization guidelines,” he says. “We had to go back and redo everything we were producing to make sure it’s up to date. But that’s not that unusual for us; we’re constantly updating our

materials.”

McGrath says the lender is reassessing its message as well. “Our strategy is changing slightly with the new guidelines because they’ve moved the sweet spot in a different direction,” he says. “It’s both a sales and a marketing issue.” But McGrath says aiming for a broader audience isn’t anything new for the lender. “We are such a high-volume driver that we [have always gone] after a broad range of seniors, not one specific target market.”

Industry analysts throughout the reverse space agree that HUD’s program revisions demand the industry change the way it approaches consumers. Shannon Hicks, vice president of industry training and technology company Reverse Focus, says talking about successful professionals who have leveraged their home equity with a reverse would go a long way to elevate the conversation.

“I think our new strategy, at least on a macro level, needs to focus on how a reverse mortgage is a flexible retirement planning tool, and how people from all walks of life have utilized a reverse mortgage, not just John and Betty Homeowner, who don’t have much means. We need doctors, we need attorneys, we need nurses, we need CEOs, we need corporate officers who are retired and got a reverse mortgage. People need to know that there are successful individuals [using HECM loans] and that getting a reverse mortgage is not a sign of failure, but quite the contrary: It’s a sign of successful planning and strategizing,” Hicks says. “If I were to choose a tag line, it would be: ‘I’m a success and I chose a reverse mortgage.’”

Pursuing Partner Channels
As part of the strategy to reach a broader audience, originators are looking to connect with financial advisors and Realtors to develop referral channels. Successfully partnering with either group, though, is not without its challenges.

Hicks, whose blog, HECM World, offers educational videos on topics such as this, says reaching out to financial advisors is an important part of the equation. “Originators need to become skilled in communicating with financial professionals, learning to ask good questions, learning not to talk about product, but to talk about possible solutions,” he says. “I would be remiss not to mention the need to seek and build relationships with financial advisors.”

Noble agrees that connecting with the advisor community is important, but she admits that planners may be slow to come around. “The financial advisor market is totally the future, but that’s going to be a slow and steady race,” she says.

McGrath agrees that the advisor community may be tough to access. “I think the financial planning market is very difficult to penetrate for a variety of reasons,” he says, adding that the outreach to Realtors about the HECM for Purchase product might be met with less resistance. “I think the Purchase market is probably a little easier, although smaller. But, certainly, that’s where we have to go.”

Noble also says the Realtor community might be more open to working with originators. “The Purchase market will have the highest stickiness factor,” she says. “Because Realtors are more aggressive; they’re used to mortgage lending; they have a pretty vast client base; they’re in their markets and communities perpetually; and in core areas where people want to move out of the snow in the Northeast and head to Florida or Arizona, there’s a really nice niche for right-sizing for retirement, as we call it.”

Noble says UFA has been focusing on developing this niche. “We spent much of last year building out an elaborate platform for the Purchase business. It’s a product that we really, really like. We’re going to launch different educational platforms to educate Realtors, doing webinars and things like that,” she says. “We’re seeing a lot of movement from the Realtors. They are very eager to understand all the nuances of the program.”

Hicks points out that there’s another segment of the real estate market that might be interested in a partnership. “I think developers are really a great target market, not just Realtors alone,” he says. “I think it requires a two-pronged approach: builders/developers and real estate professionals.” But Hicks says working this channel successfully requires a commitment on the part of the originator. “It’s going to take a certain type of loan officer and a type of skill set to really succeed in that market. They’re going to have to schedule their time around a Realtor’s world. That might mean working weekends or in the evening for open houses; you’re not going to be working typical loan officer hours.”

Promoting Flexibility
While everyone seems to agree that the advisor and Purchase markets are important channels to aid in the industry’s growth, many say they’re not the total solution.

“I think it’s good that we’re focusing on those markets, but if we get too focused on those two markets alone as our saving grace, I think we’re really missing the boat,” says Hicks, who asserts that the key is really promoting the HECM’s flexibility. “I personally think that’s more important overall than just focusing on Realtors and financial planners as a means to increase our volume. I think those are important, but I think it’s even more important for people to understand the flexibility of the program and for originators to be able to explain that flexibility.” Hicks says this includes the benefits of using a deferred line of credit and deferring tenure payments. “A lot of these things have been overlooked, unfortunately, in recent years due to the popularity of the Standard fixed rate. I believe we were a little near-sighted as an industry, because that was kind of the loan du jour. I think collectively, as an industry, we may have missed opportunities to promote the power and flexibility of the program.”

A Place for the Needs-Based Consumer
While it seems inarguable that industry marketing needs to broaden its scope, some assert that there is still room for needs-based clients.

“There’s always going to be people who are entering retirement with a significant mortgage balance and with home values, there will be an easy way to extinguish that debt through a reverse mortgage. I think that client will always be there, because baby boomers are always leveraging debt and they’ve done it all through their lives and many of them are still going into retirement with it, whether it’s a mortgage or a home equity loan,” Noble says, adding that this needs-based segment will just make up a smaller percentage of the market than before. “Instead of it being 80/20, maybe it will be 50/50. Who knows?”

McGrath agrees. “We’re still seeing a needs-based client; there’s no doubt that there’s still a desperate need for [this kind of loan] out there,” he says, although he adds that fewer of these clients will now qualify, so this portion of the market, while it will still exist, is bound to shrink.

