Urgency is prohibited but the need is there

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Urgency vs. Need

Editor’s note: A version of this article first appeared in March 2020

To employ a sense of urgency that homeowners may miss out if they don’t act now is a violation of our industry’s ethical guidelines as enumerated by the National Reverse Mortgage Lenders Association. In its 2010 ethics advisory, NRMLA writes, “FTC staff has also indicated that it disfavors and views with higher scrutiny ads that attempt to create a “sense of urgency” or an immediate call to action.”

While employing a sense of urgency is prohibited, many homeowners are feeling the urgent need to find new sources of cash flow or where they can get their hands on funds should they need them. Not surprising since inflation turned out not to be transitory nor moderate. Many of those who had little or no interest in a reverse mortgage three years or even three months ago could be highly motivated to learn if the loan is a suitable solution- whether they have a significant retirement portfolio or not. Others see that real estate is one asset class whose prices are unsustainable and want cash in now rather than later.

‘Checking in’

Most likely you and your potential reverse mortgage borrower parted on good terms which means there’s no reason not to reach out. Before you pick up your phone first consider your approach. Your goal isn’t to ‘make a sale’ but merely to check in and see how they are doing. After you’ve introduced yourself from your earlier meeting ask if they are safe. Is everyone healthy?

Let them talk. Ask if they have any concerns about their future cash flow. If you took good notes during your earlier meetings you should know if they are invested in the stock market or other investments. Perhaps converting a portion of their home’s value into cash flow with a reverse mortgage could help assuage their worries. However, if you don’t reach out you’ll never know.

A Window of Opportunity

While there is much uncertainty in our world, one thing is undeniable: more older homeowners and retirees are more concerned about their financial security today than they were six months ago. Reaching out to these individuals may provide a much-needed lifeline. 

A Reversion to the Mean

The Math proves it.
The time to use an inflated asset to offset inflation is ending

If there’s one word that comes to mind when describing home prices today it’s inflated. Today’s inflated home values are primarily a product of two things: years of cheap money (low interest rates), and a long-term shortage of housing inventory. 

Reflecting on the current state of the housing market many may say, “something has to give”, meaning this cannot possibly last forever. They’re right.

What does ‘reverting to the mean’ look like for the U.S. housing market?

What’s likely to happen is a reversion to the mean.

Not a nasty person or a ‘mean’ housing market, but a return to the historic norm. Let’s take home appreciation. Just like gravity eventually pulls an object back to earth, economic forces eventually exert enough resistance to pull back home appreciation rates back to their historical mean. 

The reversion of home price appreciation is the natural result of a highly speculative, abnormal, and highly-inflated market. It’s also extremely painful for those who may have lost the opportunity to restructure their debt while tapping into some of their home’s value.

The impact of repeated interest rate hikes would generally be offset if home values miraculously continued to appreciate by 15-20% a year. The fact is such daydreams never materialize; especially not when potential homebuyers have fewer dollars to invest in a home thanks to historically-high inflation that shrinks their dollar each day.

Despite a historically-established record of housing booms, busts, or deflations, many homeowners choose instead to believe the myth that home values will never fall. Of course, they will and do. The question is what happens to those who don’t secure some of their home’s value only to see it drop by ten, fifteen, or twenty percent? 

For those who are not cash strapped despite the spike in the cost of living the answer is ‘very little’. However, for many, the regret and anguish will feel as real as the bricks in their home. They missed the opportunity to leverage an inflated asset (their home)  to offset the inflation of the costs of goods and services during retirement. That’s when a reversion to the mean in home values can feel quite nasty.