Larger Market = More Qualified & Interested Borrowers
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It’s a marketshare problem. As an industry we have been negatively impacted by falling home values, cuts in lending ratios or principal limits, elimination of products and borrower qualification guidelines. In 2009 over 114,000 reverse mortgages were endorsed versus only 54,000 in 2012. Consequently we can easily point to any of these factors as the leading cause of our lack industry volume. But are we not seeing the forest through the trees? One well-respected industry leader told me “I don’t want a bigger piece of the pie but a bigger pie itself”. Otto Cushman, CEO of Liberty Home Equity Solutions was quoted in Reverse Review’s article entitled “Extreme Summit” saying “ Less than 1% penetration, We are failing”. He backs his assertion comparing 50,000 endorsed loans in 2013 to 200,000,000 [correction made from 200,000] qualified senior households with sufficient equity equally a paltry one quarter precent of available marketshare. It’s boils down to the law of numbers. The same principle that motivates us to look at how many leads it takes to generate X amount of loans per month should be our approach to marketshare. More positively interested potential borrowers equals more loans. So where do we beign?
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9 Comments
It is interesting to me that just as we as an industry were meeting in New Orleans for our NRMLA meeting, a new article appeared in Morningstar. While we are trying to change perceptions, and potentially rebrand the “New HECM”, we get an article that states that the new loan offers less money and costs even more. With others being allowed to position the HECM in this way, it’s no wonder we have the market penetration that we do. The fight to get our message out will be a long one.
Mr. Brandenburg,
Big endeavors such as that being undertaken by NRMLA are slow to start and slow to go into full effect. Remember NRMLA is not the “financial powerhouse” it was at the end of 2007.
Good writers and syndicated columnists are not nearly so slow and will write what they deem is valid and will “sell.” The timing of the Morningstar article is but one example of how quickly the “story” about the new HECM can be picked up and presented in a way that makes us feel uneasy, although that particular story was fairly sound and accurate.
I certainly do not agree with the message that somehow the new HECM is a better financial planning product because quite frankly it is not. The truth is the new HECM is costlier and net of the increased initial MIP 1) when 0.5%, adjusted proceeds are slightly higher than adjusted proceeds (i.e., net of initial MIP) from the Saver and 2) of course when the initial MIP is 2.5%, any increase in proceeds over the Saver is much less.
When marketing attempts to hide, obscure, or distort facts, then how are we any different from most used car salesmen? I am not saying that the comparison to older products must be presented but neither should it be evaded IF seniors bring it up. Remember the adage: “To be forewarned is to be forearmed.” So be prepared to answer why the new HECM.
Marketing which distorts the facts should be refuted by all of us. Our marketing should be positive and state facts (not myths); let the chips fall where they may. There are plenty of seniors who need the new HECM and we need to learn how to reach them with a positive and factual message which highlights how a HECM can effectively meet their need. We have a long way to go to saturate our marketplace with the real message about how the new HECM can help seniors.
(The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)
The reaction of needing a bigger pie was not unanticipated. Fiscal years 2011 and 2012 were the years of lenders. In those fiscal years, huge portions of the pie were abandoned by the largest lenders in our industry; with little additional effort, lenders had the opportunity to grasp significantly higher endorsements. Most remaining lenders saw little need to increase market share.
Even though fiscal 2013 saw a small but significant increase in the pie, lenders were dissatisfied with the result. Now with fiscal 2014 looking like a year of contraction not only as to endorsement volume but also a catastrophic year for revenues, lenders realize they cannot be satisfied with the gains from yesteryear.
It is great to talk around the subject of this alleged new message but message(s) are these leaders promoting? What is different than when I began looking at reverse mortgages in early 2004 is that we now have well defined examples of what was being stated in those days.
For example, it was being promoted last decade that HECMs should be utilized to increase cash flow early in retirement and portfolios and retirement accounts should be saved for later in retirement. Based on some very specific assumptions, the Sacks brothers have demonstrated how that works. Another thing that was being promoted in the last decade was that in downturns seniors should access HECM proceeds rather than portfolio or retirement assets to live on. Harold Evensky and John Salter clearly showed how that could be effectively used in their third bucket concept on Standby Reverse Mortgages. Yet none of these are new messages just improved messages.
Colin Cushman is right. What is needed is a change in the perception of senior homeowners. Yet as we all know it can be impossible to undo a first impression. It seems we have been far too passive in allowing others to define our products. So while the task is not impossible, it will be very difficult especially in an environment where revenues per closing will be much less than they have been in the last 3 plus fiscal years.
So where is “the beef”?
A test to see if we’re reading carefully, right? The market should be 2,000,000 available with only 50,000 loans endorsed, yes?
According to Mr. Kumbar. The math makes sense with 200,000,000 not 200,000. That was my mistake and thank you for catching it Jeff.
Here is a link to the PDF of NRMLA’s Magazine in which he was quoted.
http://services.nrmlaonline.org/NRMLA_Documents/Nov-Dec13.pdf
Shannon,
I agree with everything said including Liberty and Generation leader comments. However, to worsen an already tough enough situation, the “PIE” that was 154,000 just 4 years ago and is now down to 54,000 is being shared by many more Reverse “experts” than ever before. Probablyt double what it was 4 years ago. This obviously means each rep is getting crumbs now instead of slices, and advertising less, as they run the risk of not getting a good enough R.O.I. on their investment dollars. The bigest group we need to educate, even more so than the public and seniors, is the actual LO’s themselves. I hear what is being said by many “forward” reps when talking about REVERSE and I cringe, as it’s typically and mostly incorrect. I spend way too much time trying to correct them, and am giving up as I am not their manager, and cannot spend my time educating the ignorant for FREE. What the industry can do to educate LOL’s on REVERSE would be far less costly than anything else, and have an immediate impact. Let’s get NRMLA and other organizations to unite in an effort to educate the forward LO’s on the true and up to date features of a HECM.
if you should publish, please make three typo (spelling changes) . Need spell checker in comments. Probablyt – – – – bigest – – – – – LOL’s Thanks
Mr. Cushman is exactly right. We have a perception problem and that is not going to be easy to overcome. The most challenging objection that I get is a desire to leave the home to the children and that seems to be a deal breaker. Curiously, what are a couple of good arguments to answer that objection?
One is to ask in an unoffensive way if the seniors think that the children (and grandchildren) really want to leave their neighborhoods to live in the home of the parents; after all most children are very well established in their own neighborhoods and the grandchildren do not want to move from their friends and current schools. A second is to ask if they believe that the children will really feel better about the parents scrimping in retirement just to get by rather than using their largest asset, the home, to better survive the ravages of retirement. A third is to ask the parents if they believe that the children will help support them. A fourth is to ask the parents if the children can provide help will their families suffer.
There are many other ideas and most of them can be rephrased to address the children rather than the parents. Of course much will depend on the facts and circumstances of the seniors and their relationship with their children.
Just remember some of the basic appeals of HECMs are they provide financial independence, more financial stability, and financial dignity for senior homeowners in retirement.