Improving Your Strategy
As

lenders in the space re-evaluate their marketing approach, many are assessing their TV and Web presence. Noble says UFA made a dramatic shift in its advertising strategy in 2012, retiring its TV campaigns and focusing instead on the Web. “Our Internet platform attracts more sophisticated borrowers who are used to leveraging debt,” Noble says, adding that the company now spends about 70 percent of its marketing budget on Web-based initiatives. “We’re constantly carving out the demographics, carving out the messaging and testing it. I think in the past we were very successful at deploying a one-size-fits-all marketing strategy. But today, there are so many different customers and there are so many different needs, you have to be very specific in how you’re talking to them. The best way to really do that is online.”

Other lenders have also embraced digital advertising. McGrath says that while AAG continues to direct a large portion of its ad spending toward television, it has shifted some of its budget away from TV in recent years. “We’ve undergone a huge digital growth. We used to be 90 percent TV and 10 percent Web, and right now we’re 60 percent TV and 40 percent Web.”

McGrath says AAG’s digital ads attract a different type of audience. “We’re targeting a younger demographic online. Baby boomers are increasingly using the Internet to access the information,” he says, adding that Web-generated leads typically have a short lifecycle. “Normally, they’re already educated about reverse mortgages and are now shopping you. They want to find out who has the better offer. So you’ll typically be able to close the loan more quickly with a Web lead, and that can also help business.”

As for TV marketing, McGrath says the industry needs to reassess its direct response (DR) messaging. “I think we have to get away from the DR ‘call now for a DVD’ message and stop talking about the product features,” he says. “We have to make it more about retirement planning and explain how it’s another [tool] to help build security and longevity into your retirement plans. We’ve got to get there for the credibility for the industry and for all of our brands.” But McGrath admits that abandoning this “call now” tactic is tough to do because it does generate measurable results. “Unfortunately, DR marketing works in terms of your response rate. So it’s very difficult for businesses to invest in a brand commercial that doesn’t have a measurable response rate like a DR commercial.” Still, McGrath says if lenders can adopt a long-term view and think six months to a year ahead, these types of branding commercials will eventually pay off.

For other lenders, like Open Mortgage, the classic feet-on-the-street model is the preferred approach. Scott Gordon, CEO of the Texas-based lender, says HUD’s recent changes haven’t impacted the company’s strategy, because the focus has always been to get out and meet seniors, and talk to them in person about how the loan could meet their specific needs. “It hasn’t really affected our marketing too much,” he says. “It’s made us glad that we’re already on the right track.”

Gordon says the personal networking strategy that defines this approach remains as relevant as before. “The multiple channels of old-school networking [introduces] you to a broad group of people, even though it’s more work,” he says. Gordon adds that companies that relied on purchasing leads are more likely to have a tougher time. “When the products became more restrictive, it was just another nail in the coffin of buying leads generically. It was tough last year, but now it’s even tougher to buy leads.”

Originators at Open’s branches are encouraged to follow a specific model. “It’s what I consider a hybrid approach: old-school networking—getting in a car every day or every other day and going to see people—and then backing that up with social media,” Gordon says. He adds that while he doesn’t think social media, including the blogs that Open helps its originators create, will necessarily generate leads out of nowhere, he does think they can help establish credibility. “We use social media for authority. So when someone looks you up, they say, ‘Yeah, he’s connected to a lot of people.’”

Gordon also says Open provides its branches with quality marketing collateral to help them educate interested consumers about the loan. “Our marketing department provides really good, quality digital and print flyers and rack cards, which focus on all kinds of different niches, like bank referrals, HECM for Purchase through Realtors and things like that,” he says. “So if you’re a loan officer at a branch and you’re getting out and meeting people, you have this professional material with you, making you look good.”

Gordon suggests loan officers who are trying to build their personal networks focus on being active and verbal in their communities, and refining their interpersonal skills. “I would say go read How to Win Friends & Influence People by Dale Carnegie. It was written in the 1930s, but it’s still phenomenally true [in its tips] for getting out and talking to people—and not talking at people, but meeting people and building relationships.”

Changing the Perception
Whatever marketing approach they

embrace, nearly every reverse professional seems to agree that in order to reach a broader audience, the industry has to elevate the public’s perception of the HECM.

“We need to dispel this underserved reputation, the stigma that’s attached to someone who gets a reverse mortgage,” Hicks says. “That’s the most important marketing message we could put out this year. It’s not about the proceeds, it’s not about the mechanics of the program, that doesn’t really matter so much. We need to let people know that this is a tool that can and is being used by successful individuals and people of all walks of life.”

Gordon agrees. “If we can change the perception it will help us grow our market. People need to understand that it’s more than a needs-based solution, that it’s more than a part-time emergency fix,” he says. “If they can understand some of the things they can do with it, it will get us a broader market.”

McGrath also asserts that gaining the public’s acceptance is key to expanding the market. “The real growth [will happen when] we get beyond that 2 percent and it becomes more acceptable to use a reverse mortgage, when people start talking about what they do with a reverse mortgage… how it makes your retirement comfortable. When that idea becomes more mainstream, that’s when our growth will really occur.”

“I actually don’t think we’re that far from it right now. I think we’re as close as we’ve ever been. The changes have given us a round of positive press that we didn’t have before,” he says. “There are so many people out there now talking about it… I think we’re getting there.”