Diversification: HECM Lenders Expand Their Offerings

Shannon Hicks November 26, 2017 5

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Unpredictable HECM changes lead many to diversify

If there’s one lesson investors have repeatedly learned it is the need to diversify, or suffer the consequences. Diversification is key for both small and large businesses and today several reverse mortgage lenders are making the shift to offer both traditional and HECM loans.

Any industry that is consistently focused on reacting to regulatory changes cannot grow. Such was the sentiment expressed by AAG’s CEO Reza Jahangiri during a panel at NRMLA’s annual meeting in San Francisco this month. “It puts us in a short-term, reactive response mode, and it’s really hard to invest in those longer-term initiatives and strategies”, said Jahangiri.

Hard to invest indeed. It could be easily argued that the Home Equity Conversion Mortgage has undergone more cutbacks, changes, and reforms than any other financial product in the marketplace today. As a result, HECM-only lenders are especially vulnerable unable to find the new norm of doing business. The HECM’s dependency…

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5 Comments »

  1. Mike Banner November 27, 2017 at 7:44 am - Reply

    The reverse mortgage world entering the traditional mortgage world is a great concept but is our beloved reverse mortgage industry even close to prepared for this move?

    Will a national sales force that has been averaging less than one closing per month for many years now suddenly put fourth the effort to have multiple closing per month? (Because that’s what it takes to make a living in the traditional mortgage world)

    Will a national sales force who is still whining about their client’s having to “qualify” for the mortgage really adapt to traditional mortgage qualifications, ratios and credit score driven underwriting?

    Will a national sales force that is used to making X amount per loan suddenly be motivated to work for a fraction of X? (Because if they think they are getting paid on the same scale for traditional mortgages as reverse then they are in for a very rude awakening)

    There are many more examples I can give but you get the point.

    In fact, I think the reverse world moving into the traditional mortgage arena is a great idea. My company has been offering traditional mortgages since it’s inception in 2015.

    We make it clear: our passion is reverse but we offer all types of mortgages. I don’t mind saying the fee income we have derived from the traditional world has been very helpful these past few years as reverse volume has continued to decrease.

    Again, I truly feel the reverse world joining the traditional world is a great idea. I personally had the advantage of 25 years experience in that arena before I fell in love with reverse mortgages 10 years ago.

    I wonder where is that experience going to come from in these lenders that are making this bold move?

    Will they be bringing in “new blood” from the traditional mortgage world? Our 2 worlds are so drastically different that this itself will present a plethora of problems.

    Will they be attempting to “teach” reverse professionals the traditional mortgage world?
    That will be fun to watch…

    Again, there could be incredibly great results by our industry making this move but it is no short term fix and the cliché “easier said then done” has never been more applicable.

    Huge kudos to AAG and other industry leaders for starting down this path!!!

    • The_Cynic November 27, 2017 at 12:16 pm - Reply

      Hey Mike,

      With all of the senior purchase opportunities in Florida, why is H4P not enough to carry any reverse mortgage company located within the sunshine state? Even when it comes to H4P where California is proportionately at a distinct disadvantage, somehow we hold our own which is higher proportionately (on a senior population moving basis) to anywhere else in the US.

      If it were not for your continuing education company would you remain in HECMs other than as an additional source of sporadic income?

      It seems like the moves being made by AAG and others are more defensive than proactive. They seem have given up on the idea of a blue sea strategy when it comes to anything HECM. The frequency of HECM changes and huge HECM losses now apparent from the Carol Galante era seem to be taking their toll in HECM morale and growth.

      With financial assessment now showing as little more than a very poor bandage to the hemorrhaging losses felt from HECMs in the MMI Fund, it seems all it is capable of doing is reducing the number of foreclosures from technical defaults and little more.

      • Mike Banner November 30, 2017 at 10:48 am - Reply

        Cynic,
        You have hit the nail squarely on the head on several different levels:

        1 – If it wasn’t for my school, which by the way I sold and am now starting a new one with a slightly different philosophy, I would have not been able to maintain a sufficient enough of a living in the reverse mortgage world. The school allowed me to speak to “groups” of real estate agents or financial planners and then a very small percentage of those groups would grasp what I was trying to teach and became very solid sources of business.

        2 – Florida, nor any other State for that matter, have never even come close to any type of penetration of the real estate world to make the H4P to the level it should be. I blame this 100% on the reverse mortgage industry ITSELF! I have maintained for years now: the H4P has not failed the industry, the industry failed it!

        3 – The concept of reverse mortgage companies entering the forward mortgage world is a real stretch as best. I listed just a few of the reasons why in my original comment.

        4 – That being said, bringing forward originators that make their living in the purchase world into the H4P world is the absolute best, and probably only way, to bring the H4P out of the shadows and into the light. And for that a company must be able to offer both reverse and traditional forward products. The concept is there but I do not see any of today’s players coming close to making it happen in the near future.

        5 – The comment you made that I feel is the most telling is the following” Reverting to the forward industry says a lot on the future value many large companies are looking from HECM originating.”
        This comment, because it is so true, is the perfect example of why I say this industry is it’s own worst enemy….
        The industry decides the reverse mortgage has an evil image, so instead of working hard to change that image a group of “so called experts” start yelling about changing the name.
        In 2010, when caps were placed on originations fees to stop our senior borrowers from being taken advantage of, originators cried they wouldn’t be able to make a living.
        When financial assessments were introduced, everyone cried the sky was falling.
        And the most recent changes that were made to allow the reverse mortgage to continue is now causing the industry to look to forward loans..
        Sad indeed…

  2. James E. Veale, CPA, MBT November 27, 2017 at 12:29 pm - Reply

    Shannon,

    As usual, you point out areas where we are all have concern. (By the way, Shannon, when are you predicting FHA will make the next change no matter what that change is?)

    Any ideas on what changes NRMLA will be lobbying for when it comes to the way HECMs are being valued? CEO and President of NRMLA, Peter Bell, is cited as presenting that goal at the Annual Meeting.

    Reverting to the forward industry says a lot on the future value many large companies are looking from HECM originating. One way to handle the change is simply obtain forward originators and pare down the number of HECM originators. Pragmatically that would seem like the best way to go.

    As an industry vendor, it would seem the HECM outlook is bleaker on 11/27/2017 than on 11/27/2015. Where do you from here?

    (By the way, Shannon, when are you predicting FHA will make the next change no matter what that change is?)

    • Mike Banner November 30, 2017 at 10:56 am - Reply

      James,

      I accidentally gave Cynic credit for one of your comments.

      Please see # 5 in my comments to him.

      Sorry to Cynic also!!

      James, hope all is well with you and yours!

      Mike

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