Not long ago, the phrase “reverse mortgage” didn’t have a place in the vocabulary of senior homeowners or mortgage professionals. What began in the summer of 1989 as a pilot program with a limited run of 2,500 loans became a full-fledged, multimillion-dollar industry. It hasn’t always been a smooth ride. Despite the ups, downs, acquisitions and regulations, the one constant is the people who remain committed to the product’s sustainability and growth.
HUD launched the Home Equity Conversion Mortgage demonstration with the goal of helping seniors turn their home equity into cash. By unlocking this value, the agency could help elderly homeowners who were, according to the organization, “house-rich but cash poor.” The pilot benefited from a clearly defined market with a demonstrated need, but without a roadmap, getting started in reverse mortgages required some ingenuity. “Not only did we have to raise the capital to start a company and make loans, we needed to develop the product and raise the mortgage capital as well,” says Jim Mahoney, whose company, Financial Freedom Senior Funding Corporation, became an industry leader.
Much has been written on these very pages about the history of the HECM, but what was it like for the people building the program in the early days? We spoke with some of the pioneers to gain a better understanding of the beginning and to learn their vision for the future.
People First
Coaxed by Jeff Taylor to join the newly created reverse mortgage division at Unity Mortgage in 1991, Joe Morris wasn’t sure he was ready to dedicate his professional life to reverse mortgages… until he met Ms. Mitchell. The 82-year-old wheelchair-bound woman was his first HECM loan. At closing, Ms. Mitchell tearfully told the group, “Fellas, I know an angel sent you here to help me.” At that moment, Morris was hooked. “I’d been in the mortgage business for 22 years prior to that, and I had never heard anything like that,” he says. “I was able to change this woman’s life. Right then and there, I knew I wanted to do reverse mortgages the rest of my career.” And he has.
Ask almost anyone in the industry and they have their own Ms. Mitchell. For Jim Mahoney, it was a couple from Northern California. The handwritten letter he received from them more than 15 years ago is a constant reminder of why, after all these years, he is still part of the reverse mortgage industry. It was 1999 and the program was beginning to find its stride; loan volumes were rising and thanks to financing from Lehman Brothers, Financial Freedom was in the midst of acquiring Transamerica HomeFirst. Mixed in among the stacks of paperwork for the deal (remember, this was before electronic signatures) was a letter from a dentist and his wife. Health issues had decimated their savings and the couple, seeing no way out, considered suicide. It didn’t come to that. A reverse mortgage solved their money problems; the couple had the means to cover their medical expenses and plan retirement. “We all get caught up in transactions, in the business and things like that. This letter is the very essence of why we were in business,” Mahoney says. In fact, the framed letter hung on the wall of his office for years, just to make sure he never lost sight of what the people of this industry can do to improve the lives of seniors. For every Ms. Mitchell or Northern California couple there are thousands more borrowers and thousands of stories of how the HECM transformed a borrower’s ability to live in their later years.
Slow Start
One year into the pilot program, Congress expanded the demonstration to include any FHA-approved lender and increased the number of available loans to 25,000. Congress had faith in the program and feedback from early borrowers was positive. For those working with HECM loans at the time, there was no shortage of enthusiasm or desire to succeed. But there was a need for more trained professionals to sell and service the loan. By virtue of being a brand-new product and business model, everything from staff training and consumer education to processes and paperwork had to be created from scratch. The steep learning curve slowed the process. Two years in, fewer than 400 loans had been closed nationwide, and some lenders complained of processing times stretching as long as 18 months.
In those early days, the sales cycle was sometimes just as long. In theory, the concept of a reverse mortgage is deceptively simple: In exchange for the equity in their homes, lenders make payments to borrowers. But the concept was so unorthodox that it was a difficult product to explain to seniors. It proved tough to grow a product when the intended audience didn’t understand it. “The challenge is you can’t explain this product in a quick 30 or 60 seconds,” says Sherry Apanay, who was one of the first people to join Joe Morris’ team at Unity Mortgage and now works as chief sales officer at Urban Financial of America. Apanay quickly understood the reverse product was one of nuance. “You really have to take time to walk someone through every aspect, whether it’s a broker or a borrower.” As a result, early loans were a time-consuming process—the sales cycle could take nearly a year.
In contrast to today’s call centers and online leads, early loans were exclusively sold using a face-to-face approach. Sitting with a senior at their kitchen table went a long way in moving the HECM product from an oddity to a solution for seniors in need of money for retirement. “There’s a level of trust established when you’re face-to-face with a borrower,” Apanay says. “First, they give you with a quizzical look while you’re explaining the concept. But it is pretty rewarding to see the moment when they start to get it.” In fact, the success of the call center model still surprises Morris: “I didn’t think this product could ever be sold over the telephone or the Internet.”
The moment when a senior saw how a reverse mortgage could improve their situation was the life force during the program’s early years. “When we first got into the business, we made money on a small origination fee,” says John Nixon, who ran both the forward and reverse sides of Seattle Mortgage’s business. “The people that were in the business, they were there because they really wanted to do something for seniors.”
Looking Forward
Keeping the focus on seniors has helped the industry weather challenges, from unflattering press to the drop in home values during the financial crisis.
“If the industry executes and takes care of the customer first and foremost, we can avoid most of the things that could set us back,” Mahoney says. Some things—the return of dramatically sinking home values or soaring interest rates—are certainly outside of the industry’s control, but as long as the focus is on helping America’s seniors retire in a safe and secure manner, the reverse mortgage industry will have a successful future.
Nixon takes pride in the role he and his fellow pioneers played in shaping the past, and the work they’re doing to secure the future. He hopes the next generation will maintain a dialogue with all stakeholders, including NRMLA, HUD and Ginnie Mae, and echoes Mahoney’s sentiment that seniors must stay at the center of all future plans. “We made sure borrowers were treated with respect,” Nixon says. One of the perks of the reverse industry is business success and personal fulfillment aren’t mutually exclusive. “We got to blend a successful business with the moral satisfaction of really helping people out and changing their lives,” he adds.
Thousands of seniors become eligible for a reverse mortgage every day and statistics show many aren’t financially prepared. Seniors will increasingly be in need of tools like reverse mortgages as they approach retirement. Part of setting up the HECM product for future success is working with people outside of the mortgage industry and trying to get everyone to understand the power of the reverse mortgage. Transitioning the product from purely needs-based to part of a smart portfolio planning is a main item on the agenda. The more financial planners and asset managers know about reverse mortgages, the likelier they are to consider the product for their clients. But that will take time.
Nearly three decades after she first joined the industry, Apanay, like all those we spoke with, is bullish on the future and confident she made the right decision when she made the jump to reverse all those years ago. “I felt in the beginning that I was on the ground floor of a great industry,” she says. “It’s come along slower than some of us would like, but I think it’s definitely still healthy and we’ll continue to grow.”
Looking back, Morris wouldn’t change a thing. He didn’t intend to work in the reverse industry, but he’s glad he stayed. What advice would he give to someone who is hesitant to work in the reverse space? “Remember that you can put yourself in a position to influence and improve many senior citizens’ lives.”
