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A Damaged Name?


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Re-Examining the Use of the Phrase ‘Reverse Mortgage’

reverse mortgage newsDo you ever feel prejudged as a reverse mortgage professional when interacting with the general public? It’s unfortunate but true: the words reverse mortgage have become synonymous with poor cash-hungry seniors, questionable loans and even the butt of jokes in some cases. This has lead some larger HECM lenders to use alternate names to market the loan.

While the program has been overwhelming positive for past borrowers as evidenced in surveys, the reality remains of a name that is…

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  1. I agree. I have always wished the name of the product could be changed as to not associate with the bad loans of the past. I like the “Equity release loan” that you mentioned, Anything is better than Reverse Mortgage.

  2. Yes, I agree with you, Shannon. The old “reverse mortgage” name was good 20 years ago when borrowers set it up to pay out a monthly distribution as you described. The HECM is more appropriate today when the majority of my borrowers, at least, are using it to establish a LOC to be drawn upon, if and when needed, in the future. I closed my first HECM back in 1993 and I do not need to use all the fingers on only 1 hand to count the borrowers who receive a monthly payout. There are just so many reasons why one would wish to convert their homes equity into a liquid asset in today’s financial world that the old name no longer does the program justice.

    • Burgess,

      The term reverse mortgage was used long before there were HECMs with tenure payouts. If that is what you wanted back then you took the proceeds from the reverse mortgage and purchased an annuity even an annuity for a specific term. What a reverse mortgage is not is a reverse mortgage.

      All indicia of debt on a reverse mortgage are no different than with any other non-recourse mortgage. Both use liens, both have due and payable clauses requiring payoff of the unpaid balance due at termination, both use property as collateral, both have interest charged against them, and on and on.

      It is entirely false and misleading to say that with a reverse mortgage you don’t pay the bank, the bank pays you as if that is something unique about reverse mortgages. It is not that you don’t pay the bank, it is just a question of when you pay the bank as with all negatively amortizing non-recourse mortgages. Since when don’t nonrecourse mortgages pay the borrower. If the lender is putting money into escrow to comply with the payment requirements of a property the borrower is buying or to pay off an existing mortgage, how is that not paying the borrower???

      Half or more of the problems our industry has is due to poor marketing, ads, and actual claims of lenders/originators.

  3. A better and new name that is descriptive. Home Equity Liquidity Program for Seniors (HELPS)

    • I like the name and the acronym! Thank you for sharing!

    • Howard,

      This is nonsense.

      All reverse mortgages are mortgages. HECMs are not a program. The HECM program is an insurance program for lenders only; borrowers cannot get it on an existing loan. The program is owned and operated by HUD. HUD does not offer mortgages to anyone. There would be no HECMs without lenders.

      The HECM is not a liquidity program. The purpose of this insurance program is so that seniors can obtain liquidity through a mortgage. The insurance program allows lenders to offer the insured mortgage with a higher ratio of proceeds to Maximum Claim Amount and lower interest rates than would otherwise be available to HECM borrowers.

      Calling HECMs a liquidity program is a false categorization of a mortgage as an attempt to place HECMs in the same financial product class as liquid assets which they are not. HECMs are first and foremost a non-recourse mortgage and to avoid false and misleading advertising rules needs to called what they are. A HECM should be a first level alternative to assets which produce liquid assets as income.

  4. Shannon,

    I’m hearing the crack of the bat as the ball flies over the fence. Another homerun.

    Home Equity Conversion Mortgage is so rarely used I had to look it up myself. ( Only kidding ) .

    I would venture to say that most people do not know what a HECM is. A great teaching opportunity, perhaps this could be one of the first things that we can educate our Clients about. explaining exactly what a HECM truly is.

    I believe that this could make a difference if this is a concerted industry effort. By referring to a HECM as a Reverse Mortgage we may not be differentiating the difference between the two.

    The first Reverse Mortgage was done in 1961. The first HECM was done in 1989.

    • Thank you Lance. I chuckled when you jokingly said you had to look up what a HECM was. Great points and thank you for differentiating reverse mortgages from Home Equity Conversion Mortgages.

  5. Shannon, I have been originating HECM loans since 1994 originally with Wells Fargo. Even back then I was proposing to management that we re-brand the product as HECM or Home Equity Conversion Mortgage and stop using the term reverse mortgage. My current employer US Mortgage Corp has been very receptive to this and I’m happy to report that our marketing materials and even our titles as loan officers do not utilize the term reverse mortgage.

    Alfie Schloss – NMLS#404064
    Mortgage Loan Officer
    HECM Lending Division

    When people get a Home Equity Loan at their bank, they know they are getting a HELOC. Whey wouldn’t our clients start embracing the idea that they are getting a HECM and not be embarrassed to tell their friends and family.

    Your right it might be time for the industry to revisit branding as a whole. Even our industry association NRMLA should look at it.

    • Alfie. That’s surprising to hear this was discussed in 1994. Thank you for the historical perspective and your inputs!

    • Mr. Schloss,

      Many are not acquainted with the second largest product ever originated by this industry, the Fannie Mae Home Keeper. Even the HECM Handbook categorizes HECMs as reverse mortgages.

      Even federal law defines reverse mortgages which encompasses HECMs, Home Keepers, and proprietary reverse mortgages.

      The name of the product, reverse mortgage, is not a name that marketers just made up but one that is also recognized by law. Today people say a lot of wrong things about reverse mortgages but that are true with HECMs; for example, many claim that one payout option with a reverse mortgage is tenure payments. Yet among the reverse mortgages which commercial lenders offer today, tenure payouts are only available with HECMs. People foolishly interchange the terms reverse mortgages and HECMs. It like discussing the unique characteristics of great white sharks but using the word fish for great white shark.

