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Special Reports
Reverse Mortgages
Expert Gives View of Product's Future
Ginnie Mae's entrance will further drive competition.
By Jennifer Harmon
Is the reverse mortgage industry in a revolution? Some might think so.
Bruce Morosco, formerly the national production manager with Charlotte, N.C.-based 1st Metropolitan Morgan, truly
believes it is a burgeoning industry, coming out of its infancy, reaching childhood with a full and rich life yet
to live.
For many years, he says, the reverse mortgage industry has been dominated by a few major lenders and there were
few product choices. The FHA HECM was the product of choice accounting for up to 95% of the total originations.
"While a reverse mortgage can do amazing things and change lives of seniors in many situations, some had the
perception that the costs, even though rolled into the loan, were too high. Many others just could not qualify
for a reverse mortgage because they were younger, as the older you are the more equity is available for conversion
to cash, and maybe they had a current mortgage," said Mr. Morosco, who is now the relationship manager for
Financial Freedom Senior Funding.
"Mortgages or liens on the property have to be paid off at closing before
a reverse mortgage could be in place and so many potential borrowers found they were short or over the limit of
the reverse mortgage proceeds. With or without funds to come to the closing table, the reverse mortgage just did
not [make] sense to some of the very people who needed it the most."
Mr. Morosco's entry into the reverse mortgage industry began in 1999 and has grown propitiously since. He says
the industry has seen double-digit growth every year and now more seniors than ever before have a reverse mortgage.
Yet of the potential 23 million senior homeowners over 62 who could qualify, only about 1% of that market has been
tapped.
Every day, according to the U.S. Census Bureau, 10,000 more seniors enter their golden years. The shift to an older
population is well underway but really begins accelerating in 2008 when the baby boomer generation, starts reaching
62, he said.
This startling population shift has the direct attention of David M. Walker, the comptroller general of the United
States and head of the U.S. Government Accountability Office. He has taken this issue on the road in a series of
town-hall style meetings to discuss the federal government's current deficit and the challenges of the long-term
demographic and economic trends. "Dubbed as the Fiscal Wakeup Tour, it is the harbinger of potential doom
for our financial well being if nothing is done."
The reports and data confirm what we everyone knows is coming, adds Mr. Morosco. That means, a shortage of benefits
for America's aging population. "How will seniors be able to support a reasonable lifestyle if the benefits
they expected are reduced? A possible alternative is the equity release of their principal residence with a reverse
mortgage. Apparently a number of financial institutions are catching on as evidenced by the entry of several lenders
into the reverse mortgage industry."
In a market dominated by a few major players, such as Financial Freedom Senior Funding (a subsidiary of IndyMac),
Wells Fargo and Seattle Mortgage; recent entries like Countrywide and Bank of New York, and other smaller players
have caused a bit of commotion, he said. "Other smaller lenders entering the fray have also introduced some
proprietary products which carry with them some concerns. Third-party independent counseling has been a mainstay
of reverse mortgage lending and some lenders with their own products are waiving this prerequisite. Possibly in
the future some lenders will even engage the concept of equity sharing or recourse loans, which have been out of
the market for many years."
According to Mr. Morosco, the FHA Home Equity Conversion Mortgage has been very successful as a low margin adjustable-rate
product based on the monthly Treasury Bill. For years the margin was 150 basis points, or 1.5% over the base index.
Fannie Mae bought 95% of the reverse mortgages. With Ginnie Mae now entering the field with its own mortgage-backed
securities pool, he says the market will be heating up even more. The lenders that have the competitive advantage
will become or remain the major players.
Since this announcement, the development of new lower margin products has hit the market. There is now a HECM-100
by several lenders, which is a 100 basis point margin over the monthly T-Bill rate, a HECM Advantage product by
Financial Freedom, with a 100-112 bp margin over the 10-year CMT and there are even a few fixed-rate products on
the horizon. All this is designed to capture the market and the net result is that the senior homeowner will be
able to tap into more of their home's equity at lower costs. The product development minds are working faster than
ever to introduce new and more beneficial products to a huge and growing market. "I believe this will be the
No. 1 FHA product in the next five to 10 years," Mr. Morosco said. "A word to the wise: These are not
anything like forward loans in the marketing, sale, application, documents, disclosures, approval, closing or other
functions. They are indeed mortgages, but if you really want to understand the entire reverse mortgage process,
you must first stop going forward, pause, learn and accept the differences, proceed slowly in reverse and then
you can speed up."
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