Reverse Mortgage Analyst: How to Expand the Market and Increase Penetration

While a fair amount of the movements taking place in the broader housing market are well outside the control of those who operate in the reverse mortgage industry, there are several key actions that industry players can take to combat low levels of reverse mortgage product penetration. These include expanding a repertoire of referral partners to include financial planners, and talking to more forward mortgage professionals who may not know when to recommend a reverse option to a senior client.

This is according to John Lunde, president of Reverse Market Insight (RMI) during a presentation at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Summer Meeting recently. After discussing and giving possible reasons for a decline in the penetration rate for Home Equity Conversion Mortgage (HECM) loans in the broader mortgage landscape, Lunde and RMI partner Jon McCue turned their attention to ways in which the declining penetration could be potentially counteracted by the people who work in the reverse mortgage industry.

What to keep in mind about the mortgage market, and a long-term focus

In terms of what can be done to potentially combat the declining reverse mortgage penetration rate being seen across the industry, Lunde describes a larger marketplace which can often be impervious to the actions of even the collective reverse mortgage industry. Those movements should remain in the front of a reverse mortgage practitioner’s mind for perspective, he says. This can help to contextualize some of what is being seen in terms of the boom in HECM-to-HECM refinances.

“I think the HECM-to-HECM refinances […] in large part are driven a lot by the macro forces that are out of our control,” Lunde says. “We talked earlier about the interest rates and home prices, nobody in our industry controls either of those. And so, we can respond to those and really better serve customers, if that’s with a refinance, when those forces change and those factors move around.”

However, a reverse mortgage professional may also want to get used to playing something of a long game, since focusing on something that has the potential to bear fruit further down the proverbial road can pay big dividends as long as someone can avoid becoming discouraged in the short-term, Lunde says.

“Just like in the forward world, there’s a little bit of longer range impact that we really need to continue to maintain a focus and a balance on,” Lunde explains. “Refinances might be a good short-term activity that can generate volume, and obviously, again, you should serve your customers well. But at the same time, continue some of those longer-range efforts that will bear fruit maybe not tomorrow, maybe not in today’s phone call, but continue to lay that groundwork and foundation for your own personal business and your book of business, your local reputation, but also just the [reputation of the] industry at large.”

The reverse mortgage industry has been built over a period of more than three decades on professionals’ longer-term activities, even as the reverse mortgage product itself and many of its governing regulations have changed so dramatically over that entire period of time.

“[Our industry is] built, and has been built over the 30 years that it’s been here from some of these longer-range activities and investments that really help continue to push the industry forward,” Lunde says.

Maturity of the forward market, benefits of expanded distribution

The longer-lived existence of the forward mortgage market in comparison with the much younger reverse sector should also be kept in mind, Lunde says. Because of that and the sole focus they have on originating forward loans, good opportunities to place an over-62 borrower into a potentially more beneficial reverse mortgage situation may just be overlooked by a forward professional.

“Given how much more mature the forward mortgage world is, there are way more forward mortgage companies and originators out there that maybe don’t even recognize a reverse mortgage situation, use case [or] customer when they run across [them],” Lunde says. “So, being able to leverage and build some of those relationships, and continue to add that balance to your business [can be beneficial].”

While there aren’t very many points of comparison between the practices and profiles of the forward mortgage business when directly compared to the commensurate features of reverse, one potential trait that could be worth looking at more closely is the distribution model, Lunde says.

“One of the things that we’ve continued to see over time is the number of companies involved in the reverse mortgage space as positively correlated with the growing endorsements,” he explains. “So, the more companies are endorsing loans and the more active lenders there are, that increases the number of reverse mortgage originations that are happening. That just simply tells us, again, the same thing: that increased distribution, getting more folks at the table, spreading the word and really having more companies involved is a good thing.”

This is something that can work both ways, he says. As companies see additional volume taking place on the reverse mortgage side, more companies are likely to explore whether or not they should get involved in the space. What hampers this overall, though, is the aforementioned low rate of overall market penetration across the collective American mortgage business, he says.

“The important point to note here is at this phase of where we’re at, in the product awareness – 2% market penetration – more companies involved is a good thing,” he says. “It actually helps everyone involved. Obviously, more loans can really help spread the word, increase our market share as an industry, and more companies are helpful in doing that.”

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