In recent months, reverse mortgage industry analysts have been warning the sector a bit. Although the volume of Home Equity Conversion Mortgage (HECM) stayed above 4,000 units Every month for most of the past year, the number of HECM-to-HECM refinancing transactions — in one estimate totaling as much as 40% of total industry volume — has been unsustainable for much longer, they said.
To gauge the attitude of reverse mortgage professionals across the industry, RMD briefed major lenders and brokers on the company’s condition with with regard to refinancing, and whether or not there is any concern among reverse mortgage business leaders and direct practitioners about the refinancing boom currently taking place.
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The responses received were enlightening. Many lenders don’t want to take out a source of valuables, especially at a time when refinancing may make sense for many borrowers due to the current interest rate environment, while some others recognize that a refinancing wave is not a sustainable way forward for the future of the reverse mortgage industry. and its ability to attract new borrowers.
What refinancing business looks like now
The old saying “a rising tide lifts all ships” is the attitude of several reverse mortgage lenders. While market leader American Advisors Group (AAG) has seen a noticeable increase in refinancing applications, so has the overall number of applications, according to James Mittleman, senior vice president of retail at AAG.
“While we’ve had quite successful refinancing campaigns this year, this has not been our primary focus,” Mittleman tells RMD. “Our total applications per loan officer are the highest we have seen in the history of our company and so are higher-than-normal refinancing applications. This trend is the result of older Americans seeing their homes increase in value by a significant amount and cash in on what has become their most valuable asset. And with interest rates remaining low, those who already have a HECM are seizing the opportunity to access additional equity.”
Other lenders make it immediately clear that they recognize that the current level of refinancing is not exactly sustainable going forward, but it is also a company that should not just be left on the proverbial table. This is part of the view shared by Patty Wills, the national sales manager of reverse mortgages at Open Mortgage.
“Our retail affiliates have a diversified pool of reverse mortgage loans and referral partners and resources at Open Mortgage,” Wills tells RMD. “Of course, the HECM-to-HECM business remains strong, but we believe, and data shows that this business cannot continue at its current level. Senior Open Mortgage employees emphasize the ongoing need to grow new business. At the same time, we are working with current opportunities to refinance existing HECMs for our customers.”
Other entities are specifically focused on broadening the base of new borrowers. San Diego, California-based C2 Reverse Mortgage, a division of C2 Financial Corporation, has a concentration of its reverse mortgage borrowers in high-value properties in the western United States. The company wants to target new borrowers and has no specific specific refinancing program according to C2 Reverse National Manager Scott Harmes.
“We don’t have a call center, we don’t keep track of who has a downside” [and at the] 18 months old [mark], [approach someone] for a refinancing,” Harmes tells RMD. We get anecdotal refinancing transactions, but most of our business is in new borrowers.”
However, concern about the industry trend to go for existing borrowers is also not in Harmes’ mind, he says. While he believes that C2’s average refinancing volume is about 20% of the total — half as much as an industry average of a staggering 40% — the impact of the COVID-19 coronavirus pandemic makes it clear to the borrowers C2 serves that the equity unlocked through a reverse mortgage is an efficient means of aging.
“My perspective is that the unfortunate, tragic pandemic we’ve been through has really highlighted the reverse as a viable option for a sustainable solution to help people age in their place,” Hermes says. “Because right now I think most seniors would do anything [to avoid going] to a nursing home or a residential group for seniors. Tapping into their equity with a reverse mortgage is a tried and true way and a great option for that.”
The importance of referral partners, using various marketing media
Reverse mortgage referral partners are more important than ever for new business proliferation, and many leading reverse mortgage lenders and brokers are well aware of this. Current trends in the business help to emphasize the importance of maintaining good relationships with partners across the spectrum, from financial planners to brokers.
“Open Mortgage encourages our loan officers to stay in constant touch with their pool of referral partners and resources to grow new clients,” said Patty Wills. “We offer programs that help and train our originators in locating, creating and continuing to communicate with new referral partners. It continues to build those relationships that will drive business now and in the future. Building relationships is critical to future success.”
The importance of using a diverse marketing strategy is also key to attracting new borrowers, according to Don Currie, president of HighTechLending.
“At HighTechLending, we focus on a healthy mix of new borrowers and existing HECM borrowers,” Currie tells RMD. “New prospects can be found by using all current marketing media such as mail, internet, telemarking, TV and social media. The bottom line is to have a foot in both ponds, new and existing reverse borrowers. This will lead to a pool of loans that our investors will continue to generously reimburse us producers. Our seniors ultimately benefit from this and that is the end goal.”
For AAG, finding new borrowers has actually become easier. As more and more people reach the threshold of eligibility for reverse mortgages, a new level of technological understanding makes previous educational efforts about the product category less important than they used to be, said James Mittleman.
“Every year our customer base gets a little younger as the baby boom generation becomes eligible for reverse loans,” Mittleman says. “With that, we see a shift in our customers’ understanding of the products before they contact us. As online resources become more readily available and seniors become more technologically proficient, a large percentage of our customers come to us with a better understanding of how the products work, whereas in the past many of our initial interactions have focused on pure education of the products. ”
That education brings more diverse use cases and different types of applications of reverse mortgage loan proceeds to new borrowers, Mittleman says. With new eligible borrowers emerging every year, it appears that AAG continues to believe that each year new eligible borrowers will make the need to appeal to existing borrowers less important.