What’s preventing industry growth?

Shannon Hicks March 30, 2018 18


ePath 100K RM leads

How do we break the cycle of change, volume reductions, and bounce back?

It’s no secret. Industry stakeholders, originators, and pundits have lamented the stagnation of reverse mortgage originations since the housing meltdown of 2009. Certainly we could partially attribute the lack of market expansion to the exit of big bank lenders such as Wells Fargo and Bank of America. We could also point to fewer applicants meeting the requirements entailed in the Financial Assessment. Perhaps more significant are the series of lending ratio or principal limit factor reductions that have closed the door to homeowners seeking to payoff a significant mortgage balance.

While reportedly 10,000 baby boomers retire each day, home values rising, and more retirees are lacking the funds to retire comfortably, fewer are taking a reverse mortgage. This paradox begs further examination.

Perhaps one clue can be found in our industry’s historic response to product changes. For example the…

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18 Comments »

  1. James E. Veale, CPA, MBT March 31, 2018 at 12:53 am - Reply

    The first three years following our peak endorsement production ever (fiscal years 2007, 2008, and 2009) were sharp years of decline in annual endorsement production. For the last five years the industry as a whole has experienced a slightly downward sloping, peak to valley pattern of classic secular stagnation. We have yet to find our way out of this pattern of stagnation.

    After six substantial changes to the Standard HECM (on 10/1/2009, 10/4/2010, 4/1/2013, 9/30/2013, 4/27/2015, and 10/2/2017), the current Standard is in essence an upfront high cost Saver with a punitive form of financial assessment. The current Standard is far less likely to be recommended by the financial advising community than the original Saver.

    Beyond diversification, there is a growing need to find new sources of referrals and develop and refine effective marketing for those new sources. So far there has been no indication in the industry that this strategy is seen as the most effective way of overcoming secular stagnation as advised by two well recognized Harvard economic professors during the last century, Dr. Larry Summers and Dr. Alvin Hansen. Many of my former clients saw their businesses slowly become less productive and harder to grow unless at least 10% of their budgets were not dedicated to research and developing new sources of revenue. Why is this industry any different?

    Even as the industry looks to new sources of revenues, it must also continue developing those upon which it depends. Shannon lists three means to sustainable growth which are worth repeating: “(1) A respite from additional HECM reforms until better data can measure the effectiveness of recent product changes, (2) a coordinated national advertising campaign to increase product awareness and acceptance, and (3) a return to focusing on meeting the needs of today’s retirees while at the same time making the loan attractive to affluent homeowners who present less risk to the program.”

    While the first means is out of our control, we need to lobby HUD to make a concerted effort to evaluate the results of its changes and wherever possible reform those changes in a way that will increase HECM endorsement production. The next two means to sustainable growth in our existing sources of HECM originations are WITHIN our control. The lack of collaboration, and commitment to the Extreme Summit which led to its demise, should not result in the industry refusing to establish a coordinated effort to market the product nationally as an industry through NRMLA or, if necessary, in some other organized structure. Finally, after each future FHA change, we need to be adaptable to redirecting our origination efforts according to the direction that senior demand dictates.

    I hope Shannon’s presentation makes the industry take notice to where we are and how we can come through it in the best way possible.

    EXCELLENT JOB, Shannon.

  2. kevin vasquez April 2, 2018 at 3:49 am - Reply

    if such a large percentage of seniors (the majority) have not adequately prepared for retirement (the needs based borrower) then why is there such a push to attract and target the more affluent borrower when they don’t really need the product? why not focus more attention on the larger market share of seniors who actually need the reverse mortgage? what is so wrong with a senior who needs the product?

    • James E. Veale, CPA, MBT April 2, 2018 at 12:17 pm - Reply

      Kevin,

      Great points!

  3. owen coyle April 2, 2018 at 4:48 am - Reply

    Shannon that was an excellent piece of information that you gave us this morning. I’m sure that took you many hours to gather all that information and numbers, and then arrange all the data so it could be delivered in a way that it gives us an overview of what has been going on in the past and what’s going on presently.

    My income in 2028 will be reduced due to the changes HUD made on Oct 2nd,2017. I hope and pray that at some point in time HUD will increase the Principal Limit available and allow more seniors in need to qualify for reverse mortgages.

    Thanks again for putting all this information together, I’ll keep it on file.

  4. Mike Johnson April 2, 2018 at 6:04 am - Reply

    And what’s the good news?

