With the reverse mortgage industry currently rushing to adapt to the latest principal limit factor changes, several industry leaders challenged stakeholders to think beyond the federally backed Home Equity Conversion Mortgage — or risk falling permanently behind.
Reza Jahangiri, founder and CEO of industry giant American Advisors Group, said companies of all kinds — not just reverse mortgage lenders — can’t expand if they focus simply on adapting to every single regulatory change.
“It puts us in a short-term, reactive response mode, and it’s really hard to invest in those longer-term initiatives and strategies,” Jahangiri told an audience at the National Reverse Mortgage Lenders Association’s annual conference in San Francisco last week.
Jahangiri’s company has already started a proactive expansion into real estate brokerage services and forward lending, a plan that AAG started developing as long as two years ago. The goal, he said, was to help seniors with their later-in-life financial issues however AAG could: If the company couldn’t get people to buy into the HECM as an option, it should at least put some of its vast marketing dollars to use by converting them into customers of different product lines.
“We don’t want to just be a reverse mortgage company come a year or two years from now,” he said, saying the firm is shifting to a “product agnostic” viewpoint with reverse mortgages as a core product.
While expressing love for Tom Selleck and the company’s current pitchman-based advertising model, Jahangiri also hinted at future shake-ups in the way the Orange, Calif.-based firm markets its products going forward.
“Our current call-to-action model that focuses on the needs-based borrower — that has to change as well if we want high penetration,” he said.
Jahangiri praised the efforts of fellow panelist Kristen Sieffert, president of Finance of America Reverse — which has seen success with its jumbo proprietary reverse mortgage product lines.
“I think what Kristen’s doing, and what we’re working on, is critical,” he said. “This forces our hand to further accelerate the business.”
Sieffert and FAR remain focused on improving and expanding their jumbo offerings: When it was first introduced, she said, the product appealed to homeowners with properties valued at $1.2 million and higher. Given the success of the loans on the secondary market and recent product improvements, FAR expects the jumbo loans to see interest from homeowners in the $850,000-to-$950,000 range and above, Sieffert said.
“We definitely see there’s a lot more to do as an industry,” she said.
Secondary market stability
Despite the uncertainty and concern surrounding the lender community in the wake of the PLF changes, the secondary market remains stable, according to panelist Michael McCully.
McCully, principal at the New York City-based New View Advisors, said the program updates have made HECM-backed securities (HMBS) more attractive to investors: Because the loans grow at a slower rate, investors will see HMBS as a longer-duration asset, he said. In addition, the post-October 2 loans have increased core mortgage servicing rights values, and could help ease issuers’ capital requirements.
“There hasn’t been an exodus,” McCully said of the secondary market. “The investor community really likes this product.”
Those benefits also extend to borrowers, allowing them to seek out the ideal balance of interest rate and proceeds while also preserving more equity: For every $100,000 borrowed at 4%, he said, the homeowner protects an incremental $100,000 in equity over the course of 20 years.
The overall mortgage insurance premiums end up being lower after four years, McCully added, saying these changes helped to decrease “headline risk” — negative attention over high fees, burned-through home equity, and defaults.
McCully also speculated that the changes could, at least in theory, attract renewed interest from banks, credit unions, and other “big brands” in the financial space.
“The product is, to me, a much more mainstream product with the interest rate change,” he said.
Written by Alex Spanko
