Written by Tane Cabe, as originally published in The Reverse Review.

There’s a lot that can be said for effectively communicating the value of a product or service to the public. If done correctly, a company can reap the benefits for years to come. If done poorly, however, a company stands to alienate its prospective and existing customers and limit its ability to interact with them for years to come. So what does this have to do with reverse mortgages?

Perception, while not always aligned with reality, is a very powerful thing; it influences consumer behavior and decisions. An infinite amount of factors create perception, some of which can be controlled. When it comes to reverse mortgages, the existing perception is the product of some mistakes made by the industry and poor communication about the value of the product. This isn’t a problem that is exclusive to lenders; for instance:

  • In 1975, Sony launched its Betamax home video cassette recording (VCR) system and experienced early success. What happened next is an incredible story that is still the focus of marketing case studies: Sony wanted the Betamax to be the industry standard for cassette formats. This created a negative perception of Sony among other developers and led to the launch of the Video Home System (VHS) in 1977. With an open standard, VHS won the video format wars and became ubiquitous. Sony’s ill-advised go-to-market strategy is comparable to the unethical practices used by lenders—in both cases, the priority that was placed on maximizing business and profits, even by a handful of individuals, created a negative perception.
  • Seeing the success of McDonald’s Quarter Pounder hamburger, A&W Restaurants began offering its Third Pounder, which was less expensive, had more meat and was preferred in blind taste tests. So what went wrong? Alfred Taubman, then-owner of A&W, explains the situation in his book, Threshold Resistance: “More than half of the participants in the Yankelovich focus groups questioned the price of our burger. ‘Why,’ they asked, ‘should we pay the same amount for a third of a pound of meat as we do for a quarter-pound of meat at McDonald’s? You’re overcharging us.” Honestly. People thought a third of a pound was less than a quarter of a pound. After all, three is less than four!” Like A&W, the industry hasn’t done the best job of communicating the true value of the reverse mortgage.

Just like Sony’s Betamax and A&W’s Third Pounder, the reverse mortgage is inherently good. It was conceived in 1961 by Nelson Haynes, a creative mortgage broker at Deering Savings & Loan, who was trying to help a widow keep her home following the death of her husband (who also happened to be Haynes’ high school football coach). In the decades since, the reverse mortgage has evolved and matured; but in its adoption by the industry as a practical tool to help homeowners remain in their homes while also enjoying the equity they have earned, it has garnered a negative reputation.

The stigma surrounding reverse mortgages is nothing new. In the days before the FHA insured the loan, there were instances where unscrupulous banks and private lenders would take advantage of borrowers, launching a library of horror stories that have been passed down. In those days, the mortgage industry had moments of disingenuity and miscommunication with the public, both of which have damaged the perception of the reverse mortgage. Now, it’s time to rebrand the HECM product. Here are three steps we can take to overcome the stigma:

  • Stop calling it a “reverse mortgage”: This makes it seem as if the borrower is going backward. They put all of this equity into their home and now they’ve got to give it back—it simply doesn’t sound good and usually elicits many questions at first mention. Simply changing what we call it is a small but powerful step. (Other countries have similar products with much better names. For example, lenders in the U.K. refer to their loan as an “equity release.”) As an industry, I think we should standardize the term “Home Equity Conversion Mortgage.” It’s more accurate because it conveys that we’re converting the equity to help the borrower, not reversing the mortgage process.
  • Communicate better: Many regulatory changes have been made and laws are now in place to protect HECM recipients. This type of loan isn’t as dangerous as some think; if it were, it wouldn’t be insured by the FHA. We are very far removed from the days where a borrower could just walk in and get a HECM with no qualifications. Over the years, credit standards have gotten tighter and lenders will turn a borrower away if they are unable to meet today’s stricter requirements. This is something that has impacted volume, but also improved the quality of the loans provided—which is certainly worth noting to borrowers.
  • Market more effectively: We’re not taking a bad thing and making it sound good for a different group; we’re taking something that is good and repackaging it to give it the appropriate appearance. We need to be more strategic in targeting borrowers. For example, consider the value a HECM has for high-net-worth individuals; this type of borrower can complement his or her retirement plans and support long-term financial goals. Alternatively, consider someone who may be trying to get by with a Social Security stipend while sitting on a substantial amount of home equity. A HECM could provide the retiree with adequate financial support for many more years of comfort. The point is, if the industry can focus on being more precise with its delivery of HECMs over the next few years, we’ll see the growth of portfolios that everyone’s been talking about for the past decade.

Unlike Sony or A&W, the mortgage industry doesn’t have to deal with the issue of a competing entity’s offer of a similar product. However, that means that the onus is entirely on the industry to do a better job of marketing and positioning the HECM so that it becomes recognized as a productive member of the financial ecosystem—because just like every mortgage product, it has a specific purpose. And at a time when about 10,000 people are turning 62 every day, we must establish a healthier perception and give it the opportunity to serve that purpose.