Reverse Lending Outlook

NRMLA conference in San Diego

November 20, 2007

By NEIL J. MORSE

With the first Baby Boomers set to hit the magic, Social Security eligibility age of 62 in a few weeks, lenders are swarming around the newest darling in the industry.

But even as they swamp single-themed conferences to learn more about this product, and make new connections in the sector, experts are cautioning that so-called “leading edge” Boomers — those born from 1946 to 1954 and the first to hit retirement age — will not likely be much interested in these new home-based, finance vehicles.

Instead, they are more likely to encourage their own aged parents, still alive and now well into their 80’s and older, to obtain the specialty mortgages, whose main distinction is a flow of monthly equity-depleting payments from mortgage firms to borrowers.

“The Baby Boom market is a long way off” from seeking reverse mortgages in large numbers,” says Peter Bell, president of the premier industry trade group, the National Reverse Mortgage Lenders Association, based in Washington, D.C.

Indeed, the largest players in the field — like Wells Fargo, Financial Freedom and Bank of America — only complete about 400 reverse mortgages a year. Bell says the average age of a reverse mortgage customer is 74 and he says “the real value in reaching Boomers is in reaching their parents.”

He spoke privately to MortgageDaily.com as NRMLA hosted its annual conference in San Diego last week, attracting a 50 percent higher turnout than a year ago. Two other event sponsors, the Mortgage Bankers Association and the American Conference Institute, each plan first-time, reverse mortgage meetings in early 2008.

Boomers “willing to experiment.”

Stephen Kinney, a New Jersey financial consultant specializing in reverse mortgage counseling, says “an educated son or daughter is like having a sales person on your team.” Unlike their parents who lived through scarcity during the Great Depression, Boomers raised amid plenty are “very willing to experiment,” suggests Kinney, and thus likely to embrace new or alternative financing ideas.

For an industry battered by subprime failures, reverse mortgages shimmer like an oasis in the desert. But the prospect of these weakened firms and their wounded warriors now flocking to the new sector has many established players worried.

It is “potentially troubling” concedes Bell, echoing concerns voiced by many attendees at his San Diego meeting.

“I am very concerned about the wrong people getting into this business,” says Richard Wills, vice-president, Retirement Life Funding, Sykesville, Md., who says “too many [players] jumping into the market are not properly advising customers” about reverse mortgage products.

“Consumers are already suspicious about our product, this [wrong element] could result in more non-trust.” Wills says he and several influential colleagues have asked NRMLA “to crack down” on undesirables entering the sector, specifically recommending an association “seal of approval” for those companies who meet clean ethics and best practices standards.

Although NRMLA is developing a designation of competency, Bell sees righteousness ultimately as a “self-policing” matter and a “challenge for the gatekeepers [lenders] to make sure their representatives understand that having empathy for the customer is important.”

His group also is rolling out a new, enhanced Code of Conduct for its members that will emphasize dignity, respect and transparency, according to Bell. Reflecting the market sector’s expansion, the new 12-page Code replaces one that had fit on a single page.

Neil J. Morse is a communications consultant and independent writer working exclusively in the mortgage finance industry. He resides in Newtown, Conn., and may be reached by e-mail at: NeilMorse@MortgageDaily.com