Part II in a series: The Reverse Mortgage Niche

"Success is simply a matter of luck. Ask any failure."
~Earl Wilson, American newspaper columnist

Rarely are people willing to put forth a modicum of effort to receive a double-modicum of reward. Even more rare is the person willing to put forth a measured amount of effort in a consistent, predictable manner in order to achieve a tangible goal. Like any discipline, the first step is often the hardest, the tallest, the most difficult. Are you still staring at that first step, wondering if you will slip and fall? One must search inside and ask if he wishes to succeed – or merely not to fail.

One of the most mysterious and least understood niches in mortgage lending is the Reverse Mortgage niche, also frequently – but not exclusively – known as the HECM (Home Equity Conversion Mortgage). Ok, now that you’ve seen it I bet you’re asking – what is it?

Allow me to quote from the HUD website:

“A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. HUD's reverse mortgage provides these benefits, and it is federally-insured as well.”

The above is very simply defined, since the HECM really does contain a twisted tangle of rules, regulations, facts, figures and requirements. However, to keep it on level where we can all understand and continue without becoming bored enough to take a nap, let’s move on to some of the finer points involved.

Back to Basics
The reverse mortgage is not for everyone – only because it is a special program insured by the Federal Government for the benefit of citizens aged 62 or older. Even less well-known is that there are but a handful of lenders who specialize directly in this program. Many are pass-through lenders, not the real deal. Some are nationwide and some only lend in selected states. Some of the major players are listed as follows:

• Fannie Mae
  Helpful link – http://www.fanniemae.com/homebuyers/findamortgage/reverse/index.jhtml
  
  
• Financial Freedom
  Helpful link -- http://www.financialfreedom.com/Partners/About/
  
  
• Wells Fargo
  Helpful link -- https://www.wellsfargo.com/mortgage/reversebrokerin
  
• Everbank
  Helpful link -- http://www.bnyreverse.com/

All the while, you’ll be helping these borrowers in very important areas:

1. They can stay in their homes longer (usually for life).
2. They can afford to live the active life they deserve without being dependent on their children for financial support.
3. They can still will the property to next of kin (check rules for this special circumstance).
4. Their mortgage payments are completely eliminated.

What’s in it For Me?

There are two ways to earn a fee (notice I didn’t use the term “make money”) in the reverse mortgage niche. Before I jump into the ways to earn a fee, you must know this next, very important point – it will have a very special effect on you if you’ve considered becoming an expert in the reverse mortgage field.

Here it is: reverse mortgage broker fees are not based on the loan amount.
At first glance, you may wonder why in the world you would be interested in something that is NOT based on loan amount…right? After all, the loan amount is the only sum that has ever been involved in your mortgage experience. It is the basis on which your fees are earned. I understand, I truly do. But don’t worry, it will all be clear soon.

What if I told you there is something even better than the loan amount? What if you were to discover the hidden secret behind every reverse mortgage? Would you be interested to make a minimum of 50% more than you could on the loan amount? How about 100% or 200% more?

“Yes”, anyone?

Ok, then. The super-secret hidden weapon is that the brokerage/origination fee is based not on the loan amount, but rather on the appraised value of the home. Sit back a moment and digest that fact. Then combine it with the fact that reverse mortgage LTV’s will almost never exceed 70% in any circumstance.

Was that enough or do you want more? What if I told you that the Federal Government would step in and prevent the borrower from attempting to beat you down on points? That they will literally protect you from being dragged through the mud and coming home with little or nothing to show for it…are those the nicest words you ever heard? For those of you squeaking by on 1 point origination fees, it’s a blessing.

It’s a blessing in two ways. First, you obviously earn a fee based on the appraised value instead of the reverse loan amount. This means you will get paid based on 100% LTV no matter what. Wouldn’t life be grand if everything were this way? Second, the fee earned is guaranteed never to go below a certain level.

While the Feds have guaranteed you won’t be beaten up over fees, the caveat is that they set a flat percentage fee for all transactions. This protects everyone involved in the transaction, so it’s a nice compromise that produces a benefit for all parties and lots of smiles on closing day.

How to Earn an Extra $10,000 Per Month With Your Eyes Closed

Getting back to how fees are earned, the following paragraphs will tie it all together.

