BNY Mellon recently made headlines with the announcement it will re-enter the reverse mortgage business. Slated to launch later this year, Home Equity Retirement Solutions will purchase, securitize and service the loans, as well as provide advisory services to brokers, financial advisors and asset managers on how the reverse mortgage can be a component of successful retirement planning. The move makes BNY Mellon the only major bank to offer reverse mortgages and the first to reconsider the business segment most exited during the economic downturn of 2007 to 2009. While it remains unclear if other marquee names will follow, the announcement brought a lot of attention and other major banks will be watching to see what happens. Michael Gordon, managing director of nontraditional solutions and special situations for BNY Mellon Investment Management, spoke with The Reverse Review to discuss what motivated the renewed interest in the business, how recent changes and reforms to the program played a role, and where he thinks the program will be in the future.
It has been seven years since BNY Mellon left the reverse space [BNY Mellon offered reverse mortgages through a partnership with EverBank from 1999 to 2007]. Why is right now the right moment to once again offer a reverse mortgage?
MG // Re-entering the reverse mortgage business has a lot to do with the fact that baby boomers are starting to retire in strong numbers. They are retiring with more debt and increased burdens in terms of longevity risk. Older Americans are going to live for a long time, and they will need to fund those additional years. Being able to create a stream of income from home equity can be very helpful in managing that risk. Home equity can play an important role in helping to bridge the gap between assets and retirement liability. A reverse mortgage is one tool among many, but it’s an important tool.
It sometimes feels like the only constant in the HECM program is change. Today’s reverse mortgage is different than the one offered by BNY in 2007. Did the recent program reforms influence the decision to return?
MG // Yes. Recent reforms, particularly the 2013 Reverse Mortgage Stabilization Act and the subsequent mortgagee letters issued by the U.S. Department of Housing and Development, have improved the consumer protections of the program. These measures allow lenders to underwrite mortgages and support lenders providing loans to only the consumers who meet the standards. As a result, it is exciting and appealing to be able to offer reverse mortgages to our clients as part of a diverse portfolio.
A new feature of Home Equity Retirement Solutions is a “suitability survey” for each borrower. Why is this step so important?
MG // Our focus is sustainable retirement and homeownership. We want to believe that after you’ve done a reverse transaction, you are better off. The changes to HECMs that were put in place allow us to offer these mortgages in a socially responsible way. We want to make sure that [choosing a reverse mortgage] is the right choice and will improve the situation of the borrower. That’s really important to us.
BNY Mellon is a top 10 retirement investment manager in the United States. How does Home Equity Retirement Solutions fit into its other retirement offerings?
MG // We offer everything from pension plans and liability-driven investing to individual funds for both corporations and individuals. We’ve taken addressing U.S. retirement concerns seriously as an organization for many years. Home Equity Retirement Solutions is another tool that can play a role in helping address an individual’s needs to meet their retirement obligations.
Reverse mortgages have suffered from bad press and negative perceptions of potential borrowers, even if they’ve had no contact with the product. How can these perceptions be altered?
MG // The process has already started. Program-wide changes such as having strong suitability rules and underwriting standards, including limits on how much people can withdraw and appropriate protections around non-borrowing spouses, show this. Resolving these issues will be incredibly important to getting the perception of the program to change. The stage has been set for a shift in opinion to happen. As people think about what their options for funding retirement are, I think the reverse mortgage will be something they see they need.
But it’s not going to be for everybody. There will be some people who should consider other options. There will be people who don’t need it; they have enough liquid assets. The reverse mortgage isn’t the solution for them. But there is a set of folks who are going to need to access home equity in addition to their liquid assets to pay for retirement. That is a group that as an industry, we could do a great job serving them. As the program strengthens, I think it will naturally evolve in a way that makes the reputation of reverse mortgages more reputable.
There’s a big gap between people who have the product and people who don’t in terms of perception; the people who have the product typically are pretty happy with it. As the recent reforms take hold, that will become even truer. The results will lead to more acceptance within the marketplace as a whole.
Where do you see the reverse mortgage program in five years? What does the future hold?
MG // It’s hard to say, but I think reverse mortgages will play a much larger role in how people think about retirement than they do today. I know year-to-date volumes are lower than they were last year. I think that’s just a transition. The fundamentals remain the same: There is a large segment of boomers who have not saved enough for retirement. It’s got to be part of the holistic plan for retirement. Deciding how to fund retirement is not solved by one product, but reverse mortgages do contribute to the solution in a very productive way.
