Exploring Reverse Mortgages
KRIS FLAMMANG
Why don't you run me through a brief history of how you got to where you are today?
STEVEN SLESS
I got into the mortgage industry in 2003, and until 2008 I did what most mortgage folks do: some refinance, some purchase business. At that time, subprime was a big market. We all know what happened with that in 2007 and 2008. The company that I worked for faltered and I had to make a decision whether I was going to stay in the mortgage industry or whether I was going to go try to do something else. I had learned about reverse mortgages a little bit. I had seen that there were some people in my office who were starting to have some success with reverse mortgages, given the growing demographic. At the time I was in my mid-twenties, and I thought, “How in the world am I going to communicate with seniors?”
It scared me and I shied away from it at, but through my research and learning about reverse mortgages, I discovered what a powerful tool they are and I immersed myself in it. By doing that, I learned that reverse mortgages aren't going to steal your home or let the government take your house. All that is bogus. I dispelled a lot of the myths and misconceptions myself through my research. My team and I have been exclusive to reverse mortgages since, and we haven't looked back.
KRIS FLAMMANG
If you could look back to 2008 when you were getting started and you could give some advice to your younger self, what do you think that one piece of advice would be?
STEVEN SLESS
I've been on this personal branding journey for quite some time now, and I wish I started that sooner. We've been able to hire a team and we've developed this team brand where we are the national leaders in reverse mortgages. I've discovered how messaging and communicating are vital to any practice. Whether it's a financial services practice, a reverse mortgage practice, it's all about communication. It's the way you position yourself. I wish I had known that in my twenties, but at that age, you want to go out and have fun and do all the things 20-year-olds do. It wasn't until my early thirties where I really took the personal branding journey more seriously. If I were to go back and have a conversation with the younger Steve, I would tell him to take himself a bit more seriously. But things have worked out pretty well.
KRIS FLAMMANG
Let's jump into some of the high-level details. I'd like you to start by explaining in simple terms, what a reverse mortgage is and the structure of it.
STEVEN SLESS
A reverse mortgage is a mortgage loan, not a whole lot different than a traditional mortgage loan. However, a reverse mortgage provides flexibility, unlike any other mortgage product. If you are 60 or above, own a home, and have at least 50% equity, you can leverage your home equity and turn that equity into tangible funds that you can repurpose to live a more comfortable retirement. It's the concept of incorporating housing wealth into a more comprehensive financial plan to strengthen, protect, and preserve the overall retirement strategy.
Reverse mortgages historically have gotten a bad rap because folks just don't understand them. It's just a mortgage. It's a mortgage that allows you to defer the payback until you leave the home. Then you don’t have to make a monthly mortgage payment later in life when cash flow is critical to being able to live a comfortable retirement.
KRIS FLAMMANG
What is the typical process someone goes through with a reverse mortgage?
STEVEN SLESS
We always start with the educational process. When we sit down with our clients, we perform a financial assessment, and we determine suitability, not only to know whether they qualify, but also whether they’re suitable for a reverse mortgage. If somebody were to come to me and say, "I want to take out a reverse mortgage,” the first question I'm going to ask is “How long do you want to remain in your home?” If they say it’ll be three years, it's not the right product for them. This is a long-term solution. It's a mechanism which allows the funding to be able to age comfortably in the home you love, which is particularly important today after we're coming out of this COVID world where a lot of deaths happened in long-term care facilities and nursing homes. We're having a lot of conversations today with adult children who want to be sure that their parents can live comfortably in place.
But to go back to your question, where we start is education. We want to explain not just how reverse mortgages work, but how they can fit into a retirement plan, and how they can marry with your other investments to extend the overall plan. We look at it from a very holistic standpoint from the top down with reverse mortgage being one piece to the overall puzzle.
KRIS FLAMMANG
It’s good to know the difference between qualification and suitability, because they aren’t one and the same. Once I was standing in line at the bank and they had one of those big posters saying, “Take out an equity loan.” It listed all the things that you could use the money for: a college education, home improvements, etc. But then there were some other ones like dream vacations. I thought, “Yes, they could do that, but is it really a good idea? Is that in their best interest? Is that suitable for them?”
STEVEN SLESS
In some cases, the answer is, “Yes.” We want to be able to enjoy life and use the money we've earned over the years to live a comfortable retirement. Vacation's a big part of that, but I resonate with what you're saying because all too often, people don’t know what they’re doing. Especially in the reverse mortgage world. Some originators are just traditional mortgage originators that dabble in the world of reverse. We made a decision in 2008 to do only reverse mortgages. We weren't going to be a Jack of all trades. We were going to be a master of one very niche product. It was a great decision, and because we specialize in it, we look at reverse mortgages in a different light than most traditional mortgage originators.