      Beyond reverse mortgages which commercial lenders offer are family reverse mortgages, single purpose reverse mortgages such as deferred property taxes and other state and local loan programs with no payments required until the deferral period ends. So reverse mortgages are a much larger category of mortgage than we generally give it.

    • Alfie,

      Home Equity Loans are more than HELOCs. A fixed rate fully amortized second is as much of a home equity loan as a HELOC.

      We have looked at rebranding in the last few years. It was part of the Extreme Summit. This once again shows how ineffective the Extreme Summit campaign really was.

  6. For those who cannot remember the frustration of the Florida state Democratic Party chairwoman, Karen Thurman, in trying to find the right comparison of dirty political tricks that she claimed was being played on seniors during the 2008 Presidential campaign by Senator McCain’s supporters she exclaimed: “’John McCain should be ashamed of himself for preying on seniors like a bogus reverse-mortgage peddler.” (See http://floridaspeaks.blogspot.com/2008/09/fdp-exposes-mccain-dirty-tricks.html )

    I would say the least negative term ascribed to us as reverse mortgage originators was the term “reverse mortgage.” In 2008 Karen was not the only Democrat to blast us. Is there any need to name a US Senator from Missouri?

    Calling a mortgage by some other name is not transparency nor is it showing any aversion from false and misleading advertising. People in our industry want to see themselves as providing service not a product and particularly not a mortgage. They want to refer to their prospects as clients not the customers they are.

    What we are not are peddlers who are preying on seniors. Most of us are professional salespeople providing seniors with a government insured mortgage that in many cases can be effectively used as a cash management product by the borrower throughout retirement or if earlier, upon the last borrower no longer using the collateral as his/her principal residence.

    Let us be who we are, offering the product we have rather than clouding the situation and confusing seniors even more about HECMs.

  7. Excellent point about the name Reverse Mortgage carrying a ton of baggage.

    I like your suggestion.. Lifetime Mortgage is a much better name or how about “Retirement Mortgage”. What do you think?

    • Mr. Carley,

      Neither a HECM nor any proprietary reverse mortgage are lifetime mortgages; death is only one event that will cause either loan to mature. “Lifetime mortgage” seems very misleading.

      Calling either one a retirement mortgage is not helpful since they can be useful long before retirement in many cases and thus could cause some to avoid looking into them at an earlier time when they might be far more beneficial.

      Since both Home Equity Conversion Mortgage and reverse mortgage are names for these mortgages actually found in the law, using other names could cause our opposers to accuse us of using confusing and misleading names for these products.

      While I am not thrilled with the reputation of the name reverse mortgage, it is what it is and we need to make sure we do not cause the reputation of these products to erode any further.

      (The opinions expressed are not necessarily those of RMS or its affiliates.)

  8. Thank you, Mr. Hicks, for bringing this topic up. It has bothered me for some time.

    I have only been in the business a few years, but, as soon as I realized the virtues of the HECM, I explain to anyone who will listen, what a “small case” reverse mortgage was, and why they are a thing of the past – good riddance for the most part. I then educate them that we will be talking about the HECM from now on.

    I have never understood why NRMLA has not mounted such a campaign to educate Congress (who passed this law), and the public, that what is being talked about in the mass media is not what is now available to the American consumer.

    I am doing a presentation this Wednesday to about 35 CPAs. They are giving me 75 minutes of their time, because they crave understanding what the HECM can do for them, their parents and their clients. I am doing another presentation later this month to a group of about 30 financial professionals and estate planning attorneys – We need to embrace the literature and professional studies which are out there, showing this is a product which can help up to 25,000,000 of our senior citizens to better enjoy their last years on this earth. (Estimate per Prof. Jack Guttentag, Emeritus, Wharton).

    While I love the “Home Equity Liquidity Program for Seniors” acronym “HELPS” (kudos, Howard), I am afraid, to avoid even further confusion, we are stuck with the “Home Equity Conversion Mortgage”. I like to tell them “the Home Equity Conversion Mortgage, as in, ‘It’s a HECM of a deal’.”

    Please let me know what I can do to help you move this needed paradigm shift to happen.

    If we don’t do it, who will?

    • Bill,

      We serve a protected class and thus must be very careful about the name we use. The HECM was also designed to have a Shared Appreciation Rights feature which seniors could elect; so having the term “equity conversion” in the name is meaningful and appropriate.

      From the beginning, HECMs have been misrepresented as a government program. They are not. It is only the lender insurance which is the government program. HECMs are first and foremost nonrecourse mortgages with special and unique features for eligible borrowers offered by commercial lenders and only commercial lenders. So using the word program in the name is inappropriate.

      At present both the names “Home Equity Conversion Mortgage” and “reverse mortgage” are found in the law. So as to avoid the accusation that we are using confusing and misleading product names, it is best that we avoid rebranding and simply work with what we have.

      It is great to see you are actively pursuing financial advisors. Here is hoping for good results.

      (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

  9. Here’s what I do. When somebody asks me, I say REVERSE MORTGAGE. Than I watch their expression, It’s usually some sort of obnoxious cringe. I then directly ask them. “Why did you react like that?” They get a bit uneasy and nervous, but it opens the doors for a very educational conversation. After I have debunked all of their misconceptions. I’ll ask them. “How do you feel about Reverse Mortgages now?” They always feel educated and interested…Then I ask for a referral of a person that they feel could use this wonderful financial tool.
    DIRECT and to the point. That’s the way. Let’s not hide behind a smoke screen name. The truth will always prevail.

    • Bob,

      If that works for you, celebrate and use it.

      There is a bigger story out there but apparently you have no interest in it.

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