Like most pioneers and leaders in other industries and other spheres of life, pioneer loan officers in the U.S. reverse mortgage industry were a curious bunch of happy warriors. They were the foot soldiers who brought the innovative home equity loan to America’s skeptical senior homeowners.
Making a bundle in a hurry could not have been their motivation, for origination fee during the first eight years of the industry was pegged by law at $1,800. After commission splits with their employers and taxes, they probably took home a third or less of that amount per loan. And they were extremely lucky if they closed one loan in a month. Understandably, not many made the journey to where the industry is today.
Sarah F. Hulbert, chief executive officer of Senior Financial Corporation in Renton, Wash., is one of those happy warriors who made the long trek. In more than 17 years of toil in almost every area of the business and in some of the leading companies in the industry, Hulbert has helped shape the industry. Hulbert was a leader in the team that built Seattle Mortgage Company’s reverse mortgage operations into the third largest lender/servicer in the industry (acquired by Bank of America in 2007).
Besides her strong operational leadership, Hulbert is a thought leader with a flair for writing and public speaking. Her articles have appeared in The Mortgage Press, The Seattle Times, The Oregonian, and Secondary Marketing Executive. She is a regular guest on several talk radio shows, as well as at conferences and seminars, where she presents the reverse mortgage concept to mortgage lenders, her peers in the reverse mortgage industry, and senior advocacy groups.
A four-term former co-chair of the National Reverse Mortgage Lenders Association’s (NRMLA’s) board of directors, and current director ex-officio and co-chair of NRMLA’s Ethics Committee, NRMLA President Peter Bell has described Sarah Hulbert as an “essential leader for our industry.”
Hulbert and I caught up recently. The following are her reflections on the U.S. reverse mortgage industry 20 years after the first Home Equity Conversion Mortgage (HECM) was made.
What attracted you to reverse mortgages, and why did you commit to the business?
In 1991, I was a project manager for a marketing research firm. A small bank in Santa Rosa, Calif. contacted us about conducting a focus group on consumer attitudes towards reverse mortgages. At that time, I had not heard of reverse mortgages, but I became increasingly more interested as I researched the product. The focus groups we conducted indicated the product was extremely well-received by senior homeowners.
Ironically, shortly after I finished the research project, a friend told me about a reverse mortgage company in San Francisco that had just issued a very successful IPO. The company’s name was Providential Corporation and they were aggressively staffing their sales and marketing team. I interviewed with the company and joined them two weeks later.
I can almost pinpoint the moment when I knew reverse mortgages were going to be my career. After spending about six months in the office working with customers over the phone, I finally had the opportunity to go out in the field to meet with clients. After meeting with my first customer and originating my first loan, I felt so invigorated and went home that night feeling, for the first time in my career, that I had truly made a difference in somebody’s life that day. From that point on, I was hooked on reverse mortgages.
How has the industry changed since you came in?
It would be easier to answer the question if you asked me, “What hasn’t changed?” When I entered the industry, only a handful of lenders offered reverse mortgages. Without fail, whenever people asked me what I did for a living and I mentioned “reverse mortgages,” I would be asked, “What? What’s a reverse mortgage?” Today, everyone has heard about them … the good, the bad and the ugly. We strive to overcome misperceptions about our product. The awareness and acceptance of reverse mortgages are result of industry participants dedicating many years to educating the public.
Customers today have choice compared to customers then. Until recently, there were many proprietary products (which we may see again as housing finance recovers). HECM products have changed as well. When I came into the business, HECM was in its infancy. The only available option was an annual-adjusting CMT HECM. So, when we met with customers, the conversation was straightforward: “This is what you’re eligible for, this is what it costs, and do you want to proceed?” Today, we have HECMs with multiple margins and rates, including a fixed-rate option. We are in transition from a CMT to a LIBOR index. Speculation abounds about other changes, including a so-called “HECM II,” as well as cuts to the principal limit (effective Oct. 1, 2009, FHA reduced HECM’s principal limit by 10 percent).
Income opportunity has also changed. In my first eight years in the industry, origination income was limited to $1,800. The wages we earned were anything but livable income, and we were forced to run our businesses on a shoestring budget. Limited revenue hurt our marketing. To build our businesses, we became experts on grassroots marketing, the cheaper the better, with free publicity as our goal. Low revenue made it hard to recruit good loan officers because it was difficult to earn a living. That was one of the reasons reverse mortgages were so slow to catch on.
The previous county-by-county loan limits affected our ability to qualify prospects. I remember meeting with prospects who lived in $300,000 homes, but were limited to $113,500 maximum claim amounts! The single national loan limit is a blessing. It has allowed lenders to help senior homeowners who were previously cut off.
