On Friday, April 17, 2015, I sent 1,914 letters to HECM borrowers’ mailboxes in San Diego County. My letter offered to “determine whether more funds are available” from refinancing an existing reverse mortgage. My phone began ringing and over the next few weeks I received 59 responses. I will generate a few HECM applications from this effort. But, what is more important is what I learned about a successful mail campaign, about how the residential real estate market in my area has affected equity for HECM borrowers and their ability to refinance, and what the conversations with these borrowers revealed about their reverse mortgage experiences.
I began as a loan officer with Financial Freedom in 2002. I left in 2006 and joined a local reverse mortgage brokerage firm. I have successfully completed more than 600 reverse mortgage applications. This winter, I was sorting through computer files when I stumbled upon an Excel spreadsheet provided to me in 2006 by a title company rep. The spreadsheet contained the names, addresses and loan dates for more than 1,900 HECM borrowers in San Diego County whose loans were insured between 2003 and 2005. I thought I had stumbled onto a loan originator’s gold mine. I generated a letter and contracted with a direct mail firm.
Admittedly, 59 responses out of 1,900 letters is not a significant sample. Still, I’ve reached what advertisers say is a direct mail “home run:” a 3 percent response rate. Regardless, the conversations I had with many of the callers were so similar, they led me to make some valid observations.
Financial results aside, the effort was rewarding and beneficial. Our industry is full of dedicated professionals who are sincerely committed to the people we serve. Every opportunity to serve our constituents is a gift. Learning from our efforts will bring surprises. Knowledge will enable us to do better next time. Our industry can benefit from committed ambassadors motivated to support the welfare of the protected class we serve. If nothing more, my letter provided an opportunity to do just that.
Lesson 1 Audience behavior is more important than demographics. Prior to the mailing, I did not attempt to research which borrowers had already refinanced their reverse mortgage in the 10 years that had elapsed since the original loan. I found that the vast majority of respondents had indeed refinanced at least once and a few had refinanced twice. I concluded from these results that unbeknownst to me, my audience was already informed about refinancing to get more cash. The lesson learned here is that the message will resonate best with an audience that has an established appetite for what you are offering. This may seem obvious, but how many times have loan officers purchased lists based on demographics as opposed to behaviors and been disappointed in the results?
Lesson 2 A letter with a plan is better than a letter with a promise. My letter suggested the possibility of more cash or income from refinancing, but it did not promise this result. Instead, I laid out a detailed plan describing how I would help the borrower find out what could work for them. I would need their age and the current loan information only available from the most recent statement from their reverse mortgage lender to go further. Then I offered to work through a title company to determine the accurate value of their home. I would evaluate all of this and report back what additional funds might be available. With the homeowner supplying necessary information and me then researching and calculating the outcome, my letter suggested a collaboration. I believe that people like a plan as opposed to the hollow promises unsolicited mail pieces often offer.
Lesson 3 The housing market has left reverse mortgage borrowers with little remaining equity—a critical condition overlooked. The HECM loans on my list were generated at the peak of the housing bubble in 2003 through 2005. Those who refinanced from 2010 through 2012 took advantage of higher HECM lending limits, which resulted in favorable refi outcomes in spite of the still unrecovered home values that fell sharply beginning in 2008. Even though home values in San Diego County are rebounding today, the vast majority of respondents to my letter lacked sufficient equity now to make refinancing viable. Many are currently underwater. I only learned this as a result of the case-by-case data gathering and analysis I performed for each caller. Knowing what I’ve learned, I realize now that greater critical analysis may have contributed to a more successful outcome.
Lesson 4 Reverse mortgage borrowers are left in the cold after their loan closes. Nearly every caller welcomed the opportunity to talk with a reverse mortgage professional as a result of the letter. In some cases they were even more strident, complaining about the lack of resources and support to address their questions and concerns, and many condemned the quality of service from their servicer. Also interesting is that nearly all of the callers expressed resentment that they are being charged a monthly service fee (common practice when these loans were originated) and that all they get in return is a monthly one-page statement. Clearly, cost/benefit is a concern.
Lesson 5 List refinement is essential. I was so elated to find the specific list of HECM borrowers from a decade ago that my enthusiasm got the best of me. My previous experience with lists purchased from various list vendors, including title company farm lists, led me to believe that my list was the “holy grail,” and that my results would stand out when compared with purchased lists where demographics were the sole criteria. What I learned when reviewing current principal balance figures from callers’ HECM statements was that in the majority of cases, the existing equity was non-existent or too small to allow refinancing. In retrospect, it would have been productive to scrub my list with additional criteria, such as current loan-to-value data for each property. There is no telling how many names on my list would have been removed.
Lesson 6 The letter’s format is critical. Older Americans do read their mail. Careful attention to format and style will increase readership. A window envelope was shunned in favor of the recipient’s address printed on the piece. As much superfluous information as possible was eliminated. Law and regulation was adhered to but the letter was not weighed down by distracting compliance information that screams “form letter” and turns off recipients. I kept my letter to one page and it included my headshot.
Lesson 7 Listen, keep your promise and be an ambassador for our industry. Nearly every caller had issues to discuss in addition to an interest in receiving additional funds. All were truly grateful to have an industry professional to talk to. In a couple of cases, solutions to lingering problems or concerns were developed. Many said they would keep the letter for future contact. Two referred me to friends who were considering reverse mortgage solutions.