The HECM program is an underutilized, powerful financial product that can provide meaningful advantages to millions of seniors. We need initiatives that first and foremost benefit our clients; this will benefit our industry and promote sustained growth. Unfortunately, some people in our industry failed to realize this simple proposition in the past. They developed initiatives designed to benefit their companies without regard to the degree it would impact consumers. Emphasis on these initiatives led to periods of short-term growth, but also resulted in long-term problems and stagnation. A quick trip down memory lane will illustrate two of the most striking examples of such behavior.
No.1 Combining the sale of annuities with the sale of reverse mortgages Some in the industry engaged financial advisors who sold annuities by showing originators they could receive an origination fee for selling a reverse mortgage, and then make a second fee by encouraging clients to use the proceeds of the loan to purchase an annuity. Companies allowed this tactic because they could collect two fees without considering how it would impact the consumer. In fact, the concept of buying a reverse mortgage in order to purchase an annuity product was financially detrimental to many borrowers. This initiative led to short-term sales growth, but had catastrophic results in the long term (government intervention and regulation, extremely negative publicity and harm to the consumer).
No.2 The fixed-rate HECM The development and introduction of the fixed-rate reverse HECM was a welcome advancement for the program. Then some companies developed initiatives that tainted the entire industry. They strongly encouraged their sales teams to sell the fixed rate because they could make more money. Some companies went further by only originating fixed-rate HECMs. It did not matter whether a fixed rate benefited the borrower or not. This practice led several to make a lot of money in the short term, but again led to catastrophic results in the long term (more government intervention and regulation, harsh negative modification of the fixed-rate program, harm to FHA’s MMI Fund, and financial harm to numerous consumers).
Currently, our industry is emphasizing initiatives to recruit “new blood” and developing mutually beneficial relationships with financial advisors and Realtors. These are all essential, intelligent undertakings to increase our business and create sustainable growth. The question now becomes: Can we accomplish these initiatives without shooting ourselves in the foot? We can if we do not lose sight of the fact that these initiatives must be conducted with a focus on providing the maximum benefit to our borrowers.
I am offering the following suggestions to stimulate discussion on how we can build a model for our industry that will create more sales now and sustainable growth in the future. 1: Change the emphasis on companies’ recruiting of new loan originators. Many in the industry are using aggressive tactics to lure forward originators to the reverse world. Much of the advertising I have seen merely emphasizes how much money one can make on a reverse. This is certainly not the picture our industry wants to paint. We all want to and can make a good living for ourselves, but you can expect disastrous results if you bring in people whose single overriding reason for entering the market is to make money. The reverse mortgage can be a complex financial product. In seeking new originators, look for people who have a financial background; people who have the ability to understand complex ideas and then be able to clearly explain these ideas to potential borrowers; people who can be trained; people active in their communities; and people who care about the product and their clients.
2: Companies need to establish proper training for new originators and continuing training and education for their current originators. This will require companies to invest the time, money and other resources necessary to educate originators on the complexities of the product. Companies should consider implementing mandatory continuing training and even testing new originators before they are sent into the field. The industry must bring in financial advisors and those who work in real estate to train originators on how to properly approach and deal with these professionals. NRMLA is doing a very good job of this at its conferences, but because so many originators do not attend these meetings, it will be up to companies to fill this void.
Coming of Age, a baby boomer and senior marketing agency, writes on their blog that through their work with seniors, “Older consumers tend to be quicker than younger consumers to reflect emotionally a lack of interest in or negative reaction to an offered product… Such ‘first impressions’ are more likely to be permanent than among the younger set, who are more likely to give a marketer a second chance.” For the long-term success of the HECM program, it does not make sense to flood the market with new originators who are inadequately trained, looking to make the most money they can on the loan and do one or two reverse mortgages a year. Our industry cannot afford to have these originators creating the first impression of the program for seniors and financial professionals. In the short term it might result in more originations, but in the long term many more seniors and financial advisors might develop lasting negative perceptions about our program, negatively impacting our attempts to create sustainable future growth.
3: Companies and originators must own the loan with the borrowers. By this I mean your involvement should not end at settlement. I receive the majority of my leads through referrals and encourage my clients to keep in touch. Your client base should be an excellent source of referrals and good will for the program. However, I have been receiving more and more phone calls from my clients, as well as other borrowers, who were previously happy with the program and are now irate about situations they experienced post-settlement. Some of these issues can be tied to problems with servicing, but numerous problems seem to be based upon confusion and ignorance about the required procedures necessary to resolve the borrower’s issues. I once believed that thoroughly discussing what to expect after closing would be sufficient preparation for the borrower. I now believe I was wrong; we need more than that. I believe companies need to develop a short guidebook to explain what the borrower can expect post-settlement. Some of the topics that should be included in this notice are an explanation of how to read their monthly statement (include an example of a monthly statement), directions on how to request funds from their line of credit, directions as to what a non-borrowing spouse has to do to remain in their home, and detailed information on timelines and actions that must be taken when the reverse mortgage becomes due and payable. Companies should develop dedicated systems for their borrowers to receive quick, accurate information concerning their post-settlement issues. Keep your clients happy and informed. Do not let their confusion about post-settlement issues change their positive perception about the program.
