Education is the mother of leadership. — Wendell Willkie
In order for any business to succeed, it must excel at selling. Yet selling is a primary challenge for most businesses. One reason for this is that it can be challenging for salespeople to earn consumers’ trust, a critical component of getting people to part with their money. Bill Brooks of the Brooks Group estimates that more than 85 percent of customers have a negative view of all salespeople. Some industries, though, have it harder than others in this regard. A recent Gallup study found that insurance salespeople and car salespeople ranked at the bottom of the list for perceived honesty and ethical conduct for business professionals, just ahead of Congress (!).
You can imagine, then, that the last thing a person or a business would typically want to sell is a misunderstood loan product, one that many people in the past have associated with scams that fleece the elderly out of their hard-earned savings. But Bloomfield, New Jersey-based Reverse Mortgage Funding LLC (“RMF”) — founded in 2012 by a group of executives with an average of 15-plus years in this industry — saw how the reverse mortgage product has positively impacted the lives of so many older Americans. Pioneers in this business, they formed their own company and set out for it to become an industry leader. They feel very strongly that if they can change people’s misinformed perceptions of reverse mortgages, then they can change more people’s lives for the better.
RMF’s executive team, led by industry veterans Craig Corn, Robert Sivori, and David Peskin, saw an opportunity to build a business that truly helped people in this market that was battered down by misperception and flawed government regulation. I recently had the opportunity to catch up with Mr. Peskin to chat about his career and the success of RMF, which surpassed American Advisors Group (AAG) as the top Home Equity Conversion Mortgage-backed securities (HMBS) issuer in 2016.
A veteran of the forward mortgage market, Peskin came across Home Equity Conversion Mortgages (HECMs) — commonly called reverse mortgages — in 2003. He immediately saw the benefits that they offered to retirees who want to age in place without having to deplete their taxable assets (such as pensions or stocks). Instead of drawing down productive assets, they would receive a loan against their home’s equity, and they could use the funds as they choose to gain greater financial flexibility. Borrowers commonly use the funds to pay their bills, renovate their homes, finance long-term-care expenses, or to simply supplement their fixed income. Others use a reverse mortgage to finance the purchase of a new home.
So if the product was so good, why wasn’t it a more mainstream, trusted loan option for seniors? The answer could be traced to how they were being marketed. For many years, reverse mortgages appeared too good to be true, by giving borrowers access to money without requiring monthly principal and interest payments. Naturally, this was perceived as a bank grab, with people assuming that they would eventually wind up without equity and lose their homes (which in fact did happen to many people who did not fulfill their loan obligations, which includes keeping current with property-related taxes, insurance and maintenance). They were viewed by the general population as a product of last resort, and the industry mistakenly chose not to refine that image because business was booming and it was fulfilling demand.
{Contrast this with traditional “forward” home equity loans, which were becoming popular credit choices for borrowers at that same time. In the case of home equity loans, banks required the payment of monthly interest accruals and sometimes principal payments as well.}
Compounding the issue was the fact that FHA regulations at the time dictated that lenders couldn’t make underwriting decisions based on applicants’ credit or income (standard underwriting components within the lending industry). Instead, they were mandated to originate loans for customers regardless of their willingness and ability to meet their financial obligations (keeping current with property taxes, insurance and maintenance), so long as they had met the age requirement (62 years) and had equity in their home to pay off any existing home-secured debts. It was not until 2015 that the borrower’s credit and income were analyzed before a HECM could be originated. The lack of required underwriting prior to 2015 was the primary cause of a major national bank to stop offering HECMs, which further undercut the product’s credibility.
But Peskin and his partners were committed to working through these challenges. As he saw it, this was an underserved niche market with great fiscal upside and an area where he could make a real contribution to people’s lives. He saw veterans getting VA loans and first-time homebuyers receiving FHA loans, and felt that people age 62 and older — a group growing at a faster rate than the total US population — should also be offered a trustworthy, beneficial loan product that could help them in this later phase of their lives.
Peskin realized that the solution to the market misperception was threefold: product repackaging, education, and strong networking. As noted above, HECMs had historically been marketed as “no monthly mortgage payment” loans. While that may have held certain appeal, it also raised red flags in the minds of many. David realized that in order to earn people’s trust, reverse mortgages would have to look and feel more like the legitimate loan option that it is.
So RMF has led the charge for the industry to change product’s image by highlighting its flexible repayment feature, which gives older Americans the option of choosing if and when they want to make loan payments of any size. They also now focus on comparing and contrasting the reverse mortgage with trusted products that consumers are more familiar with, such as the traditional Home Equity Line of Credit (HELOC), showing the certain flexibilities and advantages that a reverse mortgage offers to eligible borrowers. In addition to the flexible repayment feature, FHA-insured HECMs offer a non-recourse feature, which guarantees that the borrower or their estate will never owe more than the home is worth when the loan is repaid. And unlike a traditional HELOC, with a HECM the unused line of credit actually grows, making more funds available over time.
In order to get this message out there, RMF uses conventional advertising to consumers, with a straightforward, educational approach. Each loan originator also works to win over the influencers whose clients have the most to gain from HECMs — such as financial advisors, who are integral in retirement decision making; home builders and remodelers; and residential real estate professionals.
RMF and its loan officers use educational seminars and webinars to reach these professionals, where the company shows how HECMs can help these individuals grow their own business. It’s a win-win as these critical intermediaries get on board with a better understanding of the product and how it can make it easier for their clients to buy a new home, retrofit their existing home, or serve as a fundamental component of retirement planning. The vision of David and RMF is for the reverse mortgage to become a mainstream financial option.
While there remains room for improvement (a recent focus group conducted by RMF found that many people still believe that “it’s the product that makes you lose your home”), there have been clear gains in perception and customer satisfaction. RMF conducts a monthly survey which found that over 96% of its customers were satisfied with their loans and appreciate having control over their finances. The countless, emotional letters RMF receives that describe how the product has changed the life of the borrower for the better also speak consistently to how they’ve helped people.
Ask the average person about corporate leadership and they are sure to mention many important qualities, such as visionary, role model, and motivator. In contrast, the term educator does not typically make the list. However, in many situations it’s the leader’s ability to educate and connect with others, employees as well as customers, that really demonstrates their capacity. In the case of RMF, David Peskin understood the crucial role that these qualities would have in turning a startup company into a highly successful one that offers so much more back in return, in the form of raising the standard of living for so many older homeowners.
RMF LLC president David Peskin