Are reverse mortgages a hard sell?

In 1961, John F. Kennedy was sworn into office as the 35th president of the US, installation began on the long-crumbled Berlin Wall and the Soviet Union launched Vostok 1, the first spacecraft to take a man into space. It also was when the first reverse mortgage was written, yet more than 60 years later they’re still a hard sell.

It seems appropriate to examine the state of reverse mortgages 62 years after their creation, given that it’s the same number of years at which a borrower can become eligible. Despite multimillion-dollar marketing campaigns devised to convince consumers of their safety – leaning on the charisma of actor Tom Selleck to the authoritative gravitas of the late Tennessee Sen. Fred Thompson – a small percentage of the eligible public avails themselves of the product.

Mortgage Professional America spoke to Chris Moschner (pictured), chief marketing officer at Finance of America Reverse (FAR) to learn more. FAR is one of the nation’s top reverse mortgage lenders. “We’ve been lucky on that front,” he said of the pitchmen (Selleck and Thompson) his company has been able to secure over the years. “They’ve done a nice job of adding trust to the category because, as you know, reverse mortgages are not the easiest things to sell.”

Reluctance on reverse mortgages abounds

The reluctance is laid bare in a recent study commissioned by FAR. Dealing largely on sources of anxiety in a time of inflation and high mortgage rates, the study delved into attitudes revolving around reverse mortgages. Despite growth of financial anxiety, the study found, homeowners still aren’t looking to their housing wealth to help mitigate concerns – with the likelihood of using a home equity loan increasingly only marginally with a slight uptick from 28% in 2022 (the first year the survey was conducted) to 32% in 2023.

“That was encouraging albeit a small movement,” Moschner said. “We moved the needle from 28% to 32% -- so a 4% jump – in terms of the likelihood to use a home equity loan. It’s trending in the right direction and becoming more ubiquitous.

“The educational component is incredibly important. We spend a lot of money and a lot of time to move the needle.”

He noted more publications are writing about reverse mortgages, referencing a company mention in the Wall Street Journal. Moschner said the company is still using Selleck in its commercials. “Look, this isn’t my first rodeo,” Selleck asserts in one television spot. “And let me tell you something: I wouldn’t be here if I thought reverse mortgages took advantage of any American senior – or worse, that it was some way to take your home,” stopping his walk along a tree-lined path to stare intently into the camera. “It’s just a loan designed for older homeowners, and it’s helped over a million Americans.”

Despite such high production values, a key finding in the study points to varying levels of product knowledge and low familiarity with the various ways financial products can be used as potential factors contributing to financial anxiety for some homeowners. Notably, survey respondents familiar with a reverse mortgage were also more likely to know the different use cases of financial products – with 73% reporting they were aware home equity could help supplement income in retirement, compared to a mere 40% for those unfamiliar with a reverse.

Milestones point to greater acceptance 

The FAR-authored “History of the Reverse Mortgage“ ticks off a series of milestones for the product in promoting it as safe. The timeline begins in 1961, when the first reverse mortgage was written to Nellie Young in Portland, Maine, by Nelson Haynes of Deering Savings & Loan. Haynes designed the loan type to enable the widow of his high school football coach to stay in her home after her husband’s death.

Other key milestones illustrating a greater acceptance of the product include:

• During a 1969 Congressional hearing on reverse mortgages, University of California, Los Angeles (UCLA) professor Yung Ping Chen supports an “actuarial mortgage plan in the form of a housing annuity” enabling homeowners to remain in their homes while using their home equity.
• In 1984, American Homestead sets the foundation for government-insured reverse mortgages in unveiling the Century Plan – the first mortgage that keeps the loan in place until a borrower permanently leaves the residence.
• In 1987, Congress passes an FHA insurance bill dubbed the Home Equity Conversion Mortgage demonstration – a reverse mortgage pilot program insuring the product.
• 1988: The Department of Housing and Urban Development (HUD) gains authority to insure reverse mortgages through the FHA after the president signs the reverse mortgage bill into law – thereby establishing the reverse mortgage government-insured loan. The following year, the first FHA-insured Home Equity Conversion Mortgage (HECM) is issued to Marjorie Mason of Fairway, Kansas, by James B. Nutter Co. of Kansas City, Mo.
• In 1990, the HECM program has its one-year anniversary, with HUD reporting to Congress that the program is steadily growing.
• In 1997, HECM reverse mortgage lender participation is at its highest number at 195.
• 1998 marks the year that the HECM is officially permanent. The HUD Appropriations Act makes the program official while Congress allots funds for counseling, outreach, and consumer education. Safeguards (such as full disclosure of fees) are implemented to protect borrowers from unnecessary charges.
• In 2000, HUD announces an increase in origination fees to either 2% of the Maximum Claim Amount, or $2,000. The change is implemented to coax more lenders to participate in reverse mortgages because of the higher revenue.
• In 2001, HUD and the American Association of Retired Persons (AARP) team up to begin testing and training approved counselors. They also begin the establishment of consistent HECM counseling policies and procedures.

By 2017, the loan limit for HECM reverse mortgage loans increased from $625,500 to $636,150. This is the first time the HECM lending limit has been raised since President Barack Obama signed into law the American Recovery and Reinvestment Act in 2009. Limits are now evaluated annually and potentially adjusted annually, according to the timeline, with the limit for 2023 set at $1,089,300.

Yet for all the milestones and gradual acceptance, trumpeting reverse mortgages can be a lonely exercise. “Frankly, in our industry, we are the only company, the only brand, that is out there driving consumer awareness,” Moschner said. “We’re spending tens of millions of dollars a year investing on this advertising, and we’re very specific on the types of advertising we put out to drive that education. We explain how the product works, and we try to break down the myths we know people have and call them out.”

In terms of spreading the message, it’s clearly a long game at FAR.

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