The first way to earn a fee requires not a single drop of knowledge about reverse mortgages, nor how to close the loans themselves. It does not require any interaction other than referring the borrower to a lender. What you receive in turn for the referral is a fee. This fee equals 0.25% (yes, one-quarter point). Not bad for a simple referral fee.

If a client is interested in a reverse mortgage, the second way to earn a fee is by having the knowledge and experience to get the deal done, from point A to Z. If you possess this knowledge, then your guaranteed broker/origination fee is set at 2% of the appraised value of the property.

Some numbers to live by:

Home value: $200,000 x 0.25% = $500.00
Home value: $200,000 x 2.00% = $4,000.00

Home value: $500,000 x 0.25% = $1,250.00
Home value: $500,000 x 2.00% = $10,000.00

That’s right, a single reverse mortgage loan – no matter the size – on a property valued at $500,000 will put $10,000 in cash directly into your pocket.

That means just one measly reverse mortgage per month gives you the same take home pay as the average United States Governor. Only the Governor will spend millions campaigning to get into office. Even better, you will make 50% more than the median College Dean of Students – take that, Dean Wormer! It would take a lawyer with 20 years of experience to match your annual salary, as would a Chief Financial Officer with that same 20 years of experience.

How would you like to snub the so-called ‘elite’, who spend countless years in school and work 60-80+ hours every week for 20 years? With only your one tiny reverse mortgage loan each month, you’ll have to hold back the chuckles while they pull into the office -- and you pull into the country club for 18 holes of golf.

More sobering is the fact that you’ll be pulling in $20,000 more than the highest paid NASA Astronaut in the entire USA. In addition, you’ll be making that same $20,000 more than the Top 10% of ALL MORTGAGE BROKERS.

Is that enough? Imagine the possibilities if you spent 1 day less at the golf course each month and did TWO reverse mortgages! (This is the power of having a niche.)

Need I say more?

Demographics

For all of you clamoring to find out how to become the expert, keep in mind that being an expert requires time, effort and undaunting dedication. Even if you are the numbers guru or the marketing maven, you have to remember that this market is unique and it’s special. We are talking about our elders, the ones who raised us, the ones who will need our help more than ever in the coming decades. This is not a get rich quick market, it is a get rich constantly market. There are some hidden surprises I left out for you to research and discover on your own. However, like most niches, once you become the expert you will find that business comes to you and you will be much more successful.

A few demographic facts you might like to hear about this niche market:

According to several lenders and industry experts, about 5,500 to 6,000 newly eligible borrowers enter the market every single day! I actually did the research on these numbers using US Census data. My motto is “Trust, but Verify”. Although my numbers differ from theirs, the market is expanding – and even better, the expansion rate will increase dramatically by 2010 and is predicted to last for 20 years.

Here are the Census population numbers from July 2000 to July 2006:

2000 Senior population: 34,992,000
2006 Senior population: 37,260,000

Total 6 year growth = 2,268,000

Annual Growth = 378,000 per year (average)
Daily Growth = 1,035 per day (average)

Without going into excessive detail, you can see the numbers are growing. Growing too are the numbers of people passing the magic “62nd” birthday. This segment of our population will dramatically increase in the near future, in number and in rate of increase. Rough estimates state that our current senior population will go from 37.2 million today to 40 million by 2010, a 10.7% increase in 4 short years. Even more dramatic is the increase from 2010 to 2030. Estimates state that the senior population will increase to 70 million in those 20 years alone, an increase of 75%.

Judging by the numbers, this market on average created 1,035 new customers each and every day for the last 6 years. For the next 4 years that will increase by over 81% to 1,876 new clients each and every day. No matter how you slice it, this is a good thing. The reason it’s so good for you and for your clients is because more population news is just around the corner.

1. Population estimates for 2006 to 2010:
   • 2006 Senior population: 37,260,000
   • 2010 Senior population: 40,000,000 (estimated)
   • Total 4 year growth = 2,740,000
   • Annual growth = 685,000 per year (average)
   • Daily growth = 1,876 per day (average)
2. Population estimates for 2010 to 2030:
   • 2010 Senior population: 40,000,000
   • 2030 Senior population: 70,000,000
   • Total 20 year growth = 30 million
   • Annual growth = 1.5 Million new clients per year**
     
     **This translates to a staggering increase of 397% over daily 2006 figures.

Clearly, now is the perfect time to be getting into this niche. It is akin to owning one of the first McDonalds franchises.