    This is depressing and getting into the heads of the remaining Reverse Loan Officers that have not left the industry yet. It’s negatively affecting their mindsets. What we need is an industry that pulls together and get the truth about REVERSE out there to the 58,000,000 seniors, while 58,000 get a Reverse per year. That’s just 1/10th of 1%. This means when we mail to 3,000 seniors, maybe (if your good) 1% will respond (30) and 5% of them (1.5) will get a HECM. So if we plan on greater than the average R.O.I. (return on our investment), we’d better know exactly why we are better than the industry average and why more will close with us than the industry does on average.

    Here’s the deal: A senior gets your ad, our mailing, your phone call. They’ve heard much of, if not all, the negativity surrounding REVERSE for 10-15 or 20 years or more. It’s very hard to overcome, and have them believe us, over what they hear on TV, from the HUD secretary, making statements about 646% increase in HECM foreclosures, or industry being down or Financial Planners not being able to stay with the plan now that the Amount one can borrow has been so reduced, while the cost to close has increased due to the same government that is here to make the HECM safe and secure. For who? The senior or for the Gov’t.?

    We need Peter Bell and NRMLA to do something, speak up on behalf of the industry, give the public current truths, and help us turn around the mindsets of the public regarding Reverse or HECM. If the truth hurts, at least it’s the truth. Calling it something else isn’t making it an easier pill for seniors to swallow. Giving seniors less for more, isn’t adding credibility to our sales pitches.

    When I give a quote and it’s $18K in closing costs to payoff a small mortgage, closing costs and get the remainder of 60% of 45% of the home’s value, often the borrower leaves the closing with less than the closing costs. And we wonder why they take a hard long look at a HELOC instead of a HECM. Why would one want to do this? We are taking away the reasons for a senior to “WANT” this product. Yes, a small percentage is desperate and “NEEDS” this product. Is that the haystack needle we have to market to today?

  5. Catherine Coy April 2, 2018 at 7:10 am - Reply

    James Veale wrote: We need to realize that the first three years AFTER our peak endorsement production ever was FOLLOWED BY three fairly sharp years of decline in annual endorsement production.

    You mean, something happened after something happened?

    This is what’s wrong with the reverse mortgage as a product and as it’s presented by its sellers: constant gobbledygook.

    Neither Shannon nor James’ commentary is coherent. One must read it several times to make sense of it. One must practically re-write it in one’s own internal language to understand it.

    If the average person can’t understand what its practitioners are trying to say, how can a senior–most of whom would like to get complexity OUT of their lives?

    One crucial thing the industry can do is make the product less complex. The loan application package should NOT be 90+ pages!

    Confucius say, a confused mind says no. Unless and until everyone involved can learn how to write short(er) sentences with a minimum of big words, the industry will continue to stagnate.

    (I suggest “reverse mortgage” be changed to “equity access mortgage.”)

    • James E. Veale, CPA, MBT April 2, 2018 at 9:56 am - Reply

      Ms. Coy,

      I laughed when you stated that my comment was “constant gobbledygook” and incoherent. Facts are facts if my writing is awful, my majors in college had nothing to do with developing story writing skills. So I apologize for my many writing weaknesses.

      I am a fan of difficult crime solving mysteries. Some of those mysteries observe that something happens followed by just the opposite which is similar to HECM endorsements having three years in which we achieved our highest level of annual endorsement volume followed by three years of sharp declines in annual endorsement volume. We have all, no doubt, opined several times what the source of this decline were and most of the time those opinions have differed to one degree or the other. I, for one, have different opinions about those events than I did even five years ago. Time changes perspective.

      It is only 15% of the population who gravitate towards mathematical presentations. So I would expect to hear some complaints especially where the message is not what folks want to hear. Here is my message to those who want something good to be reported on, provide empirical facts that can be easily and independently verified which show something positive has happened and I will report it.

      I just submitted one to RMD that points out several positive aspects about the last decade that no one has previously written on.

  6. Catherine Coy April 2, 2018 at 7:20 am - Reply

    Example:

    Now: While reportedly 10,000 baby boomers retire each day, home values rising, and more retirees are lacking the funds to retire comfortably, fewer are taking a reverse mortgage. This paradox begs further examination.

    Better: Reportedly, 10,000 baby boomers retire each day. Home values are rising. More retirees can’t retire comfortably. Why, then, are fewer seniors taking a reverse mortgage? Let’s examine this paradox.

    Whoever thought to call it a “reverse” mortgage was just dumb. Hmmm…maybe “equity release mortgage.”

