Anyone looking for the silver lining in today's industry can find it in a recent report from the Department of Housing and Urban Development (HUD) on the state of federally insured home equity conversion mortgages (HECMs). This product is one of the bright spots in a bleak time: There were 115,176 reverse mortgage closings in 2008 – a 6.4% increase over the previous year.
Where these reverse mortgages are closing is also worth noting. Three of the top 10 markets are in Florida, and Miami was the top U.S. HECM market, with 9,561 loans closed. In comparison, Los Angeles came in at number two, with 4,126 loans.
The other cities in the HECM top 10 include some rather obvious choices with large senior populations along with some surprise urban centers: Tampa, Fla.; Santa Ana, Calif.; Baltimore; Phoenix; Orlando, Fla.; Richmond, Va.; Philadelphia and Chicago. Thus, it appears the product can have a wide geographic appeal and not be limited to areas that are strictly known for higher-than-normal senior populations.
The potential for the HECM product has been talked up for many years, and from a demographic standpoint, it would seem the time is right when considering the growing number of senior citizens. Yet the current economic miasma could easily slow or even halt the progress that HECMs are currently enjoying. It would not be surprising for many seniors to be wary of getting involved with anything that has the word ‘mortgage’ in its name, especially at a time when the news is full of stories relating to foreclosures.
Part of the problem can be traced to the fact that many people still don't understand how a reverse mortgage actually works. Doing casual Internet research isn't always helpful. I just ran a Google News search on ‘reverse mortgage’ and came up with articles with a headlines that read, ‘Don't Force Mom Into a Reverse Mortgage’ and ‘St. Paul Man Swindled Ailing Mother Out of Thousands of Dollars.’ Whoops!
If 2009 is going to see the further rise in the popularity of reverse mortgages, it is incumbent upon originators to be clear and concise on how these products can benefit older homeowners. Inadequate information from those providing the loans will not provide comfort to potential borrowers.
Key to understanding the marketing of HECMs is recognizing that many seniors, especially those who are no longer in the workforce, are acutely concerned over their finances. The economic problems have hurt all Americans, but seniors may be taking the worst of it. Without a steady income and with dwindling returns on retirement portfolios and bank interest – forget about relying on Social Security as a primary income source – many seniors will be skeptical – if not downright hostile – over anything relating to their home.
Thus, it is crucial for any outreach for HECM marketing to emphasize without any confusion that these loans will not damage a senior's financial condition. In fact, any HECM needs to put the product's value in perspective with today's economic crisis and relate it to ensuring the borrower will be able to withstand the current environment.
Keep an eye out for the March edition of Secondary Marketing Executive, because we'll be examining the state of HECMs in greater depth. If you have any success stories regarding this product, let me know. I would love to spread some good news – because at this time, good news is most welcome!
– Phil Hall, editor, Secondary Marketing Executive.
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
