Reverse psychologyMartin TaylorReverse mortgage market sales
The reverse mortgage market is hot right now—red hot, in
fact.
Thanks to wider consumer acceptance and awareness, rising costs
of healthcare, growing support from lawmakers and an upsurge of
positive press, more and more seniors are realizing the benefits of
leveraging the equity in their homes.
Though the product was first introduced in 1961, it did not gain
mainstream acceptance until nearly 30 years later, when Home Equity
Conversion Mortgages became available through the U.S. Department
of Housing and Urban Development (HUD). Today, reverse mortgages
have been a boon to senior homeowners and the industry as a whole.
The sector grew by 77 percent in the last year, and there are no
signs of it slowing down.
According to the Reverse Mortgage Market Index, Americans age 62
and older hold an estimated $4.3 trillion of home equity. And yet,
just more than 300,000 reverse mortgages have been originated in
the past 46 years. That's just one percent market penetration!
What's more, there are an estimated 20 million seniors in the
United States who currently qualify for a reverse loan, with each
household eligible to borrow an average of $72,128. And with
millions of baby boomers about to reach retirement age, that number
is expected to more than double in the next 10 years.
With so much ripe, low-hanging fruit available, new players are
entering the reverse mortgage market in droves. To echo the words
of National Reverse Mortgage Lender Association President Peter
Bell, "There is plenty of business to go around in this field. The
only thing that can hamper our growth is a negative perception that
our business is unprofessional and untrustworthy."
The call to action
To carry out Bell's call, we need to ensure our approach to the
business remains ethical and above board. We don't want to end up
like the lamenters of the sub-prime sector—those unfortunate
ones who sing a sigh of, "Those were the days ... "
Offsetting the chances of becoming another casualty of war,
reverse mortgage providers must call for stricter guidelines for
new entrants to the market. We must learn from history, so as not
to repeat it. The tsunami that wiped out sub-prime providers wasn't
just a matter of loose lending conditions, but rather too many
inexperienced loan officers who, in some cases, took advantage of
consumers who didn't need the loans or did not fully understand the
ramifications of the loans.
The reverse sector is not immune to this disease. To illustrate
the point, consider the confusing nature of the line of credit
available to seniors through this loan. Time and again,
inexperienced or uneducated loan officers mistakenly (unwittingly
or otherwise) lead prospective borrowers to believe that the line
of credit inflation will pay out interest, rather than simply be a
means to increase the amount of money available to the borrower.
Reverse homeowners do not get a return on their investment, as some
egregiously portray.
Get your feet wet before you jump in
The mystifying process of obtaining Federal Housing Administration
(FHA) licensing, a requirement for entry into the world of
reverses, can be a very big deterrent when traditional forward
brokers are looking to dive in. Provided a company is lucky,
acquiring an FHA license can take six to eight weeks.
Unfortunately, for most companies, it is more like a four- to
six-month ordeal, because of the myriad of minutiae HUD needs
thoroughly and accurately completed before granting the license.
There is a laundry list of requirements a company must meet before
crossing the threshold. What new entrants can look forward to is a
lengthy revision and review process, at best. The line of credit
example is just one of the many confusing nuances associated with
providing reverse mortgages.
Should you choose not to engage in the FHA rigmarole, be
prepared to turn away potential reverse mortgage borrowers to
approved reverse mortgage brokers and lenders. However, thanks to a
much-improved program and market, there is still a way for you to
capitalize on these leads without bearing the burden of a license
or taking unnecessary financial risks.
There is an easier alternative gaining popularity that allows
the traditional forward mortgage broker to provide reverse mortgage
without obtaining licensing or taking any risks. This attractive
"education referral" type of program offered by reverse mortgage
industry leaders is most commonly known as an advisor program. This
innovative program provides those new to the sector with low-risk
exposure to the ins and outs of these niche products. Instead of
turning away prospects who are best fitted for a reverse mortgage
and losing any possible revenue, they stay engaged with the
customer during the "upstream" part of the reverse mortgage
education process.
Generally, these advisor programs provide trainings that arm
traditional forward brokers with sufficient knowledge that will
help them determine when a reverse mortgage is appropriate for
their clients and how to accurately explain the features of the
loan. Provided brokers satisfy the appropriate requirements, 25
percent of the origination fee can be paid via escrow, with the
client's signed verification authorizing the payment and confirming
services rendered.
The benefits of trying your hand at reverses through an advisor
are many:
• Extensive sales training;
• No need to monkey around with the complicated FHA approval
process;
• No upfront investment (however, some brokers do spend some
money in marketing to grow their advisor program);
• All processing (from application to funding) is generally
handled internally by the reverse provider; and
• Extra revenue without a lot of extra work.
Perhaps most importantly, the advisor program extends the
necessary education to groom up-and-coming, professional and
competent reverse providers. Once again reiterating the sound
advice of Bell, "Quality and integrity are essential to the growth
of the reverse mortgage industry." To achieve this, he challenged
members of the reverse mortgage community to go about business "by
projecting the right attitude, the right image and the right
behavior."
Part and parcel to that is knowledge-sharing and mentoring.
Without such available programs and networks, there is too much
opportunity for unskilled loan officers to hazardously fan the
flames of the market, potentially leaving the rest of us (and our
vulnerable clients) burned.
Martin Taylor is the owner of Bellevue, Wash.-based Stay In
Home Reverse Mortgage Inc. He may be reached at (800)
963-8011.
