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This week at The Gathering by HousingWire, reverse mortgages took center stage on Tuesday as HW Media CEO Clayton Collins welcomed two leading industry executives to the stage.
Dan Ventura, the president of reverse mortgage lending at Fairway Independent Mortgage Corp., and Chris Mayer, CEO of Longbridge Financial, spoke in front of the assembled professionals about what they hope to accomplish in elevating and expanding the reverse mortgage marketplace to new participants.
The conversation began with an introduction to both men and their companies. Mayer discussed his role as a tenured professor at Columbia University and how his work has sought to highlight the unique issues faced by older Americans in or near retirement.
Meanwhile, Ventura described Fairway’s 2015 entrance into the reverse mortgage industry as a principal agent — and how the larger company aims to leverage its robust forward mortgage operations in its reverse pursuits.
Need for education
When asked about how they bring awareness to other parts of the industry, Ventura stated that Fairway’s approach is similar to the one it takes with consumers.
Reverse mortgage information can be challenging to find despite the industry’s immense investments in educational materials over the years. And that’s also true of forward lending professionals that Fairway may aim to bring into the reverse fold.
“It’s heavy on education and explaining what the product is, and how it can benefit clients that may not even think that they need a reverse mortgage,” Ventura said. “It’s a constant [cadence of] education and awareness.”
Collins pointed out that many people don’t believe they need a reverse mortgage, and he asked about the challenges homeowners might face that could get them to consider the product.
Ventura described how it often comes down to educating financial advisers — a key reverse mortgage industry referral source target. Ventura mentioned the potential mitigation of sequence-of-returns risk as a use case for a reverse mortgage, but these use cases require significant focus on education to bring potential customers and their trusted advisers up to speed.
Market size vs. potential
When asked about the size of the market, Mayer described it as “enormous” but with a lot of unrealized potential.
“Last year, more than 1.1 million people 62 and older applied for a mortgage,” Mayer said. “Of that number, just under 300,000 were rejected for the loan they applied for. Of those people, the majority would actually qualify for a reverse mortgage.
“So folks here and elsewhere are leaving hundreds of thousands of loans on the table. And that’s just the people who applied. Don’t forget about the people who didn’t apply because they looked [at the terms and reasoned they] couldn’t get it.”
That makes the market a sizable one, but Mayer contended that it’s still “underestimated substantially.” This is because roughly one-third of all homes owned in the U.S. are by people ages 65 and older, he said.
“That’s going up between 3% to 5% over the next 10 or 15 years,” he said. “By then, the total will get closer to 40%.”
Matching products with people
Mayer also turned his attention toward the crowd of assembled mortgage and real estate professionals. He said that the business at large can lament that older people are choosing to remain in their homes instead of selling them to new buyers — or they can pivot some of their offerings to serve these homeowners with new loan products catered to them.
“Instead, we offer them products that actually don’t fit their needs,” he said. “It’s as if you tell a first-time buyer, ‘I’m sorry, we have one product. It’s the Model T. It has a 20% down payment.’”
The common refrain in the wider industry today is that mortgage products for older people force them to stay in retirement without saving to use money for their own needs, Mayer added.
Beyond that, offering the same group of products to a cohort in a different place in life, with a different income profile, will not yield results that businesspeople will find beneficial.
“What are we going to do to your payment? We’re going to turn it into a fully amortizing loan over the next 15 years,” Mayer said. “We’re going to increase your payment 40% at a point in time in your life where income is down.
“We shouldn’t be surprised if we find 7 million people who are sitting paying 30% to 50% or more of their income in retirement on their home, half of them paying more than 50% of their income, and hundreds of thousands of people applying for loans with a debt-to-income ratio of 50% and above — and of course, getting rejected.”
Creating more viable solutions for the cohort that owns such a large share of homes across the country — and who are increasingly unwilling to sell — should be a priority, Mayer said.
Look for more from this session soon on HousingWire’s Reverse Mortgage Daily (RMD).
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