Forward on reverse: Reverse Mortgage of America declares jumbo independence: A conversation with John NixonAtare E. Agbamu, CRMSreverse mortgage, The Independence Plan, Cash Account Advantage
For a decade, Financial Freedom's Cash
Account Advantage was the sole jumbo reverse mortgage product in
the U.S. market. That changed in October 2006 when Reverse Mortgage of
America, a division of Seattle Mortgage Company, introduced The
Independence Plan (TIP). In the reverse mortgage arena since 1993
and averaging 60 percent growth over the last four years, Bellevue,
Wash.-based Reverse Mortgage of America is the nation's third
largest reverse mortgage originator and servicer, with two industry
firsts. It is the first reverse mortgage servicer to be rated for
Home Equity Conversion Mortgage (HECM) servicing by Standard & Poor's
and the first originator/servicer to work with Bank of America, which
issued the first HECM Mortgage-Backed Security in 2006.
The mind behind Reverse Mortgage of America's steady march in
Reverse Land over the last 10 years is its executive vice president
and chief operations officer, John Nixon. A director of the National Reverse Mortgage
Lenders Association (NRMLA), a former director of the Washington Mortgage Lenders
Association and a 32-year veteran of the mortgage lending
industry, Nixon held significant management positions at Washington Mutual, Pacific First
Federal and Bank of America before coming to Seattle Mortgage
Company.
I spoke with him about TIP and jumbo reverse mortgages. The
following is a transcript of our conversation.
Atare E. Agbamu: If any, what are the
structural differences between your product [The Independence Plan]
and the Cash Account Advantage?
John Nixon: There are three big selling
differences between the two products: One, our no-partial
prepayment restriction is for one year, Financial Freedom's is five
years, so the senior has more flexibility with our product than
theirs. Two, to have loan fees waived on their product, they
require the borrower to withdraw 75 percent of available balance,
with a minimum amount of $200,000; on our product, we do not
require them to take down any set percentage. We require them to
withdraw $200,000 for us to waive their loan fees. That may be
significant or not, depending on the senior. A lot of seniors have
come to our product because they say, "I don't want to take that
down and pay a whole lot of interest when I don't need the
money."
Three, on third-party charges, Financial Freedom requires them
to draw 100 percent of available funds with a minimum loan balance
of $275,000; our product just has a loan balance of $275,000; it
doesn't require them to draw down 100 percent. Case in point, if
somebody had a $2 million property and the maximum principal limit
on that would be, let's say, $1.2 million, but they only wanted to
draw $500,000, we would waive their loan fees and contribute (in
California) to cover their third-party charges. Financial Freedom,
in the same scenario, will require them to draw the entire $1.2
million.
AA: Those were the key distinctions that came
to mind when I studied both products. Flexibility for older adults
is important. To compete over the next several months, Financial
Freedom can recalibrate their product to match yours. So what is
your next game plan?
JN: Well, we are building our distribution
system and refining our software. We are only rolled out in Oregon,
Washington and California. We'll focus on rolling out our product
across the relevant parts of the United States. We'll go to the
East Coast and Florida, the Southwest and West Coast.
Simultaneously, we'll be working with the investment community to
see what other product innovations we think seniors might want.
Demand exists for fixed-rate products.
There are circumstances when the senior doesn't want to borrow
all the money available. There is less risk to us and to our
investors. We should be willing to offer them a lower interest
rate. That should be coming out in the next six months. We'll have
a lot more pricing options up and down based on how much money
somebody actually wants. Let's say a program maximum would allow
someone to withdraw 55 percent of the value of their home. If they
agree to go to 45 percent, that reduces the risk profile of the
loan substantially. We should, therefore, be able to offer them a
lower interest rate.
AA: Ultimately, this game will boil down to
distribution clout and customer service.
JN: Correct. If we make the assumption that the
secondary market is an efficient marketplace (and I would make that
assumption over time), we have to get enough products and enough
volume out there, so that we can go to the marketplace on a
consistent basis. Right now, there haven't been enough products
generated to create an active, knowledgeable investor market.
In the case of Financial Freedom, I believe it took them three
years to go out with their first major offering. It took them 18
months to go out with their second. If you are not going out to the
marketplace more frequently, you have to go out and re-educate the
entire investor community all over again. As we create more
interest and generate more volume, it feeds on itself. The more we
go to the marketplace, the more visibility the product has and the
more understanding the investment community has of the product, we
will then create an efficient market over time. Once we do that;
just like the forward market, we will find that everybody has
pretty close to the same price.
Once everybody has the same price, then it is going to come down
to distribution channels, customer service, software programs,
product offerings, ease of use to the consumer and what the
counseling networks feel about your product.
AA: You're correct. You expect a full national
roll out by the end of first quarter, right?
JN: I'm not saying national rollout; that
really says I am going to the 15 states. When you look at where the
product has good chance of gaining good market penetration, you are
probably down to 12 to 15 states.
AA: Do you have distribution channels in those
states right now?
JN: Yes, I do. Our footprint is nationwide
right now.
Atare E. Agbamu, CRMS formed ThinkReverse LLC, a Twin
Cities-based training/consulting firm to help originators address
demographic change via reverse mortgages. A specialist with Credo Mortgage, Atare is the
first to propose reverse mortgages as risk-management tools for
forward originators. Besides marketing, originating and researching
reverse mortgages since 2001, Atare has authored more than 70
articles and a book on reverse mortgages. He may be reached at
(612) 203-9434 or e-mail
[email protected].
