For Reverse Mortgages, Financial Disaster Equals A Financial Buffer

The COVID-19 pandemic has wreaked havoc on many industries indiscriminately, from energy to food service and seemingly everything in-between. While the expectation would be that the reverse mortgage industry would pivot and maneuver through this time based on its response to past crises, what’s actually happening goes beyond that: this pandemic seems to actually be helping the business.

Since mid-March, more than 44 million Americans have applied for state unemployment benefits, the largest figure in history. An additional 1.5 million people filed for benefits last week, according to the Labor Department. The stock market has been on a turbulent ride, with historic losses posted in March, many of those same losses recovered in May, and yet another steep drop being observed late last week.

These are all undoubtedly negative occurrences for American households, but they actually seem to be creating interest and — more importantly — activity for the reverse mortgage industry. Because of the economic impact of the virus and the already shaky ground on which senior retirement sits in the United States, reverse mortgage products and the professionals who offer them are finding themselves consistently busy as more Americans try and find new and novel ways to solidify their financial standings.

That initial disorientation related to the steep drops in the stock market gave way by even early April to a corps of reverse mortgage loan officers who have found ways to adapt to current economic conditions, and position the reverse mortgage as a possible solution. Loan officers in places like Colorado and Maryland in April report that referral business had seen a noticeable spike, up to and including some partners who had gone back to the loan officers because of the new situation created by the pandemic.

Based on conversations with these loan officers, it looks like what has happened is that previous potential clients who at one point decided against getting a reverse mortgage have now seen their circumstances change. With that change in their own situation has come the realization that a reverse mortgage product is now better suited to help them through a tough time.

Regulation, and the necessity for the product

The industry’s chief governing body, namely the Federal Housing Administration (FHA) and Department of Housing and Urban Development (HUD), have also stepped up to make sure that the reverse mortgage product is available to serve people in the ways they need service. The government has allowed for relaxed appraisal requirements requirements.

This has created some additional surprise on its own: the continuous flow of regulation and intervention on the part of the government is often a cause for anxiety and difficulty on the part of the reverse mortgage industry, since compliance anxiety often results from changes handed down by the government. In this case, though, the government’s intervention has made for a much easier time for the industry, streamlining and simplifying the way that people can originate and close reverse mortgage loans.

Relevance for the reverse mortgage product category is also bolstered by the fact that major financial institutions have halted their own Home Equity Line of Credit (HELOC) offerings, starting with JP Morgan Chase in mid-April and growing to encompass Wells Fargo by May. The exits of those institutions has only strengthened the stance of reverse mortgage companies who provide stand by credit line similar to HELOC”S but with the added advantage of no monthly mortgage payment required.

These factors have led reverse mortgage industry participants have transitioned from a perspective of overriding caution to one of general optimism. In mid-April, LOs across the country found themselves very nervous about what social distancing and other virus mitigation efforts might do to their ability to conduct business with senior clientele, with a California originator advising colleagues to “prepare for the worst.”

Now, many of those same originators are finding themselves busier than they’ve ever been all year, with a favorable rate environment enhancing benefits for borrowers and added interest in proprietary products coming from the current economic situation. Many loan officers I’ve spoken with have told me — both on-the-record and off — that things like referral partnerships and loan pipelines are as large as they’ve ever been, precisely because the product is there as a tool for seniors to weather financial shocks like this one.

Fulfilling a promise

It’s not exactly a good idea for the reverse mortgage industry to market to people how it has managed to profit off of a crisis that is afflicting millions of Americans, but at the same time, the truth of the matter is that this is why reverse mortgages exist in the first place. In an environment where seniors’ retirement futures have already been put at risk by dwindling savings and disappearing pensions, the idea of the reverse mortgage is to allow a senior to use the equity in their home to either meet necessary expenses in old age, or to enhance their quality of life in retirement.

Since this crisis has had a major negative impact on both the physical and financial health of seniors, the fact that this product category is around and providing some necessary relief for those who have been adversely affected by a widespread economic downturn should be an encouraging development for the industry, since it is fulfilling both its stated purpose and promise.

Keeping up with all the dimensions of news — from new business practices to swings in industry metrics like endorsement data — that the pandemic has revealed for the industry has been dizzying. Considering how much the general tenor of conversation has changed with people at all levels from boots-on-the-ground loan officers to chief executives, it has emphasized just how resilient the industry remains, while also illuminating that for American seniors, the reverse mortgage product is well-suited to serve as a tool to solve some of their financial problems.

Of course, what the industry does with these circumstances in the end will be anyone’s guess. As of right now, though, more people are both talking about and acting on the opportunities that can be presented by the reverse mortgage product category. The relevance and even necessity for some to explore reverse mortgage options has been present throughout the crisis, and has been further highlighted because of seniors’ need for additional stability.

By Chris Clow, Reverse Mortgage Daily, edited for brevity

Shawna McDonald, Reverse Mortgage Loan Officer, for 12 years specializing exclusively in reverse mortgage loans & successfully completed hundreds of them. When you work with me you get the advantage of local loan representation, promptly returned phone calls and I represent 11 of the largest reverse mortgage lender in the nation guaranteeing you great rates! I remain with an office in downtown Grass Valley but offer, due to COVID, the service of completing loans by phone, mail, and email. Call today for info ! Sierra Foothills Reverse Mortgage (530) 497-3010. NMLS #271335 | CalDRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company CalDRE # 014461