    • The Positive Realist April 2, 2018 at 10:58 am - Reply

      Catherine,

      At no time does equity alone come into play in any reverse mortgage. If a prospect comes to you saying they have 60% equity in their home and then asking if they qualify for a HECM only inexperienced and incompetent originators would answer that question with an unqualified “yes.” The same is true if the senior only told you he had $400,000 in equity in their home. Equity alone tells us nothing, while a mortgage amount of say $600,000 would at least tell us that the senior did not qualify for a HECM, UNLESS they had cash to close with.

      Even over the life of a HECM, equity does not come into play. For example, with a HECM if current home equity is negative restrict the ability of the homeowner to take out the remaining $100,000 in the line of credit or see the available line of credit rise next month? Or how about the homeowner with $800,000 in home equity who has $2,000 available in the line of credit but needs $3,500 to pay his property taxes. Can he more than $2,000 out of the HECM just because he has so much equity?

      How is a HECM equity release? It is a mortgage whose conditions are based on the terms of that mortgage not on how much equity there is in the home.

      Marketers love the concept of equity release but HECMs, as is true with all reverse mortgages, are just mortgages with special features for those who qualify. Even the concept of “equity conversion” with a HECM comes from its “shared appreciation rider” as recited in its “shared appreciation” allonge which are found in the HUD HECM Handbook 4235.1, Appendices 11 and 12.

      The mortgage portion of the HECM alone is not nor has it ever been an equity release product. A sale of the home is an equity release transaction. Options such as the now “old” Equity Key and The Rex agreements were all true equity release products.

  7. Melinda Hipp April 2, 2018 at 8:39 am - Reply

    Ms. Coy: Shannon and James’ comments are directed to the Reverse Mortgage Originators. So we had better understand it because there is no government loan that does not contain complex information. Also the true name is a Home Equity Conversion Mortgage (for HUD’s version) so that is what we need to call it……same idea as yours.

    I have spent years combatting the “high costs” comments most people hear, and that in itself is a problem now more than in the past. I have a couple coming in today simply to do a line of credit. I really feel bad for them having to pay the 2% upfront plus a full origination fee since our margins are so thin. But, it is what it is. NRMLA is, and will always be working with HUD to attempt to get what is best for the seniors. REMEMBER the last change was a surprise to everyone. Let’s please just continue to be positive.

    I agree with Shannon’s comments on the national advertising plan. A few years ago, that was put into motion, but seemed to have fallen flat on it’s face with no explanation. The BIG boys cannot carry us all, so the smaller companies will have to play a part in that plan too.

    Everyone take a deep breath and let’s keep on keepin’ on!!!!

    • Robin Faison April 11, 2018 at 8:08 am - Reply

      NRMLA is not working for us. They did nothing to impede this disaster for this industry. Can you sign the ethics letter now? What a joke.

      • The Positive Realist April 12, 2018 at 10:24 pm - Reply

        Hey Robin,

        We’ve missed your frank comments.

        While NRMLA seems less able and is not the advocate I knew a few years, it also seems engaged. Perhaps you have a better handle on it.

        The 10/2/2017 changes hit all of us hard. There are some interesting facets about it but unfortunately I have agreed to say nothing right now. Why NRMLA did not know is alarming; unfortunately it sounds and most likely is too truthful.

        I look forward to your renewed participation.

  8. John A. Smaldone April 2, 2018 at 12:08 pm - Reply

    A lot of great comments on Shannon’s presentation. It deserved a lot of comments and it made a lot of common sense.

    I know there was a bit of back and forth discreteness on Jim Veal’s comments, however, I feel what Jim pointed out was very good. It confirmed Shannon’s presentation and Jim came back with factual figures!

    The industry is in a bit of a Pickle today, how do we get out of it? I feel we need to get the PLF adjustment ruling of October 2nd, 2018 repealed. NRMLA, AARP and other organizations in our field could be putting a heck of a lot more preasure on HUD and the agencies to re-considering repealing the ruling, especially the PLF portion of it!
    This has had more of an impact on business and borrowers qualifying than anything. We got through FA and the other hurdles before that but this one is a tough one!

    I don’t feel making the flat up-front MIP 2% was a major factor in the long run. Remember, it used to be 1/2% up to 60% of the PL and 2.5% if 60 % was exceeded. However, the annual MIP has been reduced from 1.25% annually to 1/2% annually.

