The reverse mortgage product that was once hailed as a game changer for retirement has largely failed to gain traction, not because of its design but because of flaws within the industry itself.
That’s according to Michael Banner, a national reverse mortgage educator and leader of the American Pacific Mortgage (APM), which is preparing to address the HECM Buying Program on the March 24 HECMWorld.com webcast.
In interview no HousingWire before the webinar, Banner lit up the program. He stressed the need for a change in mindset, as well as better employment and collaboration with real estate professionals.
Editor’s note: This interview has been edited for length and clarity.
Sarah Wolak: Michael, tell me about what the webinar is going to cover?
Michael Banner: Well, the webinar we’re planning to have is probably a little unusual because it’s people getting reverse mortgages. I wish it was Realtors and other people.
The reverse mortgage world is guilty of self-preaching. I’ve worked hard in an industry I love, along with my mortgage brothers and sisters, but our industry tends to move on LinkedIn and tell everyone how great we are. I agree with how good we are, but no one is paying off the bills. Financial planners still don’t like them, long-term care people still don’t like reverse mortgages, and 90% of the world still thinks we’re taking their houses – which we don’t like. Industry is our biggest enemy.
Regarding the HECM for Purchase, Nobel Prize winners in economics said when it came out in February 2009, as part of the Housing and Economic Recovery Act (HERA), that it would literally change the way America retires. But the truth is, it ultimately failed. That is not an idea; that’s math. It represents less than 3% of the reverse mortgage world, so my opinion on this is that this product did not fail the industry, the industry failed the product.
It’s a great product, and hundreds of thousands of adults should be using it, not a lot. The webinar will focus on how the industry defaults on mortgages, how to fix them, and how to bring them to Realtors and educate them.
You know, frankly, the reverse real estate industry has no experience in the buying world, and that’s what hurts us the most. In the reverse mortgage world, most of you don’t have a sense of urgency.
SW: Many reverse experts still point to product discrimination. Why do you think that still prevails?
MB: The reverse mortgage has been around since 2009. The ever-retracting haunted house has been around since 1964, and people still hate it. The reason people have a bad taste in their mouths about this is that until the 21st century, it was a demand-driven, expensive product of last resort.
Then, around 2009 to 2010, i US Department of Housing and Urban Development (HUD) took a reverse mortgage, tore it up and put it back together – unwanted fees removed, origination fees. But for about 40 years, we were a bankrupt industry.
I always use this analogy: When you have a good dining experience, you tell three or four people. If you are correct, you tell 10. That’s what happened here.
I have given great speeches to financial planners in particular. I tell them, “Mortgage does not take the house, your children do not lose your inheritance.” I’ve had a lot of people stand up and go, “Mr. Banner, I know we’re paying you to be here, but I’m calling the shots, because I’m 52 years old, and I remember when I was little, my grandmother lost her house because of her reverse mortgage.”
The horror stories are true. But the truth is that, at least for the last 16 years, it has been a very good product. We protect the small borrower, the surviving borrower, we protect the estate. No one can do what we do. But when was the last time you saw anyone say that, other than in a reverse mortgage group on LinkedIn?
Last year, Realtors sold 5 million homes. I don’t think I have it in front of me, but I believe 16% or 17% of those homes were sold to people over the age of 62, which means 800,000 homes were sold to people over the age of 62. I think something like 300.
SW: What makes the industry unable to advertise HECM for Purchase?
MB: I think it’s the practices of the hiring industry, because there are big companies out there that are holding back. But there are a few big players left and trying to start a real estate boom. And look at the HECM 50 list – they have 5,000 loan officers, and last month they closed 22 mortgages. And again, I think one of the problems is that we don’t speak the same language as the general mortgage world.
The forward world has loan amounts; we have main limitations. They have LTVs; we have PLFs. Even software can be intimidating if you only use it occasionally.
SW: For a typical LO that offers forward-looking products, do you think it’s more difficult for them to pass the bridge to reverse the debt, or is there just an incentive?
MB: Lack of motivation; they have this bad image that a Realtor would be upset about [them]my financial planner would be bored [them] if I do a reverse mortgage. But the reverse is easy. The forward world should be wrapping its arms and hearts around reverse mortgages, but no one convinced them to do so.
SW: What is the best way to educate professionals and combat misconceptions about reverse mortgages?
MB: This product is surrounded by more misinformation and incomplete facts than any other product in the history of the financial world. There is only one way to do it: education.
It’s like annuities. Forty years ago, people didn’t trust them. Now they are normal [because] you had the biggest insurance companies in the country with millions of agents, teaching and pushing. It will take time because we haven’t even started yet.
SW: What are the remedies?
MB: Our industry, like many other industries, is aging. The industry itself has to hire. No one in college says, “I want to be a crazy mortgage broker.”
Second, stop trying to convince [loan officers] that they can’t do it. Let’s convince them to take a reverse mortgage partner, because it’s hard to teach that previous person a whole new part of the mortgage world. We have to change the structure of the industry, we have to marry the world’s best mortgage – and we have to marry, because every client turns 62 at the end.
And, this is key, you have to talk to Realtors in their language. You have to show them why it’s in their best interest to do that, and we’ll talk about it a lot on my website. It’s not about leading with your heart. It says “what’s in it for me?”
