After changes to the Home Equity Conversion Mortgage (HECM) program were handed down by the Department of Housing and Urban Development (HUD) and the Federal Housing Administration in October 2017, the American reverse mortgage industry has had something of an uphill battle to climb in trying to recover a large amount of lost volume.
Some businesses are looking to the promise of an increasing suite of proprietary products to fill in the gaps created by changes like principal limit factor reductions and the possibility of the requirement of a second property appraisal via a new collateral risk assessment, but there are also a lot of originators on the proverbial “front lines” continuing to try and find new business whenever a new lead presents itself.
One place that these struggles are not shared, though, is America’s neighbor to the north, Canada. In fact, it’s not just that the Canadian reverse mortgage industry is doing better right now than America’s, but it’s actually thriving considerably. A new report at Better Dwelling suggests that Canadian reverse mortgage debt is on the rise, as filings in the country’s Office of the Superintendent of Financial Institutions (OSFI) show the balance of reverse mortgage debt jumped in April to a new all-time high in the country, and continues to post above 20 percent growth.
For comparison’s sake, the American reverse mortgage market plummeted in 2018 to a 14-year low, with volume down 27 percent year-over-year according to data from Reverse Market Insight. The American market is also much larger, however, with a total Home Equity Conversion Mortgage (HECM) maximum claim amount (MCA) of $14.1 billion in 2018, compared with roughly $780 million CAD in total year business in Canada.
Still, the health of the Canadian reverse mortgage market stands out, and getting to the bottom of what’s working for it doesn’t require much looking around. There remains only one dominant, primary reverse mortgage lender in the entirety of the country: Toronto-based HomeEquity Bank (HEB).
Reverse mortgage debt on the rise
Hearing about reverse mortgage debt being on the rise has the potential to conjure a scary image in the heads of some, but Yvonne Ziomecki, the executive vice president of marketing and sales at HomeEquity Bank, understands exactly what a story like that means.
“What that means is a lot more people are aware that this product exists, and a lot more people are able to take advantage of the reverse mortgage financing with the biggest benefit, obviously, being not to have any payments,” she tells RMD in an interview. “So, even though the headline might sound bad, I think the underlying truth is that this product is becoming a lot more accepted, a lot more mainstream and a lot more considered. It’s being taken up by people in the demographic, which is great news for HomeEquity Bank.”
While business is prosperous across Canada and with HomeEquity Bank specifically, that’s not to say that there aren’t present issues to be overcome, Ziomecki says. While partnerships with mortgage brokers and banks are proving fruitful and consumer-related inquiries are on the rise, Canada’s real estate market is experiencing some mild softening, she explains.
“There’s been a lot of new regulation, and what’s called a ‘stress test.’ For some homebuyers, or any homebuyers, they have to go through it and prove that they can carry debt even if the interest rates were to increase significantly,” she says. “There’s a lot more documentation required even for getting a conventional mortgage. Listings are down a little bit, and things aren’t selling as fast as they have in the past.”
Much of this is localized to the biggest urban population centers in the nation, Vancouver, British Columbia and Toronto, Ontario. Still, prices haven’t dropped, but lower housing inventory availability has led to less movement, she explains.
Marketing to seniors, and knowing what to avoid
One of the bigger initiatives being pursued by HomeEquity Bank is related to a recent study the company participated in to measure the effectiveness of its advertising to the senior demographic. Employing a research company called Brainsights in discerning how HEB’s advertising efforts are perceived by seniors, the lender has gained a more accurate picture of not just what a senior sees in advertising, but also what they want to see, and how they wish to see themselves portrayed.
“[Brainsights] puts these headsets on people and they measure brainwaves, and played them about an hour of advertising to see how they respond to it, how they connect, if they’re aware of what’s going on and if they encode anything from that interaction,” Ziomecki explains. “So, we had really interesting results and just did a bunch of our commercials with it. We found four insights about what you need to do when you’re marketing to the older demographic. Our findings are not specifically reverse mortgage-related, but just generally reminding marketers and advertisers that this is a very important demographic.”
Some of what HEB learned about the demographic involved knowing what can turn them off when seeing an ad that is targeted toward them. By leaning into ways that seniors like to see themselves portrayed, the advertising the company has pivoted toward is very effective, Ziomecki says.
“[Seniors] don’t like stereotypes or people making fun of them, they’re very much able and have a lot of money to spend,” she says. “It seems to be quite a big theme in the media these days, all the ageism stories that are coming out. So, that’s what we’ve been busy with. It’s gotten us a lot of PR, so I’ve been on TV a lot and doing interviews here and there. It’s been a good few months, and this season tends to be very busy as well.”
Some of the research gleaned in the Brainsights study helped to formulate the creation of a new animated TV ad, which Ziomecki says is doing very well in getting the word out to seniors in a way that resonates with them.
Aging in place as a primary concern
In terms of how Canadian borrowers are using their loan proceeds, a shift away from paying off debt and towards facilitating aging in place has taken place for HEB’s customers, Ziomecki says.
“Now we’re seeing a lot more people taking it up for renovations and home modifications,” she says. “So, in order for them to be able to stay in the home longer, [they’re getting] ramps, wider doorways, and bathrooms and kitchens that are modified to accommodate them staying.”
Given the fact that HEB has been in business for over 30 years, this is not the first borrower trend that the company has observed since first getting into the reverse mortgage business north of the border.
“But it’s interesting to see: we have been in business for over 30 years, so for us we have a unique perspective on this market, and it’s interesting to see how it transitioned,” she explains. “So, it used to be to pay off debt, and then a couple of years ago, maybe two years ago when we saw that the real estate market was booming, we saw a trend of people using it to help their children or grandchildren with down payments on homes. Because, it just seemed like a great idea when you’ve got all this equity, and your home has appreciated so much.”
Now, that trend has moved from down payment assistance to home modifications related to aging in place, she says. The research conducted in both Canada and the United States ultimately tells the same story concerning the desires of senior borrowers, Ziomecki says.
“You guys do research in the States, and we do the same research here,” she says. “93 percent [of seniors], year-over-year, say they would like to age in place and stay in the home in their older years. So, it certainly supports that, and then using the money they have in the equity to make a nice kitchen, or where they can entertain, or make the house more accessible.”
Lack of competition
Consistent with RMD’s last discussion with Ziomecki earlier this year, she describes a marketplace where HEB remains largely unchallenged. That doesn’t mean that HEB is resting on its laurels, however, nor do they want to remain the only dominant force in the Canadian reverse mortgage market.
“There’s still only one other company in the space, Equitable Bank. They started last January, but last year we originated $767 million, and I think they finished their year with $3.4 or $4 million,” she says. “I think they’re still figuring things out, but I will say the same thing I said before: I think more players would legitimize this product and the category, and more advertising dollars in the marketplace would help everybody.”
Pumping more advertising money and activity into the Canadian marketplace would definitely serve a purpose for the wider product category, Ziomecki says, reinforcing an old adage that remains true in terms of the Canadian reverse mortgage space.
“That ‘rising tide that lifts all boats?’ That’s kind of the way to put it,” she says.