    The point I am making on the 2% MIP fee ruling is the other two factors I brought up does mitigate some of the hurt the 2% MIP caused, the main problem is the PLF adjustment!

    We also need to start looking at different markets. We need to go after the more affluent, borrowers with homes that have little to no loan to value ratio on the property.
    We also need to learn how to capture and work with the professional sector, such as, financial planners, financial advisors, elder law attorneys, long term health care providers and more. Even small community banks and small credit unions.

    If we can learn to form a relationship and bond with these professionals, you will not only get a better-quality borrower, but you will have a client coming to you with a built-in sense of trust for you!

    Trust is half the battle in dealing with the senior population. When they trust you, have confidence in you, they listen to you!

    Finally, when a client comes to you from one of these professionals, they are not apt to be shopping you all over town! Would you if your financial planner or attorney sent you to me?

    John A. Smaldone
    http://www.hanover-financial.com

    • James E. Veale, CPA, MBT April 3, 2018 at 12:28 am - Reply

      John,

      Thank you for your support; however, I do understand some of the negative feedback. Only about 15% of the population are attracted to data driven stories. Then there is the problem of originators preferring anecdotal information which back their beliefs over data provided by HUD which when analyzed tells a much harsher and more difficult position to swallow.

      It was over ten years ago when I started gathering data. In that decade plus, I have had long discussions with those in the industry as well as at HUD who understand the data. It is rather surprising how many myths there are in the industry due to how few do the “homework” of fact and data gathering Two of the leading authorities on the data in the industry did not understand that what HUD calls applications is actually ONLY applications with case number assignments nor were they aware of the most significant reasons why that difference would be of concern. Of course there is little question that I have many holes to fill when it comes to data simply because HUD does not generally provide that data to the public.

      Recently one of the leaders at AARP called asking about foreclosure information. She was surprised that I could not help her since that data was simply not posted by HUD. Yet out of that conversation she helped me get data posted by HUD telling us how many active HECMs are in each fund, G&SRI Fund and MMI Fund.

      Like the HECM program, over the last decade HUD has changed how it reports data to the public. Just when you think you understand some data trends, HUD suddenly no long provides that data to the public.

      I am very likely to continue my data gathering habit for several more years so I expect more questioning and personal attacks. They are not new but I do appreciate your support.

      Jim Veale

  9. robin April 3, 2018 at 7:12 am - Reply

    Again, the plf is a factor, but the pricing and the “lowering” of the floor, has busted us.
    Yes, if I were in another profession, I would be shopping. Is anyone out there concerned about the upside down world we are now living in? The lower the margin the more money the borrower receives and if you have not noticed this then you definitely are blind. So the sales technique is simple. You can beat all the others out there and sleep well at night, if you can keep your own roof over your head.

    • The Positive Realist April 3, 2018 at 12:20 pm - Reply

      Robin,

      How are things in the Phoenix area? Haven’t heard from you in ages.

      First, pricing has little to do with FHA other than indirectly through Ginnie Mae HMBS investors. Otherwise, I could not agree with you more.

      The lowering of the floor was a very impressive move by HUD. HUD knew that we were making inordinate revenues from a 83.3% higher expected interest rate floor than now. The prior PLF table had a lot of fat in it with a 5.5% floor. Most of us thought that if they messed with the floor it would be to take it back down to 5%, not 3%. I feel like Mortgagee Letter 2017-12 was the ultimate version of the Penn & Teller show, Fool Us, which HUD did flawlessly.

      As to revenues, the next few years may be more reminiscent of fiscal 2006 than fiscal 2012 but then it will be industry competition and senior savvy about PLFs and margins making it that way rather than our sole buyer of HECMs in 2006, Fannie Mae.

      As to sales, you are very right. I appreciate your picture of losing sleep versus losing the home. Quite a picture.

      Have a great 2018.

  10. Robin Faison April 11, 2018 at 8:10 am - Reply

    All the advancements and progress we made with the financial planning industry is out the window. We cannot give a no cost loan any more. Another disaster that NRMLA ignored. What good is NRMLA? I do not know why we have to be members or why our companies continue to pay them. Not at all helpful.

    • Carmine DeSota April 13, 2018 at 6:37 pm - Reply

      Robin,

      There is no question we have had a setback but that is all it is. I do appreciate your passion for HECMs and moving forward despite setbacks.

      Seniors are out there who need our help. Someone needs to step forward and find out why there are such large losses in the MMI Fund. Then we need to start fixing the problems.

      I hope when you read this you and yours had a great weekend.

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