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2014 Presents Challenge & Opportunity for HECM Industry
The classic Bob Seger song laments, “Against the wind. I’m older now but still running against the wind.” Both retirees and our industry are pressing against the resistance of retirement funding and a more restrictive product for us to offer. The good news is that the reverse mortgage industry and the HECM product have proven their staying power having endured one of the worst housing crashes in history, an economic crash and numerous product changes. Also increasing home values have buoyed production with an increase of 15% through November.
The next headwind will be felt once HUD enacts the financial assessment in it’s effort to reduce risks of borrower defaults and subsequent claims against FHA’s insurance fund. But are some of these recent developments a blessing in disguise? Columnist Phil Hall in the National Mortgage Professional Magazine says yes. Hall says, “A new oversight regimen may finally help to erase the lingering doubts surrounding the product.” If we look at the true obstacle for market growth it’s not the 15% reduction in principal limits, the elimination of the Standard Fixed rate or increased insurance premiums. It’s our industry’s reputational woes. Hall cites one originators experience…
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I love the changes. It’s getting rid of many undesirables in our industry and causing me to work more closely than ever with realtors, CPA’s, Attorneys, Financial planners and insurance agents. As Napoleon Hill once said in his book, “:THINK and GROW RICH”, money is not an object, but rather and idea. He asked Henry Ford what he would do if he lost the first $5 million he made, and Mr. Ford simply replied; “That’s easy, I’d come up with another idea and make it happen again”. If we think this way, as I am now, we can come up with ideas that will make us richer for it! Mike Johnson- REVERSE MLO and Founder CEO of Trusted Referral Partners. http://www.trustedreferralpartners.com
Last week and this week I have not been able to hear any sound from your videos. I hear the Monday podcast fine and other stuff on my laptop so it doesn’t seem to be my computer. Any suggestions???
Thank you…I really enjoy your work.
David,
We spoke but I wanted to reply for others who may be experiencing the same issue. Microsoft’s Internet Explorer 11 was just released about a week ago and installed as part of Microsoft’s automatic updates. The issue is IE 11 is an inferior and bug-ridden product which does not play by the established rules of international web development. This being the present situation we are advising all of our members to avoid using IE 11 on our site and all others until Microsoft releases a product which does not break the end-user’s ability to visit sites which were previously trouble-free.
The product changes are a temporary issue. Unless prospects are aware that something has occurred to HECMs or is somewhat familiar with the product before 10/1/2013, why waste any time on the changes with new prospects when presenting to prospects?
Right now all of the things Shannon covered can be and are problems. Long-term it is current product perception and industry reputation which will stay with unless that cycle can be broken. With smart financial professionals, product changes will not normally be an issue but with less financially sophisticated seniors who understand they lack the financial acumen to evaluate the product on their own are far more reliant upon and susceptible to the impressions of trusted individuals whether those persons have the necessary acumen to rationally evaluate HECMs or not.
This is one reason why the Extreme Summit is needed so much and must overcome the predominant negative perception so many have about HECMs and the industry today.
Shannon, I couldn’t agree more. The reverse mortgage reputation is so bad in the greater community it’s difficult to overcome. Everyone thinks we take possession of the house. It’s all about education and getting people to listen. The industry as a whole needs to do some major marketing and put a new spin on public opinion.
Shannon,
Great video as always. In my view, perception bias is the chief hurdle. Our penetration rate has not changed in any significant way in over a decade. If it had risen from 2 -20%, and then back down to 2%, then, based on timing, we could perhaps deduce that the product changes had something to do with it.
Throughout all of the product changes, the penetration has remained somewhat unchanged. The many past product changes seemed not to have affected the acceptability of HECMs, but merely the applicability. Some changes good for applicability, and some not so good.
Hypothetically, imagine if 100% of the people in the U.S. totally and completely understood and trusted the value of a reverse mortgage as an effective, safe, retirement tool. Would lowered PLFs or financial assessment be the hot topic or the pain point for the industry?
Imagine a market penetration of only 25% (let’s say 12.5 times our current volume). If lenders had 12.5 times more business, would HUD have the same “loan of last resort” underwriting, default, and MMI fund issues? Would lenders spend less time and resources working on “marginal” loans? Would pipeline attrition be lower?
Perception bias for reverse mortgages not only suppresses volume growth, it also contributes to weak loan portfolio performance for HUD, which can, in turn, promote additional perception bias.
Mike,
I agree that perception is ONE but one very significant hurdle we must overcome. But I do not agree with your MMI Fund analysis at all.
12.5 times the volume does NOT equate to 25% penetration. Penetration is simply the number of active reverse mortgages divided by the population over 62. It would take more than decade of doing 12.5 times the current volume we do today to get to a 25% penetration level.
If reverse mortgage originations had been 12.5 times larger each fiscal year since the beginning of fiscal year 1989, the HECM portion of net position of the MMI Fund would not be $5.151 billion negative but much closer to $120 billion, if not more. For all practical purposes there would be no HECM program today because FHA would have needed over $100 billion to make the net position of the MMI Fund zero as of 9/30/2013.
We are fortunate that the program has shrunk since 9/30/2009 or we probably would not have a HECM program today. Count your blessings.
I think both can be concerns. Reputation is a challenge nationally but the restrictive product may have the greatest impact in areas of lower home values (mid-west) than in the cities. These clients generally made less so may also not qualify based on income guidelines with financial assessment coming. You can have the greatest reputation in the world but if a client doesn’t meet the program requirements it still amounts to an unqualified candidate that can also impact the reputation of the product. I have a client who has been looking at this over a year and this was his assessment. “Jake, it appears to me that this program is going to be for the well-to-do clients with large home values. It may not be a good fit for home values under 100K”
Jake,
HECMs have always been a coastal and sunbelt states product. Look where the high disproportionate concentration of HECMs are. They are not in Michigan, Missouri or even Idaho.
States like California and Florida have a huge disproportionate share of HECMs. The new HECM will only strengthen that effect. Just look at the high disproportion of CFPs in the country, especially here in California. We have over 400,000 real estate licensees as of October 2013; that is almost the estimated population of the 45th largest city in the US, Oakland, California.
Don’t expect to see any significant changes now or in the foreseeable future. Despite all of the speeches against the growing gap between wealthy and poor, the Obama Administration has been doing all it can to widen that gap for five years now.
Cynic,
Thanks for the clarification, and I do agree with your point. The MMI issues are certainly related to the product designs and customer behaviors which have been recently addressed for the better.
I guess my point, poorly presented, was that with higher volumes, lenders may have more choices about the loans they choose to originate. In other words, is it a loan of last resort for the borrower, or for the loan officer who is trying to make a living.
If consumers are deathly afraid of the product, only the most desperate will exhibit the courage to apply.