There is no doubt that the Reverse Mortgage Industry is booming and many mortgage bankers and brokers alike are making their living off of the reverse mortgage market rather than the traditional forward mortgage that created so much wealth for them in years past.  However, for many bankers and brokers, they can’t simply go back to their client base and introduce a new product, or take advantage of a change in the marketplace.  (unless, of course, you are fortunate enough to have a large base of customers turning 62 with significant equity built up on their homes).  So the next question is how do you build your business?

Like many bankers and brokers, one of the fastest ways to build a client base is through Lead Generation, and of course the first step is finding a source for leads.  Many Mortgage Companies will promote three basic methods, all of which can be effective and used in conjunction with each other.  The first method is working with friends and family.  Oddly enough, for reverse mortgages, this can be a great place to start.  Not only do we have our parents, but our parent’s friends.  This may also include Aunts and Uncles and their “warm” market influences.

The second channel of leads comes from business partners such as title companies, financial planners, and realtors.  Title companies are often the most helpful with marketing, and providing lists, and databases.  Bankers and brokers should use a degree of caution when obtaining these lists as they do come with a various levels of accuracy.  I know personally, I still get mailers from mortgage companies asking me if I want to refinance my loan which shows the original mortgage I had on the home ten years ago.  I have refinances 5 times since then and my loan balance is three times as much.  Obviously whomever sent these mailers out did not have to pay for the list.   Most lists have a premium to them.  The higher the premium the more accurate the list.   If you pay the price, you will get a database of current mortgage information throughout the zip codes of your choosing.    This includes Loan to Value, Current Mortgage, Products, Etc.  Unfortunately I have not seen any that include the age of the borrower.  None the less, you can surmise some basic ages based on zip codes, or how long they since their last refinance.

The third option comes form independent companies that specialize in gathering specific and accurate information.  The price is a bit more than what one would pay for a good lead list from a title company, yet still very affordable.  And arguably much more profitable.  These independent companies provide qualified leads making the database more cost effective.   The reality is that in today’s market the rules are different, the client base is new and what worked well in the past, may not work as well today.  Utilizing independent companies specializing in building your business should be considered a key element in bankers and brokers success.

Shaun Donovan

The Wall Street Journal reported last Friday that HUD Secretary Shaun Donovan stated in front of a Congressional hearing on Thursday that the Government could raise insurance premiums to on Reverse Mortgages to offset the nearly $800 Million FHA losses resulting from the current housing market.   It would be the first time taxpayer’s funds have gone into the reverse mortgage programs in its 20 year history.  As with most Government initiatives, the thought process is one in which the Government failed to recognize a problem that it was creating, allowed it to escalate, and then came back to the people demanding funds in the form of taxes, to fix the problem.  (The last comment represents my personal view as opposed to Secretary Donovan’s). 

Fortunately Donovan recognized a simple flaw in the theory, being that if premiums are raised on reverse mortgages, then they will become less valuable and affordable to seniors.  This is a situation where increasing fees only lowers participation.  And furthermore, it may create circumstances making reverse mortgages inaccessible to the seniors who need it most. 

We can all only hope that Government Officials stay out of making changes to programs to fix their mistakes at the cost of the people.

It’s amazing how facts can get twisted and actually be made to present arguments for two opposing sides.  I recently ran across and article dealing with Reverse Mortgages and the author used all the facts, and yet painted a valid argument against Reverse Mortgages.  (obviously the author was selling another financial instrument).    Just for fun lets take a look at some facts and present both sides:  

1. Fact – A reverse mortgage taps into the equity of your home, creating a liquid asset.  (i.e., cash).
   1. Con – You never make a mortgage payment, so your debt is always increasing!
   2. Pro – You never have to make a mortgage payment and can draw an income to pay other bills.
2. Fact – Funds from a reverse mortgage are paid out as tax free income.
   1. Con – Funds from a reverse mortgage are not always tax free!
   2. Pro – Funds from a reverse mortgage are always tax free.  However if you invest those funds into another income generating product, (Stocks, Bonds, etc.) you will have to pay subsequent income tax on earned income.
3. Fact – Reverse mortgages have higher fees, than traditional forward mortgages.
   1. Con – The closing costs on a reverse mortgage are steep and cut into the equity of your home!
   2. Pro – The closing cost of reverse mortgages are higher than forward mortgage products, but the overall long term costs are significantly less.  Essentially you are paying the long term interest up front.
4. Fact – There are three different types of reverse mortgage products.
   1. Con – Not all reverse mortgages are the same!
   2. Pro – There are three types of reverse mortgage products that allow seniors to choose the one that is right for them.

