Nearly one year after launching its reverse mortgage operations, Bank of New York Mellon is confident 2016 will be the year Home Equity Conversion Mortgages become a household name in retirement planning and the broader financial marketplace.
A lot has changed for HECMs since BNY Mellon announced its re-entry into the reverse mortgage business in summer 2014, and not just from a policy standpoint.
The last year alone saw the arrival of both the long-awaited Financial Assessment as well as updates to the non-borrowing spouse policy—two critical program changes that have helped transformed reverse mortgages from loans of last resort into viable retirement planning tools for senior homeowners. Consequently, these rule tweaks also caught the attention of several academics and financial planners who have begun to espouse the use of reverse mortgages as part of a coordinated retirement income strategy.
Such research, which has demonstrated how reverse mortgages can be an effective piece of the retirement planning puzzle, is valuable ammunition for the reverse mortgage industry to not only change public perception of the product, but to bridge the gap into the financial planning world.
In the past, BNY Mellon has mentioned plans to utilize its access to financial planners and other professionals to spread the word about the merits of reverse mortgages in effective retirement plans. So far, new research over the past year has helped the New York-based investment company facilitate reverse mortgage conversations with non-industry professionals.
The company has already engaged in “serious conversations” with several professional channels, including 401(k) record keepers, financial intermediaries, independent broker dealers, and in some cases, insurance companies interested in providing additional retirement solutions to their portfolio of offerings, said Michael Gordon, managing director and global head of insurance solutions of BNY Mellon Investment Management.
In his role, Gordon is responsible for oversight of the firm’s global institutional insurance distribution efforts, including reinsurance transactions and specialty solutions businesses, such as home equity retirement solutions.
While BNY Mellon cannot get into the details of any specific discussions, Gordon told RMD that the company has had “a lot of discussions” that are progressing “very well.”
“We anticipate there will be a shift in how this product is marketed, distributed and thought about,” Gordon said. “It will be viewed as part of retirement plan construction in a way that it hasn’t in the past.”
BNY Mellon does not originate reverse mortgages. Rather, the company purchases closed HECM loans, services them and is an approved Ginnie Mae issuer. Although BNY Mellon does receive loans from a variety of sources, Mahwah, New Jersey-based reverse mortgage lender Longbridge Financial is the only correspondent lender with whom the company does business directly.
“We do purchase loans from others as well,” Gordon said.
The company, which provides investment services to $28.5 trillion worth of assets and operates in over 100 markets, according to its company’s corporate profile, works primarily through financial intermediaries on the retail side, as well as institutionally.
“We sit in a unique place in the capital markets that allows us to have conversations on how to think about assets and where they fit into the equation,” Gordon said.
When BNY Mellon considers reverse mortgages, it looks at them as a three-part discussion on how to use the product to improve portfolio outcomes. This includes using a HECM to meet basic living expenses; how a HECM can be used to supplement other investments such as Social Security and defined benefit plans; and the use of a standby line of credit strategy that allows retirees to protect themselves from sequence of returns risk in years when their investment portfolio suffers a “down year.”
Similar discussion points have been outlined numerous times in the research of financial planners in recent years. Meanwhile, a study from the Employee Benefits Research Institute last year reported the aggregate national retirement deficit is estimated to be $4.13 trillion for all U.S. households. As the gap widens between Americans’ liquid retirement assets and retirement liabilities, some may turn to reverse mortgages as possible solutions to bolster their savings.
“When you think about the possible solutions between assets and liabilities, there is no conceivable set of solutions that don’t include home equity,” Gordon said. “I think more people are coming to understand that.”
With one month of 2016 already in the books, a number of opportunities lay ahead for the reverse mortgage industry as everyone from advisers to 401(k) record keepers, among other financial professionals begin to realize the necessity of home equity in creating a sustainable retirement income plan.
“There are many in this industry who are excited about ultimately creating a product that is much more integrated with the broader financial markets,” Gordon said. “As that happens, it’s going to set up the trajectory of geometric growth in the future.”