Advertisement
Three reasons why older homeowners may not be interested in a reverse mortgage
It’s the butt of jokes on late-night television monologues, stand-up routines, and comedy sketches. The media distorts the risks of the loan sensationalizing the alleged harm done to senior homeowners. Even so-called financial experts write columns maligning a loan they’ve never bothered to understand. It’s a loan that elicits strong negative opinions from friends, neighbors, and random acquaintances who have no clue how the loan actually works. It’s an FHA loan that has been in existence for over three decades yet is viewed as a stamp of failure for anyone who gets it.
Reverse mortgages get a bad rap. Much of the undeserved reputation of the loan is out of our control. And of course, there’s no silver bullet to solve a challenge that has faced our industry for decades. However, may I present three potential reasons why we may be missing out on attracting more first-time borrowers and helping more homeowners live a better retirement.
The first hurdle to reverse mortgages gaining more market share is the emphasis on getting the loan without creating value. The benefits of the Home Equity Conversion Mortgage don’t matter if they’re not tied to needed solutions. Credibility and value are not built in citing the numerous unique features and benefits of the HECM. Value is built when a reverse mortgage professional can show how a reverse mortgage can solve specific problems or risks homeowners are facing.
However, building value requires effective financial fact-finding. As mentioned on this show, would a doctor prescribe a drug if they don’t know what is afflicting the patient? Likewise, how can an originator recommend a reverse mortgage if they haven’t asked the homeowner what led them to inquire about the loan in the first place and what retirement issues or concerns keep them awake a night?
The second reason reverse mortgages may not be gaining traction is avoiding involving family members or trusted advisors. Excluding these important parties in the decision-making process will make a reverse mortgage originator look shady and untrustworthy. Involving adult children or financial advisors may blow up a deal- a deal you probably wouldn’t want in the first place. However, involving trusted advisors and family members provides the opportunity to address concerns, dispel misconceptions, and puts homeowners more at ease. Additionally, the originator has shown that they’re an experienced, competent, and knowledgeable professional.
The third hurdle to expanded market share is a lack of follow-up and support. How likely is one to get a referral from a former borrower who hasn’t heard from the originator in one, three, or 5 years? Not likely. Too often follow-up and support focus on the front end of the sales process but neglect the reassurance and assistance reverse mortgage borrowers will need for many years to come. Reverse mortgage professionals who regularly keep in touch with borrowers, offer assistance when needed, and walk homeowners through the loan’s ongoing requirements are very likely to get referrals without even asking for them. They’ve built value and trust by not abandoning the borrower after the loan has been funded.
We can’t deny that reverse mortgages generally don’t get a fair shake. However, we can focus on what we can control. Our sales approach, fact-finding, problem-solving, building value, and continued care for the borrower.
Do you agree these factors are preventing growth? Do you disagree? What would you add to the list? Leave your comments below.
Advertisement
Shannon Hicks
Editor in Chief: HECMWorld.com
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.
2 Comments
Interesting article.
All three reasons boil down to one common element —- the practices of the originator, i.e., the originator. But there is more.
Since October 1, 2009, the popularity of HECMs has been falling. That situation has intensified in the last six fiscal years due to the changes mandated to be made on 10/2/2017 by the Trump administration and the failure of the Biden administration to correct it.
Yes, fiscal years 2020, 2021, and 2022 were the best fiscal years for HECM endorsements in the last six fiscal years but the reason somewhat dilutes the third “hurdle” suggested above. Each of those fiscal years had high numbers of HECM Refi endorsements with two of the three having the first (2022) and second (2021) best fiscal years for HECM Refis in the history of the industry. This means those HECM Refi borrowers must have experienced some benefit from the HECM because many of them returned to the originator or were sought out by the originator of a prior HECM to obtain the HECM Refi.
