Fees, lending ratios (PLFs), and market growth
The following commentary does not represent the official position of Reverse Focus, Inc.
You don’t have to the read industry blogs to know that reverse mortgage volumes are in retreat, not only from the historic levels, but even from the previous year. Recent data shows current 2018 HECM endorsements are down 13% from the previous year. As reported here, last month Reverse Market Insight saw signs of a potential leveling off of market volume with May HECM endorsements nearly identical to April. However many originators in the field remain challenged in the post-October 2nd world of originating HECMs. HECM professionals are finding that many interested homeowners no longer qualify due to the last round of lending ratio or principal limit factor reductions enacted last Fall.
However, some HECM lenders and originators have bucked the attrition in loan volume posting gains in 2018. They key? Specialization
15 Comments
I have been selling HECM’s for 10 years and you INDUSTRY guys never cease to amaze me with your constant touting of the benefits of educating financial planners? In all of my 10 years the only thing financial planners have done for me is KILL my deal…..a few years back I had a partner who was lifelong friends with an individual who owned a financial planning firm and we met with all of his planners and just about every single one of them disliked the HECM and we didn’t get even one deal from meeting with over 20 financial planners…and the owner of the firm was friends with my partner?…..Having said that, I have an idea on a new COMMON SENSE approach that may help increase HECM volume. Since only a very small % of seniors even have the resources to warrant having a financial planner (and if they do then they are clearly less likely to NEED $ from a HECM) and since 90% of financial planners will NEVER change their negative attitude of the HECM no matter what you say or do, then how about not putting much focus on them anymore. Why not focus on the 80% of the population of seniors who actually NEED the product because they don’t have enough money to enjoy retirement? WOW, there is a thought! oh by the way, id be shocked to see that you actually posted this comment.
Nice try Shannon. I agree with the financial planning professionals aspect. Now that there is NO more monies to pay costs, the CFP is definitely off the table. Thank you HUD.
Again, ethically, to be true blue, to the age old reverse mortgage adages, the client comes first, save the senior, etc. the margin has to be at it’s ;lowest level to maximize monies to the borrower, which leaves very little monies for the originator to make a living.
Less than minimum wage in the Trump economy, thanks to the industry knowing what is best for the government loan.
Ben Carson is out to lunch no just out telling everyone that the reverse mortgage “is doing just fine”.Where is Montgomery? I do not see any manuever of a business plan that will adjust these problems. My underwriter said she wished HUD would back off and /or rescind some of their changes. I have been in the business since 2004, none have been rescinded in all of that time. The only positive change given this last go round, was the monthly MIP. Does not make up for the reductions of PL. and margin calamity.
My production has never been lower. We shall see, I am glad I practiced what I preach to my clients. I hope that the industry makes a comeback, I really do. But, my days are numbered in this environment.
Shannon,
I feel your presentation was right on target. I can’t say I agree with the two comments prior to mine!
In order for anyone to survive in this changing HECM world they need to follow your advise and change course.
Going after the realtor, financial planner, home health care provider, recreational dealerships and more is the way to to go!
Also, those out there reading my comment may agree or may no but in order to make it today, you must target a different buyer demographic!
Start doing a lot of research, find those seniors with little to no debt on their home, go after the higher value property. In short, to reap the rewards, one must work hard and smart in today’s environment!
There are a lot of senior homeowners out in the market place and a lot of equity in the hands of the right senior homeowners!
Thanks again for your commentary Shannon, it was a good one!
John A. Smaldone
http://www.hanover-financial.com
Here is another suggestion. I’ve been in the mortgage industry for 25 years and for the first 15 of those years I focused on traditional re-financing. I have always implemented marketing campaigns and I continued to do so when I began selling HECM’s 10 years ago ..Buy internet leads, go on the radio or do a direct mail campaign. The best most cost effective source for leads of course is setting up a Tele marketing department for live transfers. Yes I said telemarketing. I’ve done all of those things and more. What I’m saying is spend some money on marketing for goodness sake. Bottom line is that I’d rather spend money on marketing and guarantee my metrics for incoming leads versus closed loans by having a steady stream of daily prospects then sitting around twiddling my thumbs hoping that someone refers me a deal. No decent business model can be based on the hope of getting referrals so go out and spend some money to generate some leads!