Change is a constant in today’s regulatory and compliance arena, resulting in a need for increased staffing in compliance and quality control areas of most reverse mortgage companies. And the marketplace has become more competitive and more saturated with new players.
Technology has greatly changed as well. For the first eight years, HECM calculations were run on HUD’s DOS-based HECM calculation software. Application packages were manually generated, usually using a combination of pre-printed forms (which you would complete on the typewriter) and homemade disclosures created on our PCs. E-mail was non-existent, so the closing process involved a series of faxes (on thermal paper, which would need to be copied so the print wouldn’t fade).
Industry participants have also changed over the years. Where we used to have a very small number of lenders originating reverse mortgages, we now have thousands of lenders approved to offer the product. While most reverse mortgage originators are in the business for the right reasons and conduct their business ethically, a few “bad eggs” have hurt our industry’s reputation.
I remember being asked, time and time again over the years, “Why aren’t any of the large banks offering reverse mortgages?” For obvious reasons, that question is no longer being asked. The product has evolved and matured to the point where banks and other financial institutions who do not offer reverse mortgages find themselves at a competitive disadvantage. They now see the value of offering this product to their client base as part of their efforts to serve their customers throughout the various stages of their lives.
Reverse mortgages have moved from a boutique to a mainstream product, a viable financial option for today’s senior homeowners.
What are some lessons you have learned about seniors, the market, and the business?
First, never underestimate the intellect of your customer. The seniors we work with have significantly more life experience than the majority of us who are originating reverse mortgages. Their knowledge and experience is tremendously valuable and should be treated with respect. The worst thing an originator can do is to treat their customers in a condescending manner.
Second, always approach the origination process with the intent of fully educating your customers about all aspects of the reverse mortgage. Anything less than full disclosure of the benefits, costs and features of the loan is unacceptable.
And third, communicate regularly with your customers and prospects. Follow up diligently and make yourself available to answer any questions or concerns your customer may have. Lack of responsiveness and failure to regularly communicate with your customers can only lead to negative results.
What are the prospects and some challenges for the reverse mortgage industry and why?
I think, overall, the prospects for our industry are good. All indicators point towards ongoing demand for reverse mortgages: Our target age group is increasing daily, the current economic environment necessitates options such as reverse mortgages for many senior homeowners who are trying to finance their retirement, and the investment community’s appetite for reverse mortgages appears to be increasing once again. Also, we will be seeing new products that will meet the needs of a segment of our customers who, until now, have not seen the reverse mortgage as a product that fits their needs.
Our biggest challenge is going to be tied to the increasing number of originators entering the reverse mortgage space. As an industry, we need to be vigilant to ensure that lenders offering reverse mortgages are offering the right products for the right reasons and presenting the product honestly. Ever-increasing regulation and scrutiny of reverse mortgages has exposed several unscrupulous lenders and originators. The resulting negative publicity has been damaging to the industry’s reputation. We need to further develop and maintain zero tolerance for unethical business practices.
More important today, we need to reassure regulators and the public that reverse mortgages are beneficial and necessary products in our communities. Above all, we need to constantly educate ourselves and our communities about reverse mortgages, self-police our industry, and focus on creating a good reputation for our product and our industry.
What is your favorite reverse mortgage story?
In the late 1990s, I worked with a couple who could not afford their mortgage payments because of medical bills. The husband had to go back to work to help make the mortgage payments, and the only job he could find was cleaning tables at a McDonalds. He had acute arthritis in his feet, and by the end of the workday, he was in so much pain that the only way he could get around the house was to crawl on his hands and knees.
When I first met with them, they were wary about the reverse mortgage because they hadn’t heard much about them in the press. They had considered selling their home, but that option wasn’t appealing because it was the home they had lived in their entire marriage of over 50 years at that time. After a detailed program explanation, they decided to apply for a HECM.
We closed their loan about five weeks later, and I will never forget that day. When we were done signing the closing documents, the husband looked at me with a twinkle in his eyes and said, “Well, now I suppose it’s time for me to go quit my job!” He was so happy that he didn’t have to endure the crippling pain he’d been dealing with for over six months. The reverse mortgage was a life-changing event for this couple. We stayed in touch for a number of years. Two years after the HECM, the wife had a stroke. Cash from the reverse mortgage helped them fund her home care and avoid a nursing home.
Author and columnist, Atare E. Agbamu, CRMS is director of reverse mortgages at Minneapolis-based AdvisorNet Mortgage LLC. A member of the BusinessWeek Market Advisory Board, Agbamu is author of Think Reverse! and more than 100 articles on reverse mortgages. Through his advisory firm, ThinkReverse LLC, Agbamu advises financial professionals, institutions and regulators across the country. In a 2007 national report on reverse mortgages, the AARP cited Agbamu’s work. He can be reached by phone at (612) 436-3711 or (612) 203-9434.