Reverse mortgages, it is said, are the product of the future.
Demographics say it, with 10,000 Baby Boomers retiring every day. Balance books say it, with large swathes of that retirement-age population hitting their early 60s with less than $100,000 in the bank for their golden years. And industry representatives say it, using charts and slides, at conferences and trade shows and across kitchen tables.
At last months’ Great New England Credit Union Show (presented in partnership with various credit union leagues by The Warren Group, publisher of Banker & Tradesmen) representatives from MetLife gave just such a presentation to a roomful of bankers, trying to persuade them that a reverse mortgage product could be a useful arrow in their quiver when approaching senior consumers.
But just a few days later, MetLife announced it was exiting the reverse mortgage business.
So, could what everyone says be wrong?
“We’ve been in this business for a long time, and we’ve found that the only constant is change,” said George Downey, founder of Harbor Mortgage Solutions in Braintree and member of the National Reverse Mortgage Lending Association. “But I will confess that it was a shock [when Met pulled out] because Met had professed all along that they were really committed to the space and they would stay there.”
Ripple Effects
MetLife’s departure from the space was driven in part by consideration of its core businesses – the insurance giant posted a $1.3 billion loss on its derivatives book in the first quarter – but MetLife is far from alone in its decision to leave reverse mortgage lending to other players. Over the past 14 months, the industry has seen a succession of exits from major lenders, each among the top originators by volume before its departure: First Financial Freedom, then Bank of America and Wells Fargo.
MetLife alone is likely to have a substantial impact on total volume – though maybe not immediately. It will take several months for the firm to wind down operations, said John Lunde, founder of Reverse Market Insight, a California-based analytics firm that specializes in the sector.
“That’s the biggest reason why it has a muted impact on the 2012 volume of originations,” he explained. “It’s not until 2013 that we’ll see the full volume impact.”
But much depends on whether MetLife’s army of loan officers can find a new home.
“In Q1, [MetLife was] 17, 18, 19 percent in endorsement volume, just their retail side,” Lunde continued. “So depending on where those 400 [originators] go, we’ll see what impact it will have on originations – whether we see a drop or whether it just shows up in a different company.”
Even if those originators migrate to other companies rather than depart the industry, Lunde still projects total new loans to sink below 60,000 nationwide. Before the financial crisis and its subsequent crash in home prices, originations were running over 100,000 per year. Until home prices stabilize, analysts agreed it will be difficult to reverse that trend.
In Massachusetts in particular, the industry faces other challenges: This summer, a law requiring many seniors to receive face-to-face counseling before obtaining reverse mortgage financing kicks in. Federal law already requires that seniors receive counseling; the Massachusetts statute was intended to expand that requirement to help make sure the most vulnerable seniors and their caregivers understand all the implications and obligations that come with a reverse.
Rising Demand
But drop-in counseling centers are thin on the ground in Massachusetts, counselors say, and with state and federal budget cuts having trimmed funds for counseling services, no more than a handful of counselors are up and running across the state who can provide in-person services.
“If you look at the agencies, there’s five of us right now [one of which] is entirely by phone,” said Laura Schaefer, executive director of the Plymouth Redevelopment Agency and a longtime reverse mortgage counselor. “We’re the only ones who can potentially do it in person.”
“I was talking to [a colleague at] one of these agencies, and they used to have four or five reverse mortgage counselors, and she was the only one left,” Schaefer continued. “I’ve let go one of my own permanent counselors, and I have one other who only does phone counseling. I think [the requirement] will be put off, because it’s near impossible” for borrowers to receive counseling under current conditions.
But despite the complex challenges facing the industry, insiders were surprisingly sanguine about its prospects.
“I think in a lot of cases, the reverse mortgage is still going to be a pretty good tool [for retirees] and I don’t think a given lender’s exit will really dampen that. Where I do think it has impact is that MetLife is a trusted brand name with a sizable marketing budget,” who’s absence will be felt, Lunde said. “[But} I don’t see the product as being in jeopardy.”
Downey agreed, citing demand that cant help but rise in coming years.
“I’m not concerned about there being a lack of demand. As a matter of fact, the demand will be increasing,” Downey said. “So what folks like us need to do is have multiple sources so that when another lender withdraws from the marketplace, we’ll have sustainability.”
Even Schaefer thought that the current skittishness of the part of banks to enter the space might serve to simply spur their mortgage lending competitors.
“There’s also a momentum right now that’s happening, where you’re going to see more and more mortgage companies that do this as opposed to banks, because banks don’t want to be in a position where they might have to foreclose on a senior citizen, and right now 5 percent to 7 percent of reverse mortgages are in default because taxes aren’t being paid,” she said.
