MortgageReverse

How the reverse mortgage industry fails seniors

A former reverse mortgage industry marketing director offers his firsthand perspective on potential industry shortcomings

I was born in the small town of Terre Haute, Indiana. The land of Larry Bird, basketball, French Lick, and Grandpa Cooley. Grandpa Cooley was a career truck driver and a proud member of the Teamsters. His name was Elbert, but friends called him Ab. He was a short, fat guy with an enormous sense of humor. 

He bought his house when he turned 21 for about $10,000 next to the Indiana State Football Stadium. The banker encouraged him to pay a little extra monthly, and Grandpa Cooley paid the house off in 8 years. He raised two sons and a daughter in that house, retired at 65, and at 84 years old passed away in that house. 

As a kid, Grandpa Cooley would take me on these morning walks around the football stadium and we’d wind up at McDonald’s. When my grandpa would pay, he would always extend this light blue card. When I asked about it, he almost bragged.

“This is my senior citizen discount card,” he said. “It’s what you get when you get old.”

Steven Cooley, principal at ArtVsMath.com and a former marketing director for reverse mortgage lender Finance of America Reverse.
Steven Cooley

He was an extremely frugal man who was stoked to pay 50 cents for coffee instead of 69 cents, and there was no shame in his game. He was happy to get the discount, and felt he deserved it because he did.

If you have ever sold a reverse mortgage, it is quite an experience. There is a high probability that the reverse mortgage will help a family or individual. A senior may need a reverse mortgage for many reasons, but most will not consider it.

The numbers are in: seniors have over $11 trillion in home equity, 83% of people’s net worth is in their homes, and 32% of American seniors still can’t afford a $400 emergency expense. When you add inflation and rising healthcare costs to the mix, it is easy to see why one of the biggest demographics in history will need as many financial tools as they can get their hands on to find their way around life after retirement.

However, despite high awareness of the reverse mortgage product, it continues to have extremely low consideration among senior citizens in America.   

Why can’t the reverse mortgage industry originate over 50,000 units yearly with such a massive potential market? Despite all the policies and regulations in place to ensure this product is safe, do seniors still believe that a reverse mortgage is a ploy to steal their house?

Seniors know their equity position. We know this because they purchase over a million mortgage products annually to access or manage their equity. So, why is the reverse mortgage at the bottom of the list? Here are three reasons why the reverse mortgage industry has completely failed seniors.

Lack of transparency

Seniors are very aware of the existence of the reverse mortgage product. You can find thousands of pieces of content explaining how it works, and people are conditioned about what to look for in a mortgage from their initial experience buying their first home. When seniors shop for a mortgage, they continue to look for the same variables: they ask what the interest rate, fees, or out-of-pocket expenses will be, and what the payment structure will look like.

Traditional mortgages provide this general information upfront, without an application, and for almost every program. Reverse mortgages do not clearly state these imperative buying descriptions until they engage with a mortgage loan officer. Even then, the complexities provided to a senior about their loan scenario are murky at best. The conditioned brain has a hard time wrapping its head around these initial pitch documents because they are trying to understand what they know to be true. 

Rate, fees and payment. If those attributes are unclear, it will simply not be perceived as a good deal.  

Lastly, the requirements and regulations of the standard reverse mortgage program change almost every year. If a senior investigated a reverse mortgage 3-5 years ago and showed up in 2022-2023 to reconsider the program, they would get a drastically different loan scenario.

While age is a variable that drives the loan outcome, that is easily explainable. However, the other variables and changes over the last decade may be tough to explain and counter-intuitive when compared with traditional mortgage products. An FHA loan, for example, was 3.5% down yesterday and ten years ago.  

Reverse mortgage marketing is terrible

You can find videos of Henry Winkler from 11 years ago claiming that seniors can “retire their way,” get “tax-free cash,” and still “own their home.” In the years following his time as a reverse mortgage pitchman, several other spokespeople would represent reverse mortgage products in television commercials. If you wrote out the scripts of any of those commercials, you wouldn’t be able to distinguish which ones came from which time period. 

