Why Forward Lenders Aren’t Offering Reverse Mortgages

There are several concerns among lenders when it comes to the decision to offer reverse mortgages, new research from the STRATMOR Group finds.

In survey results presented earlier this month at ReverseVision’s UserCon in San Diego, a number of forward mortgage lenders ranked four primary reasons why their companies do not offer reverse mortgages. Reputation risk was ranked highest among them, followed by the possible distraction that reverse lending would create for the forward-dominated businesses.

The data was collected from 120 mortgage lenders by the Greenwood, Colo.-based mortgage consulting and research firm STRATMOR, with non-banks accounting for 65% of the total and bank lenders representing the remaining 35%. Among the 120 survey respondents, 42 reported they offer reverse mortgages while 72 do not. Six lenders said they are in the process of developing reverse mortgage lending capabilities.

The lenders that do not currently offer reverse loans were asked to rank four concerns on a 1-10 scale (with 10 being the greatest concern) including: reputation risk, profitability, lack of in-house expertise, and distraction from forward.

Reputation risk held the greatest level of concern, with an average score of 7.4 on the 10-point scale, while distraction from the forward business scored 7.3, lack of in-house expertise scored 7 and belief it won’t be profitable scored 5.8.

“The biggest takeaway for me is reputation risk,” said Jim Cameron, STRATMOR Group senior partner, who presented the findings. Yet reputation risk, he said, should improve based on recent product changes.

“Common-sense regulation is good, and we want to enhance our reputation,” he said. “But if someone says ‘I don’t want to throw an old lady out on the street because of taxes,’ we have to refute that. This is about chipping away. It’s a marathon.”

Cameron pointed to a recent focus group that presented a reverse mortgage versus a home equity line of credit but left the products unnamed. When the focus group did not know the product names, it responded much more favorably to the reverse mortgage versus the HELOC.

The other concerns rated by lenders should be easier to address, Cameron noted.

“I don’t think it’s all that complex,” he said. “I think we’ll get better and better at explaining it. A distraction? On the one hand, it makes sense to stick to your knitting. Be the best you can be and win. But it’s also prudent to think more strategically. What is this going to look like in five to 10 years? A distraction to some is an opportunity to others.”

Written by Elizabeth Ecker

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