How To Turn Bad News Into Good News

Statistics estimate that Social Security expenditures will increase from 4.2% of US Gross Domestic Product to 6.2%. What does this mean to you? Well, first of all, Gross Domestic Product is a number much higher than the Federal Budget. In fact, 2006 GDP was $13.061 Trillion (that’s Trillion with a “T”), while the Federal Budget was a mere $2.407 Trillion. Secondly, this will put a strain on an already stretched economy. If Social Security is 4.2% of the GDP, that means it’s a staggering 22.79% of the Federal Budget today.

Likewise, Alan Greenspan, former Chairman of the Federal Reserve saw this coming in 2004:

“In 2008—just four years from now—the first cohort of the Baby Boom generation will reach 62, the earliest age at which Social Security retirement benefits may be claimed and the age at which about half of prospective beneficiaries choose to retire; in 2011, these individuals will reach 65 and will thus be eligible for Medicare.

At that time, under the intermediate assumptions of the OASDI trustees, there will still be more than three covered workers for each OASDI beneficiary; by 2025, this ratio is projected to be down to 2–1/4. This dramatic demographic change is certain to place enormous demands on our nation’s resources–demands we almost surely will be unable to meet unless action is taken. For a variety of reasons that action is better taken as soon as possible.”

Alan Greenspan, Chairman of the Federal Reserve
Testimony, House Budget Committee
February 25, 2004
http://www.gpoaccess.gov/usbudget/fy06/pdf/budget/outlook.pdf

What he’s trying to tell us is that something will have to give in the near future. Either we pay more to support our seniors or their benefits will be reduced. This message is supported by the recent 2007 Annual Report by the Social Security and Medicare Board of Trustees.

For a summary of this annual report, see link:
http://www.ssa.gov/OACT/TRSUM/trsummary.html

In short, it looks like their benefits could be reduced. This begs the question – who is going to pay for our seniors to live and thrive in the future? Well, with the help of a reverse mortgage, they can be more self sufficient than ever before.

Don’t Forget Your Client

Most of all, you will need patience, a big heart and the desire to truly help some of the sweetest people you’ll ever meet. They did not grow up with MTV, iPods, YouTube, UFC, Paris Hilton nor anything else of low importance in the scheme of things. They know the true meaning of trust. Your ethics and your character are at stake.

Why do I say this? One of my dearest clients will be 79 years old this summer. She had been burned by another broker who cared nothing about her situation. Would you believe they put her in an Option Arm 3/27 that recast early and tripled her payments overnight?? Although my private number is unlisted, she has it and is allowed to call me any time of day, even on weekends. Honestly, nobody else calls me an angel from heaven on a daily basis, so hey, don’t knock it.

Riches Are in Niches

If you have the itch to be rich with seniors as your clients, then HECM is your niche. On the other hand, if you would like to tell the RESPA police to “go stuff it” forever, eliminate 100% of your residential mortgage competition, and prefer dealing with business owners and investors, then stay tuned for the next segment in our series.

NOTE: This is the second in a short series of articles on the power of niches. Please watch for future articles. Click here to read the first article.

Grant C. Robin is a Nationally Recognized Mortgage Expert based in Miami, Florida. He is a niche specialist and has been mentored by some of the finest trainers in the industry. For more information about Grant C. Robin, contact his office at (786) 522-5321 or write to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

REFERENCES:

United States Governors’ salary:
http://www.stateline.org/live/details/story?contentId=207914

College Dean of Students salary:
http://swz.salary.com/salarywizard/layouthtmls/swzl_compresult_national_ED03000061.html#bottom

Lawyer Average Salary, 20 years experience:
http://www.payscale.com/research/US/Job=Attorney_%2f_Lawyer/Salary

CFO Average Salary, 20 years experience:
http://www.payscale.com/research/US/Years_Experience=20_years_or_more/Salary

NASA Astronaut Maximum Salary:
http://www.nasa.gov/centers/kennedy/about/information/astronaut_faq.html#5

Mortgage Broker Salary, Top 10%:
http://www.bls.gov/oco/ocos018.htm

http://www.census.gov/popest/national/asrh/NC-EST2006/NC-EST2006-01.xls

http://www.agingstats.gov/agingstatsdotnet/main_site/default.aspx

http://www.whitehouse.gov/omb/budget/fy2008/pdf/budget/tables.pdf