The recent announcement by Bank of America of their plans to exit the reverse mortgage business came as a shock to many in the industry, and has caused concern about the strength of the industry and the HECM products. Their exit also shines a spotlight on MetLife Bank as an industry leader in both the wholesale and retail channels. MetLife Bank will inevitably need to step up, visibly increasing their leadership role, and fill the void created.
In light of this announcement and the ongoing period of rapid regulatory change within the reverse mortgage industry, I had the opportunity to talk with MetLife Bank Vice President Craig Corn, who is in charge of the company’s reverse mortgage division. I had sought to discuss the impact of Bank of America’s announcement on the industry, but what I found was that BofA’s move had virtually no impact on MetLife’s plan nor their positive outlook on where the industry is moving.
Craig has been an integral player since 1998, when he helped Lehman Brothers shape the secondary market for reverse mortgages. He has been an executive leader for Financial Freedom, BNY Mortgage and EverBank Reverse Mortgage. Recognizing the challenging road the industry has been through, Craig spoke of the status of the industry and opportunities that lie ahead, with a specific focus on the HECM Saver product. Speaking to those who have persevered through these challenging times, he looks ahead with an encouraging and refreshing sense of enthusiasm for the reverse mortgage market.
BRETT: You have such a long history in the reverse mortgage industry. Given that perspective and the fact that we are in such a period of rapid change, what is your viewpoint on the overall status of the industry and the next 12 months, or at least the near term?
CRAIG: The next 12 months, that’s tough, but I’ll start with the following: At MetLife Bank, we’re very bullish on the reverse mortgage space. We think all the work that the industry did in order to get the HECM Saver out last October is going to make a very significant difference in the direction of the reverse mortgage industry. The way the product was structured and designed in the past really catered to a very specific type of older American customer. Some would characterize it as the individual who didn’t have many other options, and that’s unfortunate. Although I think that the product has served that segment of the market very well, it’s a very small segment of the overall older American population as evidenced by the 2 percent penetration rate with homeowners over the age of 62.
We think the HECM Saver is a game-changer. We think that the product is going to open up the eyes of many consumers who had dismissed the reverse mortgage product of the past, and I also think it is going to open up the eyes of many financial advisors and other trusted advisors who had dismissed the HECM Standard product. We believe the applicability of the HECM Saver is significant.
So, I know you wanted to talk a little bit about Bank of America, but frankly, whether Bank of America was in the space or not, those are our prospects. We think this creates an incredible opportunity, not just for MetLife Bank, but the entire industry. Those institutions that understand how to reposition their education, marketing, training, and loan originators will be the institutions that are going to take advantage of the changes that were made last October with the introduction of the HECM Saver.
BRETT: Let’s explore that a little bit. Obviously the industry, especially HUD, looked at the introduction of the HECM Saver with great anticipation. At NRMLA in November, they were really pushing for it to have a significant impact. Are you already seeing that impact or are you really looking at its applicability as it becomes more visible?
CRAIG: Well, it’s become a significant part of our retail production right out of the gate, approaching 20 percent of our retail business. That’s obviously from a zero percent starting point on October 4, and that’s exciting because there are people at MetLife Bank who were part of the re-engineering efforts with FHA. We obviously had a sense before the launch date in October that this product might be coming. So we had the ability to position ourselves prior to the launch date and it’s had an immediate impact on our retail production. I think our brokers and correspondents might be a little slower to the take, but we see the percentage increase of business on their side also happening. It just takes them a little longer to absorb this new product.
In my opinion, we’ve only scratched the surface. Let me explain why. It’s not just that the product is significantly different than what we have originated in the past; it is the entire mindset of the industry, ranging from counselors who now have a new product they need to understand to loan officers who have historically been approaching a very specific segment of the older American population. Now they have to start working with a completely different segment of the population as it relates to the HECM Saver product. It is not just that the product has changed; it’s the entire mindset of the education efforts at the consumer and trusted advisor levels. So, MetLife going from zero to 20 percent in a very short period of time without a tremendous amount of change in the way we do business, speaks to the merit of the product appealing to people who might not have been previously attracted to the old HECM product.
BRETT: You talk about applicability. A lot of the media reports tend to talk about how the new HECM is so great because of the reduced costs, but in the application that you are seeing, is it really more of the flexibility and the fact that it goes more head-to-head against traditional loans, like the Home Equity Line of Credit (HELOC)?
