“Often, the one bearing a potential solution is battered for their effort.” ~Unknown
Reverse mortgage professionals can certainly sympathize with such a statement. It’s not just homeowners but our national and local media outlets who are prone to paint HECM in the poorest possible light.
Presenting a potential answer for any vexing issue is a delicate business. Doubt me? Try to promote a local ballot measure in your city and see what happens.
What is the source of most outright rejections of the reverse mortgage? Generally, it’s not suitability or even product design. It’s a misunderstanding rooted in a lack of education. Over two-thirds of HECM professionals responding to Reverse Mortgage Daily’s 2020 Outlook Survey and Report identified a lack of product awareness and negative perceptions as our biggest ongoing challenge. Ask any random adult in your town how a 30-year mortgage works and chances are they will get it generally right. If you ask the same person how a reverse mortgage works brace yourself. You most likely will hear how the bank takes your home away and how a loan is a terrible option.
But wait! Hasn’t the federally-insured reverse mortgage (HECM) been with us for 30 years? It certainly has but unlike traditional mortgages, few banks now actively sell the loan to their clients in the wake of big bank exits, most financial advisors will discuss traditional home financing while ignoring the HECM, and the government has not publicized the usefulness or legitimacy of the program. Outside of national television ad campaigns, the majority of older homeowners first learn about the reverse mortgage second-hand from a friend, neighbor, or family member. That leaves it to us- you and me- to inform and educate not just our potential borrowers but the general public in our community.
To put it in an agrarian context even the most nutrient-rich soil ideal for a particular crop requires preparation. Not just plowing the top one-inch of soil where the seed is planted, but a foot or more below so the root takes hold and water can easily seep upward. Not unlike our potential market of homeowners neglected soil becomes hardened, dense, and compact making growth nearly impossible. Something to consider the next time a homeowner or professional rails against reverse mortgages. However, like your local farmer, we have to live off our short-term crops. That means we find ourselves typically focused on working the ground around a particular homeowner to ensure the success of that effort. While this is effective we also need to dedicate a portion of our efforts to public education. That could mean appearances on your local television and radio stations as we discussed in a recent episode of the Industry Leader Update on HECMWorld. You could speak to local senior groups not to try to sell the loan itself, but to merely inform them how a HECM truly works.
The truth is public awareness and education begin in our backyard. Our government won’t do it for us. Amazing television ads may help but cannot reach everyone dispelling common myths and misunderstandings. Even a coordinated national effort is ultimately reduced to what each of us individually is committed to doing. The challenge is to look at carving out time each week and month this year to spread the word on how a reverse mortgage actually works. In doing so you will not only dispel the most common persistent rumors and myths about the HECM but prepare the soil to increase the yield from your future efforts.
The long term goal of tilling and planting is the harvest but to get there the crop must grow. Our growth/harvest patterns as an industry have been less than stellar.
1) It was not until the thirteenth year of this program (FYE 9/30/2002) that HECM endorsements even reached 8,000.
2) The apex for HECM endorsements was 13 fiscal years ago (FYE 9/30/2009) with 114,692.
3) Since 9/30/2009, not one fiscal year has produced even 80,000 HECM endorsements, in the last 11 fiscal years total HECM endorsement production has not reached 65,000.
4) Our worst fiscal year for HECM endorsements since 9/30/2003 was the fiscal year 2019 with just 31,274 HECM endorsements.
A) At 76,351 total HECM endorsements, the increase in fiscal year 2006 alone was greater than TOTAL HECM endorsement production in fiscal 2019 with an increase of 33,220 HECM endorsements.
B) In fiscal 2007, the increase was almost the total produced in fiscal 2019 with a total increase in HECM endorsement production of 31,207.
5) This fiscal year is off to the worst start for a fiscal year since fiscal year 2019.
There are many reasons for this pattern but perhaps the greatest is lower PLFs (Principal Limit Factors). Our prospects are rarely aware of this fact, so the. complaint we hear most often is why are the upfront costs so high. Such complaints in fiscal years prior to fiscal year 2010 were easily addressed with PLFs of about 10% greater than the age of the youngest borrower and a maximum PLF of 90%.
Without a substantial lift in PLFs, it is hard to imagine how education and great ads will result in the heady days of fiscal year 2009 any time soon.
When seniors are told of the amount of cash they are short to close in this PLF environment, it is clear that the HECM is not the product for them. This problem is far too common today.
So the question becomes how can we or HUD significantly care for the underserved senior homeowner with PLFs this low??Again neither education nor great ads alone will shore up this gap in funds. Unless PLFs substantially increase, it seems we are locked out from fiscal years having HECM endorsements greater than 80,000 for years to come. 100,000 HECM endorsements in a single fiscal year again is a dream too far in the future.
Perfectly said…It is a shame but eye opening.
I have been in the industry for 20 years now and have seen my share of highs and lows.
Thank you for being realistic.
As a Realtor since 1974 ( I was 24) it was drilled in our mind to take 10% of our commission to marketing ourself, And that’s what needs to be done as a Reverse Mortgage Agent: Now i see myself (as I did in real estate) using direct mail / YouTube Videos / wearing T Shirts with my logo on the back: (DanTheReverseMortgageMan with my email / ph # ) My brother belongs to a Classic Car Club, There’s hundreds of prospects their most are middle aged and perfect for striking up a conversation and answering there questions.
One of the best hand outs and return on my investment was scratch pads, everybody can use a scratch pad to write on and it last for months. The main thing is to market yourself and be consistent, make it fun and the prospects will see you as the HECM professional.
All great aspirations but are your plans realistic? You might be surprised by the reactions of those middle aged folks when you approach them about their retirement plans being tweaked for a reverse mortgage.
I wish you the best and here’s to proving that you are the greatest when it comes to “farming” the Classic Car Club community for reverse mortgages. With just 2,690 HECM case number assignments in December 2022 (the latest such data HUD has provided through 2/20/2023), the market as a whole seems to be making the point that these are not the best of times for our little industry so again good luck in making headway with the members of these clubs.