New reverse mortgage rules that reduce principal limits have originators anticipating a decline in profits. Many expect that fewer consumers will qualify for the loans — and for the loans they do close, they expect to make less money per loan than before. Some say they plan to work harder in the coming year, generating more leads in order to close more loans, to help bridge the gap.
Bob Tranchell at The Federal Savings Bank in Massachusetts says he expects his closing ratio to shrink from 20 to 18 percent, and to make about 20 percent less per loan.
“I essentially need to get four or five more loans per year to match my profitability. Given my closing ratio, that means I’ll probably need to have three or four more leads per month,” he says.
Brad Bennett, manager of reverse operations at GSF Mortgage in Pennsylvania, also says he’s making less money per loan.
“We’ve seen about a 25 percent decrease in profitability on each individual loan across the board. We’re having to give lender credits,” says Bennett. “But a bird in hand is better than none, so we’re just originating as much as possible.”
Richard Wills, who works for Open Mortgage in Maryland, says he expects to see origination fees return in this climate. “The amount of money has gone down pretty drastically. You can make up for that by charging an origination fee… I eliminated them in the past two years, but now I believe origination fees will be somewhat mandatory.”
A better product
Even though some originators expect to work harder and make less, most say they view the changes as a positive for a product that has long struggled to find its footing.
Tranchell says the changes make the HECM a more competitive product.
“The lower interest rates and lower MIP put us much closer to competing directly with the forward market in terms of interest rate,” he says. “While the 2% across-the-board upfront MIP hurts those looking for a check or line of credit, it lowers the costs for those paying off large mortgage balances.”
Bennett also says the product is improved: “All in all, it is a safer product for the consumer, lender, Wall Street and FHA.”
All about the referral
Many say those with strong referral networks won’t be hit as hard.
“If you’ve built your business on buying leads, I think you’re going to have a tough time making it,” Tranchell says. “If you’ve built a referral network and you have trusted advisors who are looking out for you, I think you’re going to be fine.”
Philip Lipp at Allwest Mortgage in California says his referral-based model will not change. He and his wife, Ilene Fischer-Lipp, have been helping people in their community get reverse mortgages for 17 years.
“People know us, trust us, and we get calls all the time. Whether we can help those people now or not is another thing, but we do get calls,” Lipp says. “We will continue to do the same outreach we always do.”
Wills says that strong networking skills will be key to survival.
“To be successful in this market, you’re going to have to have a very strategic marketing plan that will get you out in front of professionals so that you can increase your referrals and increase the amount of loans that you do,” he says.
Wills also says the rules give originators an opportunity to introduce the loan in a new light.
“You have to go forward and emphasize how this is a better program for the borrower, how the borrower will be paying less money in most cases over the life of the loan,” Wills says. “I think that message will resonate.”
Finding the cheese
Some reverse mortgage originators say they have grown accustomed to constant regulatory change and that for them, the cheese has simply moved again.
“You can’t sit there and say, ‘Wait, wait. No, this can’t be true!’” Tranchell says. “You have to say, ‘All right, where is the cheese? Let’s go find it and make it happen.’ If that’s not your mindset, it is probably a good idea to find another way to make a living.”
Bennett echoes this idea. “If you’re worth your salt in this industry, you know how to adapt and quickly move forward,” he says. “We’re fighters; we’re extremely resilient. We have been through a lot and we’ve always managed to survive.”
Written by Jessica Guerin