Hello, I have spent my huge share of marketing dollars. And been very successful.
But on the monies that are made available now with lower margins, there is not any monies for a MAJOR marketing mail or telemarketing (which I never believed in with seniors) campaign. I live on referrals from all my client database and professional pipeline. I do not need anyone telling me how to market to live in this business. Just like a shark. I have done it all. The monies are not there anymore. Have you looked at pricing at lower margins? Are you charging higher margins to benefit yourself to the detriment of your borrower/s? I am not twiddling my thumbs. I am ripping my hair out thanks to HUD. thanks.
The question should be, Why are the numbers declining? It has nothing to do with the market nor marketing. It has to do with the fact that the product has been decimated by the FHA and HUD. Financial Assessment was a terrible idea that didnt address the real issue which is that the HECM industry doesn’t offer impound accounts. Lowering the LTV’s is a terrible idea that hurts the public. Decisions made in the last ten years by the government with the tacit approval of the big investors that basically run the reverse mortgage business have eliminated the neediest people that the program was designed to help and protect in the first place. Loan officers and brokers who designed their entire business around this product have been given short shrift. I have spoken with presidents and VP’s pf many of the top twenty companies and the truth they have shared with me is simply this; “we dont care”. They simply want their bottom lines to be black and to heck with the people that this piece of social legislation is supposed to help. HECM’s are just another government program that was designed to help the little guy and got taken over by Wall Street fims. Just like IRA’s. Until we on the front lines write to our legislature sand demand that the program by fixed and that the little guy be allowed to qualify again, the business will continue to declien until only the most fortunate of retires will bea bale to qualify and the progrmas have no risk to the lendersthat
Hey Marc,
I am still hanging onto that new word — “lendersthat.” Is that where you intended to end your comment. If not, please correct it.
Well now, I will respond with what I know for certain..The company I represent is currently listed by Reverse Market Insight at #42 on the most recent Top 100 HECM originators after having closed 163 HECM’s over the last 12 month period. Furthermore, we accomplished that with a total of 7 loan officers operating out of only 1 location. None of the loan officers here waste time on trying to win over referral sources because we are too busy fielding incoming leads from the live transfers from our telemarketing department…You know, real live seniors who may actually need this product? Maybe if I referred to it as a call center like AAG does instead of a telemarketing department then it would be more politically correct. Of course, if you have never done telemarketing o”or know how to properly do it” then you wouldn’t know about any of this anyway. Its a simple concept actually, if you speak to a certain number of seniors directly per day then a certain percentage will want to receive more information. If you followup with those seniors who you sent a proposal too then a certain percentage will want to proceed.. Of those who decide to proceed then a certain percentage will close..Its called sales metrics and is based upon the law of averages..OR, you can sit around and hope to get a referral or waste a lot of time trying to win over a referral source?. Now pertaining to the question regarding lower margins, you cant give away the store and stay in business! Get licensed in several states making sure they are high property value states like California. Then only target those markets to obtain higher loan amounts. Regarding the lower PLF’s, simply adjust your call data to include only seniors with current LTV’s at 40% or below.There are still millions of them and more become 62 everyday. Class dismissed.
kevin,
All of that sounds great except its costs. You do not bother to mention them. There is a reason why so tell us that cost, including all employment costs, telephone costs, specialized software for live transfers, etc.
I cannot see doing 2 loans a month like you folks do if the net is less than doing 1 loan per month at my place. Just a thought from someone in class 102.