The lenders have also failed. Industry marketing has been spotty at best. Henry Winkler is a great human being but his most memorable acting character, Fonzie, did not bring out the best public perception for reverse mortgages. While many originators may not be aware of this mismatch, the senior home owning public is. Lenders have also failed originators by creating a certificate that they do not support with marketing. Then there are the industry created myths that lender (and originator) marketing treat as facts, as demonstrated in part at various NRMLA conferences and conventions as well as demonstrated through actions taken against lenders by the CFPB.
Then comes training. While trainers do their best, when Wells Fargo left the industry, their training is still considered the highest ever seen in the industry and I never worked for nor was I ever trained by them. However, some of today’s trainers provide better training than Wells but the very best trainers today lack the lender support that Wells training team was provided on such a wide scale and Wells trained far more originators than any lender in the history of the industry.
Perhaps the worst aspect of the poor production today is a lack of professional salesmanship. Some today talk about treating customers as clients as the mark of true professionalism. Many of these well meaning folks say that we do not sell products but service. Really? How are you paid by 1) the quality of the service you provide or 2) the number of units you sell, at the margin you sell them at, and a) the size of the UPB or b) its MCA? I know of no originator who has ever been compensated under 1). If you have, please comment.
I agree with Mr. Veale’s comment that HECM volume has been falling since 2009. I disagree that the problem is President Trump’s fault. I am the age of my HECM borrowers and have had one since 2017. I see many issues with the product. Some are easy to fix. Others are harder. If you spend as much time talking to borrowers and prospective borrowers face-to-face as I do, you would see that the industry leaders don’t understand the borrower.
From my perspective, no one looks at how HUD creates losses on this product. The most obvious issue is that this product is inherently the last loan on the borrower’s last home. Nowhere does anyone ask the borrower “Who will handle your affairs when you can’t?” It should be obvious that when the borrower leaves the home and the loan comes due, the borrower is either dead or moving to some form of assisted living, maybe not always, but often enough that it should be addressed. I don’t know if the number is accurate, but Google tells me that 20% of people over 65 are or at risk of being “elder orphans”, people aging without family. HUD expects these people to sell and pay off the loan after they die. HUD expects them to sell and pay off the loan when moving to memory care. Only an idiot would consider these reasonable expectations.
Instead, these homes are abandoned to foreclosure. If a home is abandoned to foreclosure this time of year with the utilities turned off in my part of the country, one can expect the water supply lines and drains to freeze. The resulting water and sewer damage will destroy the home and leave little value for the foreclosure.
If it is abandoned with utilities on, it is reasonable to expect squatters to move in, drugs to be cooked, and serious vandalism. Again, leaving little to foreclose.
One obvious answer to this issue would be for the borrowers without heirs to make arrangements with a church or charity of their choice to receive the home when they die. If they have no one else, I am available to receive the home as Is.
No one seems to consider that many HECM borrowers are on or potentially eligible for Medicaid. Medicaid will not provide timely information about the size or existence of an estate recovery claim. They have 4 months after the death of a borrower to file their claim. Title companies won’t insure title for 4 months, but HUD wants the property sold immediately. We need a way to determine if a property is subject to a Medicaid Estate Recovery Claim and the amount of the claim. As things are now, Medicaid claims are causing HECM foreclosures. There has to be a better way.
It is easy for a Medicaid claim to over encumber a home without a mortgage. This means that a property with both a HECM and a Medicaid claim is likely over encumbered. In this case, there is no equity for the heirs. It should be clear that this issue and the ones above cannot be addressed by changes in underwriting or mortgage insurance premiums. Each of these build unnecessary losses into the system because they are ignored. These issues and more result in bad stories about HECM products. I see what is being done to create the bad stories, and they are well deserved. Until the leaders of the industry start paying attention to creating happy customers, I think volume with continue to drop until the product goes away.
Some items could be fixed very easily. Others would take some more effort. If the industry doesn’t start addressing the complaints, I think it will keep sinking.
The above are just a few quick thoughts. There is more that could be done to improve the product if anyone is paying attention.