I’ve spent the better part of the last 25 years in the banking, insurance and mortgage business. Most of my business over the last nine years or so has been the reverse mortgage program. I’ve had a local cable television talk show on reverse mortgages, written many articles for local and regional papers, given seminars to those interested in finding out about the product and hosted a radio show on the subject. I’ve answered all the typical questions: Do I still own my home? Are there restrictions on how I spend my money? Will my children be responsible for my debt after I pass away?
Over the past 25 years, there has been very little change to the questions or the product until now. The FHA has overhauled the reverse mortgage as we once knew it. While some of the old questions still come up, the most common question today is: Why is a product that has been around since the Reagan administration undergoing so much change now?
While I must admit the change has been drastic, I also stress that the product’s most essential benefits are still available. Borrowers still get to keep titles to their homes and can still tap their equity and use the proceeds as they see fit, provided taxes and insurance bills are maintained. Now, there are simply protections in place to ensure that borrowers who enter the program are successful.
In 1989, the reverse mortgage came under the supervision of HUD and the FHA. The program was intended to help members of our Greatest Generation stay in their homes with independence and dignity. As that generation passes away and the vast numbers of baby boomers loom on the horizon, HUD and the FHA became aware the program may not be suited for a landslide of new reverse applications. After careful examination of the current system, HUD began to implement rule changes. These changes were instituted to allow the program to continue to successfully assist seniors who want to age in place.
The changes also diminish the risk of possible foreclosures. While foreclosures are not common with a reverse mortgage because there are no required monthly mortgage payments, if taxes and insurance aren’t paid, the loan can be placed behind a tax or homeowner’s insurance lien and foreclosure can ensue. The dramatic headlines—and more importantly, the draining effect on the MMI Fund—were too great to ignore.
As HECM professionals, these changes are going to affect how to get our product to the prospective applicant. We will need to retool our marketing to reach a different segment of the senior population. Gone are the days of building a clientele from seniors who were cash poor and house rich and desperately needed our help.
It’s a brave new world for reverse mortgage originators, who will have to start thinking on their feet and focus more on the fact that a HECM is a financial tool, not a life jacket. We have to start prospecting financial planners, CPAs, insurance professionals and home health providers for referrals. The HECM has the potential to provide financing for long-term care, including single-premium life policies with heath care riders and an in-home health provider—all while keeping other liquid assets intact. With more than 8,000 baby boomers turning 62 every day, I believe that the future for reverse professionals who are able to rethink their strategy is very, very bright.