All the messaging is about the same. Fred Thompson, Robert Wagner, Jerry Orbach, and the most notable industry spokesman in Tom Selleck are all TV celebrities that wouldn’t ever need a reverse mortgage themselves. They might have helped companies pick up a little market share, but never disrupted or increased market demand. When asking seniors why they won’t get a reverse mortgage, the biggest response is simple – “I don’t need it.”  

Despite all the research showing how seniors could benefit from this product, the reverse mortgage industry has failed to help seniors see its value, remove the negative stigma, and show how it could positively impact their lives. My grandpa didn’t need the senior discount card at McDonald’s. He wasn’t 20 cents away from having a more leisurely retirement, but he proudly used his senior discount card. All these points revolve around marketing.

Until a reverse mortgage is perceived as an earned benefit received for reaching an age (and equity) milestone, demand will continue to flatline. Then again, maybe someone will get Dwayne “The Rock” Johnson on board in 10 years. Then, all bets will be off.

The mortgage industry hates reverse mortgages

Of the over 400,000 licensed mortgage loan officers in the nation, a very small amount specializes or has ever originated a reverse mortgage. This is a very lucrative mortgage product for lenders. At every convention at the end of 2022, reverse mortgages were discussed at a high level to supplement the waning purchase market. However, mortgage loan officers do not like selling it.

The sales cycle is about 150 days, which is forever in a mortgage context. If you want to buy leads to originate a reverse mortgage, the cost per closed loan is nearly $5,000. Lastly, it is highly competitive due to the low demand.

In comparison to traditional business, there is very little technology support. Why would there be? Mortgage technology companies have difficulty justifying developing features and functionality to help manage a measly 50,000 units per year. There is a countable amount of technology partners to help this industry innovate.

Seniors are about a million times more technologically savvy than most would expect. They would welcome such advancements, but major tech companies are hesitant to prioritize or invest in the reverse mortgage space.

There’s been a big push in the past few years to build relationships with financial advisors to send referrals to loan officers. This referral business model is prominent in retail mortgage companies. They rely on licensed real estate agents to send them business every month. So, finding a similar model for reverse mortgages makes sense.

However, there is a massive difference between the two strategies. Real estate agents have a significant incentive to refer their clients to preferred lenders. They increase their likelihood of getting their client qualified to buy a home and make a commission. Financial advisors at their core, have very little – if any – incentive to recommend a reverse mortgage to a client. Many consider it unethical. While there are case studies on investment strategies that can be leveraged, financial advisors tend not to recommend using a debt vehicle for investing or maintaining a lifestyle.  

Lastly, mortgage loan officers don’t love selling this product. When loan officers get into the reverse mortgage space, whether they realize it or not, they acquire a unique origination skill set that can best be described in one word: patience. Last I looked, the sales cycle for a reverse mortgage is approximately 150 days from lead to a closed loan. That’s almost three times longer than a traditional purchase mortgage.

Mortgage loan officers are in the business of generating as many units as possible within 30 days, working on files likely to close. Reverse mortgages are lucrative, but it is hard to condition traditional retail loan officers to pursue the reverse mortgage business.

Recent events, the need for clarity

While writing this, another massive originator in the reverse mortgage space were in the process of being acquired. Historically, when large lenders or banks leave the reverse mortgage industry, they take their units. This is a phenomenon. The big question is, if another large lender leaves the space, will reverse mortgages be viable? Can it help seniors navigate retirement at that point?

Reverse mortgages assist thousands of seniors every year. The testimonials are genuine. Until a reverse mortgage becomes a rite of passage and badge of honor like the McDonald’s senior discount card, it’ll remain polarizing. It cannot be a loan that is a riddle, wrapped in a mystery, inside an enigma.

Instead, the reverse mortgage product must be understood in one glance. It must instill pride in the recipient, and seniors must believe they deserve it. If this shift occurs, demand will cause mortgage loan officers to adapt and prioritize it as part of their business. If there has ever been a time to rise to the occasion, it is now.

This column does not necessarily reflect the opinion of Reverse Mortgage Daily and its owners.

To contact the author of this story: Steven Cooley at ArtVsMath.com
To contact the editor responsible for this story: Chris Clow at [email protected]

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