The Last Word : It was the best of times; It was the worst of times…

Written by David J. Cesario Tuesday, 24 March 2009 15:29

Articles - The Last Word

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"It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair…" 

Nostradamus is considered to be one of the world’s greatest "seers of the future", but not even he could have predicted where we find ourselves in 2009.  But in 1859, Charles Dickens’ penned the above opening line to “A Tale of Two Cities” that could easily be confused with a Nostradamian prediction of the financial world we now live in.

The beauty of Dickens’ opening is that the eloquently paired contradictions convey the multitude of emotions and realities that can be experienced, all at the same time.  The reverse mortgage industry finds itself in situation where vast contradictions appear and it is truly difficult to determine if these are “the best of times or the worst of times.”  I think there are empirical data and compelling stories that can be made for each of these realities.  Let’s try to determine where we are.

The arguments to be made for it being the “worst of times” in the reverse mortgage world include:

• Currently limited and potentially shrinking numbers of secondary market delivery sources
• Increasing margins charged to borrowers on current products
• Depreciating housing values
• Financial despair grows as consumers deal with a recession that is beginning to look the beginnings of a depression.
• Increasing competition as lenders fight for new revenue streams
• The prospect of nationalization of banks that, if enacted, will send further shivers into the financial markets

So, it’s clearly the worst of times, isn’t it?  Are you ready to call it a day and go apply for a government job in renewal energy research? 

Not me, not now!

While all of the dire issues outlined above are true and weigh on the conscience and psyche of consumers, these same issues are also opportunities for smart business people who can see what is possible:

• Limited and shrinking numbers of secondary market delivery sources creates opportunities for new players to enter the market who will face very limited competition.  Also, those existing sources can expect to see ever growing market share due to the scarcity of delivery options.
• Increasing product margins, in a normal market, would typically equate to increasing revenue opportunities at time of sale into the secondary markets.  While we are clearly not in a normal market, we can have confidence in believing there will be some return to normalcy in the future and this should increase revenues.
• Depreciating housing values give reverse mortgage borrowers a reason to act now, instead of waiting.  When a borrower can effectively "lock in" proceeds at today's values versus uncertain future values is a great reason for someone to apply, today!
• Financial despair is a negative market factor that actually forces potential borrowers to look for options to protect their financial well-being.  A reverse mortgage truly provides borrowers with tremendous certainty in very uncertain times.
• Increasing competition is a good thing!  More people will be promoting the reverse mortgage programs, increasing awareness and overall interest and acceptance of the product in the marketplace.  With industry estimates pinning reverse mortgage market penetration at around 1%, there is plenty of opportunity for all.
• Nationalization of banks is good?  Some would say actions of this magnitude will stabilize the financial markets and improve the flow of credit.  If that is the outcome, then there may be a silver lining...

These reasons alone should make you want to keep your day job in the reverse mortgage world, but there is more good news to enhance "the best of times" argument:

• FHA recently raised the HECM national lending limits to $625,000 from $417,000.  The high cost areas in the country that were hamstringed by the previous lending limit are now able to realize many new prospects.
• HECM for Purchase is now a reality and this expands the opportunity to work with other real estate professionals and consumers who have an enhanced way of obtaining the benefits of a reverse mortgage
• New HECM authorization for Co-ops is sure to bring new opportunities to lenders serving these markets
• Specialty HECM programs and features are being created to serve borrowers who are "just miss" when it comes to paying off existing liens and those needing to bring funds to closing (i.e. HECM Pathway).
• AND JUMBO reverse mortgage products are beginning to reappear.  Yes, I said JUMBO Reverse Mortgage Loans are making their way back to the market.

In conclusion, I believe we are on the verge of "the best of times" in the reverse mortgage industry.  As your company tries to chart a course to insure profitability in this new world, it is important to realize that most of the challenges in your way are really the opportunities you have been waiting for.  Be flexible and nibble enough to adapt and take advantage of these opportunities.