Steve Resch, Vice President, Retirement Strategy, Leading Reverse Mortgage Industry Lender American Financialis well aware of the intersection of interests between financial planning professionals and members of the reverse mortgage industry.
Financial Planners have been and remain one of the most sought-after referral partners for reverse mortgage professionals. This certainly hasn’t diminished in the current business climate.
To better understand the current concerns and interests of financial planners, RMD sat down with Resch to discuss some of what he’s seeing right now.
Chris Clow/RMD: The reverse mortgage business in general is going through a period of reduced volume. But things seem to be looking up. Over the past few months, the conversations I’ve had with many front-line sponsors have been more optimistic. I’m curious how this ties into the work you’re doing for American Finance.
Steve Resch: In my role, I work directly with financial advisors. Our practice hasn’t really seen much change recently because a lot of what we do with advisors involves leveraging home equity for strategic planning, and that doesn’t really go away in a high interest rate environment.
We still have a lot of conversations and activity with advisors. However, what we find – and I’ve been seeing this happen for a while, and it’s becoming more and more common – is that the most receptive part of our conversation is leveraging home equity for long-term care management.
Kuro: That’s interesting. why is that?
Resch: The consultants were very open about it. I just came back from an investment conference last week where I spoke about this topic and they were very receptive and open to it because advisors all need to figure out how to manage long-term care costs for our clients. Customers are very hesitant to pay for an insurance solution, which can be very expensive — we might say $10,000 to $15,000 per year for an insurance solution.
So if we can manage risk by using home equity, and the only cost we involve is establishing a line of credit, then our costs are limited. We have saved cash flow for the next 20 years that could have been invested in insurance solutions. However, we still managed the risk because we retained a portion of our home equity for long-term care planning.
Of course, this will grow and compound over time. Just like an insurance policy, it has inflation built in because it’s tied to interest rates, which of course are also tied to inflation. So the consulting community is very open and very excited about this because it’s managing risk at low cost again.
Clow: One of the biggest things I hear from people in the industry is that HECM Procurement (H4P) is a sleeping giant waiting for the right opportunity. How, if at all, does H4P engage in conversations with fellow financial planners you know?
Resch: It’s definitely becoming more common as well. Going back to the conference I attended, two female consultants came to me after the presentation. They told me they all used H4P in their divorce settlements. I think this is an extraordinary opportunity.
We’re actually working on a demo on using H4P for divorce settlements, but other than that, it’s a great opportunity. Your investment assets provide income; you do not live off your home equity. Home equity is where you live and stay. Therefore, through a reverse purchase, they are able to get into the home they want without depleting any investment equity, thereby providing income. This is a good opportunity.
Clow: Is it a “sleeping giant” in the industry, or is it perhaps overhyped?
Resch: I do believe this is a sleeping giant. I think this might have been more common even a few years ago without the massive increase in home appreciation brought about by COVID-19. I think that forces a lot of people to wait and see because this is really a cash buying market. You don’t have time to actually raise capital—at least in my area. Everything is purchased with cash and then you refinance.
So I think overall the housing market, while still strong, has stabilized. And you still have a chance to negotiate; you have a chance to raise financing. I think now is an ideal time for contrarian buying to really start to come to the forefront.
Crowe: I’m curious about the evolution you’ve observed in conversations since the pandemic. Refinancing volumes dropped significantly, and then there was consolidation in the industry, and home prices didn’t drop significantly nationwide. For you, what’s been the most obvious evolution in your conversations since the pandemic?
Resch: Our goal has always been to teach, educate and demonstrate opportunities to use home equity as a strategic component in a financial plan. So, pre-COVID, through COVID, our message remains: let’s leverage home equity. We are not looking at changes in interest rates or PLF; we are looking at the concept of using home equity to secure and enhance retirement plans.
To that end, I would say that over the past few years, education is becoming more widespread and I do believe we are starting to turn the learning curve around and advisors are more open to it. Going back to the conference I attended, we had a lot of consultants come by and what they said was, “Thank you for being here, it’s great to be able to talk to people in the industry in person.”
A lot of the problem they run into is if they want to find information about reverse mortgages, they start a Google search and everything that pops up is from the lender. But we had the opportunity to have one-on-one conversations without the pressure of sales.
Kuro: Is that important?
Resch: Yeah, that’s what these guys need. They still need to be educated; you can read it, you can run scenarios, but they still need that conversation, that education. I think we’re still moving in that direction where they’re more willing to talk and more willing to listen and ask questions because they also see the reality that our demographics require us to think about home equity as far as retirement planning is concerned.
So, again, our evolution, I don’t think I can tie that to anything that’s actually going on, like COVID or anything. It’s all a learning curve, and I think we’re really starting to move up the S-curve.