As you can see from these four facts, people will skew the fact to meet their position.  But I do need to part with two quick comments.  One, it is absolutely true, reverse mortgages are not for everyone.  And in some cases their may be better options, but don’t let anyone use a fear tactic in deterring you from considering one.   And two, I do have to mention that the company who was bringing up all the “cons”, also published a free, “non-biased” booklet, entitled Dirty Little Secrets About Reverse Mortgages. 

Have you ever heard something that was almost too good to be true?  Most of us have, and as the saying goes, “if it sounds to good to be true; it usually is.”   Unfortunately there seems to be enough con-artists, or folks wanting to make a quick buck over doing what is best for the customer, to prove to us that the saying is true.  This has a catastrophic effect on us as a society today due to the fact that when honest people do come out with a legitimate product, or solution to our needs, our immediate reaction is, “what’s the catch.”

Babette Bach, Advocate for the Elderly

I believe the reverse mortgage industry has become one such product that has great benefits and is a legitimate, honest product, yet has fallen victim to the suspicions of our culture.  I am not advocating that every senior rush out and get a reverse mortgage because they are not for everyone.  Remember, mortgages are products, just like commodities we purchase everyday.  There are needs that each product meets and there is no single solution for any array of problems we face.  However, there are also products that meet a great deal of problems, yet seemingly get a bad rap from people who do not understand them.

I recently came across an email from a mortgage broker asking to see if there where any no income loans available for her senior buyer.  As it turns out, she had a client who was 73, recently sold his home that allowed for access to a great deal of cash, and his income was trailing off.  The buyer wanted to purchase a small modest home, but obviously would not qualify for a traditional mortgage.  Many loan officers suggested a reverse mortgage.  There are no credit issues, income issues, or assets issues to contend with.  Her buyer could simply purchase a home using a reverse mortgage, which essentially would mean that he could put a substantial down payment down on the home and then receive payments verse making them.  Understanding the benefits of a reverse mortgage, this is an absolute “no brainer,” yet she was still searching for the “no income loan” because that is where her comfort level was.

CNBC had a recent debate on reverse mortgages as well.  Dennis Kneale  of CNBC, spoke on the pros of reverse mortgages, and Babette Back, an elderly law attorney represented the cons.  The analyst clearly viewed Kneale as the victor stating that Bach not only made a poor case in showing why reverse mortgages are not beneficial, but she clearly did not understand the details of a reverse mortgage, having to read from notes on her lap.

Personally I have seen this pattern throughout my own investigation on reverse mortgages; the ones who try to show how unjust they are to seniors, clearly prove that they do not understand how the product works.  

John Dugan, who heads the Office of the Comptroller of the Currency and is a top U.S. Bank regulator, supervising some of the nations largest banks, said that Reverse Mortgages could be the next subprime market.  Reverse mortgages are experiencing tremendous growth while taking advantage of a vulnerable segment of the population.  The focus of the regulators are now set on crafting tighter guidelines to ensure that consumer protection laws are in place for reverse mortgages.

Dugan went on to add, during an address to the American Bankers Association, “While reverse mortgages can proved real benefits, they also have some of the same characteristics as the riskiest types of subprime mortgages – and that should set off alarm bells.”  A majority of reverse mortgages are insured by the FHA but proprietary reverse mortgage products, which are backed by private investors, offer less consumer protection.

Dugan feels that as the elderly population continues to grow there could be a significant pickup in demand for proprietary reverse mortgage products that may result in having similar subprime attributes.  This type of lending could end up creating a reverse mortgage housing boom, which if not monitored, could have significant longer term implications.   Dugan followed up by stating, “I believe the critical lesson here is the need to act early, before problems escalate.”  Similar to what we have learned from the past, not having enough regulation and focus on proprietary products, could trigger a crisis of its own.  One such example of not having enough regulation is that currently taxes and insurance are not mandatory escrow items, thus a borrower can take out a reverse mortgage and still end up loosing their home, which would also hurt the borrower.