At last month's Mortgage Bankers Association's Secondary Marketing Conference, I attended a session on the challenges facing the reverse mortgage sector. The speakers at that session warned that reverse mortgage originators are facing problems in selling the product to the general public, to self-appointed advocates of senior citizens, to regulators and legislators, and to the investment community.
The depth and scope of those expert comments are outlined in a Secondary Marketing Executive E-Feature that will be released this month. For this column, however, I'd like to make my own two-cent deposit on the subject: I agree that there are problems in selling the product, but I would add that these problems could easily damage the product's viability unless swift action is taken.
As I see it, I believe there are key concerns that need to be addressed if reverse mortgages are going to take off as a successful product.
For starters, I feel the reverse mortgage sector needs to drive the issue. That has yet to happen. From my own casual browsing through the general media, I've found several stories linking reverse mortgages to predatory lending targeting seniors. As the stories were written, one could easily get the impression that this is a trend. The facts, of course, dictate otherwise – reports of fraud and chicanery in the promotion and execution of reverse mortgages are extremely isolated and do not involve reputable companies.
Nonetheless, the media have a history of spinning cases of single bad apples into alleged toxic orchards. One bad story, no matter how poorly researched or melodramatically written, will sour and scare people away. And not just potential borrowers – investors read newspapers, too, and it is not unusual for them to think twice about placing money into any vehicle that has a bad cred.
This can be overcome by taking proactive steps in defining how reverse mortgages work and how they can benefit their target market. Some financial institutions are hosting seminar series detailing how reverse mortgages work – I think that's a great idea that should be expanded as far as possible. And when I am talking about seminars, I mean direct communication events and specifically not telephone or computer-based seminars – direct marketing research shows that seniors overwhelmingly prefer person-to-person communications over digital telecommunications, particularly when it comes to discussing financial matters.
But what about those who are badmouthing the product? I think the reverse mortgage sector should not respond defensively. You can never please everyone, so don't waste time trying. There will certainly be individuals who try to make a name for themselves by claiming reverse mortgages are bad for people. Do not directly attack that message or their messengers. Instead, keep the focus positive by highlighting the financial benefits of the products. If one needs to respond to hostile charges, use statistics to disprove claims of miscreant activities relating to reverse mortgages.
Also, we need to admit that this is not the best time to promote mortgage products, especially new ones that work in a manner that is significantly different from other home loans. Whether or not the U.S. is in a recession is something for economists to split hairs over – the fact remains that things are very tight, and seniors, in particular, are feeling the pinch. Couple that with the depressing news regarding rising foreclosures and it would appear the very last thing that seniors would consider at this time is monkeying with their homeownership. If your company has not introduced reverse mortgages yet, it may be worthwhile to wait a bit until the economy begins to settle prior to officially adding this product to your line-up.
Finally, we cannot expect immediate results. Although reverse mortgages have been around for many years, they are only now beginning to click with the public. In many ways, they remain works in progress (particularly in terms of trying to incorporate them seamlessly into the secondary market). As I see it, it will be at least six to 10 years before this sector will truly begin to roar. I am giving it a long lead time because there are many factors that still need to be addressed before the product can be ready for a full takeoff.
– Phil Hall, editor, Secondary Marketing Executive.
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