CRAIG: Well, I think you’re going down a very important path. There is some research that we’ve gathered from our colleagues at the Mature Market Institute, in conjunction with the National Council on Aging, that suggests that the number of people who have taken out HELOCs, and specifically first lien HELOCS, versus reverse mortgages is a significant multiple. What that tells me is that there are people who have looked at the traditional reverse mortgage, with the higher upfront costs, and decided that the HELOC with the lower upfront costs would be a more attractive proposition for them. However, if you stack up the HECM Saver – and I’m talking specifically about the HECM Saver ARM versus a HELOC – we believe it compares exceptionally well when you think about things like overall interest rate, costs, and the line of credit growth on the HECM. Additionally, the fact that it is government-insured is important, as there was a time from 2007 to 2009 that lenders were shutting down available lines of credit on HELOCS, which, of course, can’t happen on a HECM due to a component of the government insurance. Of course, the fact that the HECM doesn’t have a payment has always been one of the big selling points of a reverse mortgage against HELOCs and traditional mortgage products that do. When you stack it up like that, it is a very favorable comparison for the HECM Saver. Accordingly, we think that as institutions like ours can reposition those points of distribution that have traditionally offered HELOCS, and I specifically mean the banks, and demonstrate to them the benefits and features and how well they stack up against the HELOC. The result, we believe, is an opportunity to penetrate that segment of the older American population very significantly.
BRETT: One of the big points I have made previously has been the training of loan officers and not just the technical aspects of the product, but how it applies to a meaningful financial plan for seniors as well.
CRAIG: You’re 100 percent right and that’s a great segue to what is, in a lot of ways, maybe even a bigger applicability of the HECM Saver, and that’s in the context of retirement planning. We know that a significant amount of older Americans, those approaching or already in retirement, have a significant amount of their assets in what I would call home equity. And we all know that when people are trying to assess retirement income planning, typically they and their advisors tend to look at the investable assets, or the liquid assets. Things like stocks, bonds, cash, 401k and Social Security income are the traditional sources of income that people focus on as it relates to this planning. We feel that home equity is an important part of the retirement income planning process and that it needs to be considered when you’re looking at a holistic retirement income plan.
BRETT: That concept requires a fundamental shift in the mindset of those financial and trusted advisors. Do you see the education effort occurring more at the grassroots level, with originators networking with those advisors, or on a larger scale, such as NRMLA working in concert with financial advisor industry groups?
CRIAG: I can’t really speak to what NRMLA might do. However, I would say MetLife Bank is a major player in the reverse mortgage space and one of our guiding principles is education. Let’s face it, the best consumer is a well-educated consumer and the same holds true for the financial and trusted advisors.
Taking the retirement income planning a little bit further, here are some things that are very important. There are a tremendous number of decisions that people have to make as they are approaching, or are in, retirement. For example, there’s the question of whether to take out Social Security at age 62 or defer it to a later age. That’s an important decision that thousands and thousands of older American homeowners have to make every day. That’s such an important decision and without really understanding your entire financial picture, you may not be best positioned to make a decision that is the appropriate decision. Understanding where and how home equity can play a role in this can help people make better, or at least more informed, decisions. We talk a lot about the idea of how people can use a reverse mortgage to bridge the income gap that is created when an individual decides to defer Social Security in order to maximize their benefits. Just to illustrate, let’s say that someone is able to take $1,000 a month of Social Security at age 62, but if they defer until age 70, they might be able to get $2,000 per month. That’s an important decision. If the decision is to defer, they would likely need other sources of income to bridge the gap created by not taking Social Security at an earlier age. Why not consider a reverse mortgage to fill that income gap?
In the past, the traditional reverse mortgage with the significant upfront costs, utilized for a relatively shorter time period that the deferral period may be, could be seen by some consumers (and perhaps more importantly, financial advisors) as an expensive proposition. But a HECM Saver, with significantly reduced upfront costs … that’s a completely different conversation. And I think that’s just one of many applications that trusted advisors and financial advisors are going to start looking at once they understand what a HECM Saver is all about, and the applicability it may have in retirement income planning.
BRETT: That being true, doesn’t that put a lot of pressure on the originators themselves to be better versed, not just in the reverse mortgage products, but also how they fit in a larger plan and what those retirement decisions people face are?
CRAIG: You bring up a good point. There are regulations out there that were established back in 2008 as it relates to the Housing and Economic Recovery Act, HERA, and the requirement of firewalls and safeguards as it relates to mortgage originators, and specifically reverse mortgage originators. I think it makes sense that if a loan officer wants to be the best LO they can possible be, they have to understand not only their consumer, but also the intermediaries they may be working with. Whether they are financial advisors, CPAs, banks or such, that’s just common sense. It’s obviously important the LOs understand their customer and understand their referral network. At the end of the day – and this is really important – financial advisors should know their customer better than any reverse mortgage loan officer. In the context of providing sound, thoughtful retirement income planning advice, it probably should come from the financial advisor, not necessarily the loan officer.
BRETT: Before I let you go, are there any encouraging words of wisdom you might have for the industry and to the many dedicated people who have persevered through challenging times?
CRAIG: Well, as I said before, we’re very, very bullish on the reverse mortgage space and our commitment to this space has never been stronger. I am personally pleased that at MetLife Bank, we are uniquely positioned to take advantage of the market environment and I think that’s probably the message that I would put out there for others: Ensure that you are positioned to take advantage of any opportunities that occur in this marketplace, because change is a constant.