Even today with lower margins the average total fee on a HECM is $15,000 unless you are doing small loans and if you are then you need to adjust where you are targeting your marketing efforts. Multiply that by 163 loans in a year = $2.5 Million in total yearly revenue. Divide that by 12 months in a year yields roughly $200,000 in monthly revenue. And that isn’t counting other types of loans like purchases or refinance transactions. for a small shop I can assure you $200K+ per month covers everything and everyone makes a lot of money “although some more than others” which last time i checked is the primary reason anyone is in business even though somehow over the last decade people in the mortgage industry are seemingly ashamed to acknowledge they are making a profit?
kevin,
Revenues are NOT profits. Also you do not seem to be able to capture any part of the tails revenues following closing.
Originators seem lost when it comes to everything on a profit and loss document below the top line — revenues.
Nice revenue presentation; horrible cost and net profit presentation.
ok. ive owned mortgage companies and managed branches for 20+ years and i assure you i understand profits. so, where exactly does your company appear on that top 100 list?
just curious?
kevin,
Yet with all of this talk of profits, I find talk rather than verifiable and verified information. That is OK; you can hide behind production. That style of deflection is not new.
As to satisfying your curiosity, that is an interesting diversification from telling us about costs. I believe that one of the major reasons so few consider your model is not because you do not have sales but because they are afraid of its cost structure and ability to trim those costs in an unusual pattern of stagnation as to endorsements like we have today.
Most of us could jack up our production but at a much higher cost that would result in losses or much lower profits. So while I hear, you seem quite reluctant to deal with costs.
You can argue sales all you want but I am looking for profits and thus costs. As to me, I have not asserted that I have a sales model to follow like you have so what need is there for me to discuss sales???
I see.
I emerged into the reverse space after 15 years of ownership and management in the refinance market and hence, I view the reverse mortgage for what it actually is, a refinance transaction.
Now I have owned company’s with over 100 employees as well as managed branches with as few at 15 but I have NEVER relied on someone else to provide me with business.
INSTEAD, I TAKE MY BUSINESS THROUGH MARKETING!
No different than AAG but obviously on a much smaller scale.
You don’t see the real players in this space hoping to get referrals, you see them out there marketing and taking their business.
I have always believed that one must spend money to make money but what I have seen too often in this space is a large number of individuals who are not only scared to spend a dollar but even more scared to charge one.
You didn’t answer my question pertaining to your company’s ranking on the Top 100 list, so should I assume that it doesn’t appear at all?
The company at the very bottom closed 68 loans over 12 months which is only 5 loans per month.
As for me over the last 10 years, I have installed reverse mortgage departments in 3 companies the first of which reached # 20 on the list. The second reached #68 and currently the company I represent is at #42 on the TOP 100 list.So yeah, production is very important as it is the basis for profits.
But this is not the forum to discuss exact cost details vs revenue as you cannot post up spreadsheets.
It is also not the place to teach someone the many details and go over the various cost associated with installing a telemarketing department.
What never ceases to amaze me is how many people comment on the various reverse mortgage blogs or even have ongoing videos on how to sell reverse mortgages yet when I look their company up they do not even appear on the Top 100 list.
The title of this piece was HECM declines: A new approach needed… I think the new approach should be to stop taking advice from individuals who don’t close many loans and START taking advise from individuals who do.
Curious are we? Nice! You must have looked at LinkedIn. I never updated it as I never use it. If you want a more comprehensive employment history of someone in the mortgage industry then might I suggest using the NMLS consumer access.
Actually, I represent Secure Lending Inc. and yes they are listed at #42 on the Reverse Market Insight May 2018 Top 100 HECM Originators report after closing 163 loans over the last 12 months.
The Originators report I feel is a better report by which to gauge companies because it includes both lenders and brokers. You do know that you don’t have to be a lender to sell HECM’s?
And trust me, I understand completely every single aspect of both owning, managing and creating mortgage companies as well as reverse mortgage departments. From marketing to sales to processing to licensing to accounting to expansion and all subcategories involved with those aforementioned departments.
I have created it all, setting up entire companies and departments from scratch several times over.