They're looking at it as another product within their service offerings, no different than another FHA loan or VA loan or cash-out refinance, construction loan, etc. When you come to people who specialize in reverse mortgages—people like us—we talk to your financial advisor, we're really in the weeds with you. We figure out the details: if you structure it this way, what does it do to the overall retirement picture? Can we extend your retirement plan by 10 years by taking out a reverse mortgage and strategically using this money? The crux of it is that we're looking at this from a very strategic, holistic standpoint. We don’t take out a reverse mortgage and a bucket of cash; we use the funds appropriately at the most opportune times to grow the overall portfolio.
KRIS FLAMMANG
Who might it be suitable for, then?
STEVEN SLESS
If you asked me that question 10 years ago, it would have been a very different answer. 10 years ago, reverse mortgages were a loan of last resort. People who had run out of money and exhausted their investment portfolios, yet still had a reasonable amount of equity in their homes, were taking out reverse mortgages. That was our demographic. Today's reverse mortgage borrower is very different. A big reason for that is the research that's come out, particularly over the past five or six years. What they've discovered is that when you use reverse mortgages proactively rather than reactively, it really can make a profound difference in extending the life of an investment portfolio.
Today's clients are very savvy and strategic. We're doing reverse mortgages for millionaires. There are jumbo reverse mortgage products that allow us to lend up to $3 million on homes valued up to $10 million. We're still able to help those folks who are short on funds and are using it more of a loan of last resort, but the reverse mortgage was never really designed that way. It was always designed to support your other retirement assets. That is finally coming to light and seeing the surface today.
KRIS FLAMMANG
There are probably situations where it is not compatible, not suitable, doesn't make sense. Can you give me an easy example of one where that's the case?
STEVEN SLESS
If they're not looking to be in this home long term—and when I say long term, it's probably more than five years, oftentimes more than 10 years—they’re probably not right for a reverse mortgage. We want to be able to structure a reverse mortgage to support them throughout their lives in the home. There are closing costs involved. We look at that as well. We need to feel good and show clear benefits to our borrowers, show them that it makes sense for them to take out this reverse mortgage. If they don't have enough of a baseline income to support the qualifications of the loan, that’s a red flag. There are three qualifications: you have to pay your taxes, you have to pay your home homeowner's insurance, and you have to maintain the home because you still own the home.
There’s a big misconception that when you take out a reverse mortgage, somehow you lose ownership. That's not the case at all. You own the home. It's your responsibility to pay the taxes, pay the insurance, and maintain the home. Through our analysis, we may discover they're only on Social Security. What happens if we place all this money in their hands from their equity and they use it all? We don't know what they're going to do with that money. We can encourage them to seek help, talk to an advisor, but at the end of the day, that's their money. They can manage it however they see fit.
There has to be enough of a baseline income to cover the taxes, the insurance, and the home maintenance for us to be able to originate that loan. Those are the two major suitability factors: the income and their willingness and ability to remain in the home. Their ability is really important as well. They may be in a home with lots of stairs, yet they're having some difficulty getting around. They may not be able to stay there very long. This is more of a long-term solution.
KRIS FLAMMANG
I know that there's some government regulation involved. Can you speak on what role the government plays?
STEVEN SLESS
There have been a lot of new safeguards and regulation that have come out particularly post-2015. Prior to 2015, if you were over the age of 62 and you had at least 30 or 40% equity and you had a pulse, we could lend you money on a reverse mortgage. What happened was you had those folks that were destitute, that had already run out of money. They were turning to their home. They were using all that money. It was gone as quickly as it came in. They were in a much worse position after taking out the reverse mortgage. Unfortunately, there were a large number of senior homeowners that were foreclosed on.
They weren't foreclosed on because they had the reverse mortgage loan. They were foreclosed on because they failed to meet the obligations of the loan. In 2015, the government stepped in and came out with what we now call the financial assessment or FA in our industry where we have to look at income and credit. We have to qualify reverse mortgage borrowers in a similar fashion to the rest of the mortgage industry; you have to have income; you have to have equity. We have to look at all those things now and run them through the same underwriting guidelines as traditional mortgages, because we don't want folks taking out reverse mortgages and being in a worse situation down the road. We want to improve their overall financial outlook.
That was one of the biggest changes. Prior to that change, the foreclosure rate on reverse mortgages was close to 9%. Today, it's less than 1% nationally. That change really helped to solidify and strengthen the program. Now that the product is a much stronger version of what it was before, these retirement researchers have come in and identified ways to properly and strategically use the reverse mortgage.
KRIS FLAMMANG
Is there oversight or are there regulations on people who provide them? Who can provide a reverse mortgage or offer them to consumers and how are they regulated?
STEVEN SLESS
These are some of the most heavily regulated products on the market, and rightfully so. They're for seniors. Seniors are a very protected class, as they should be. The loans are very heavily regulated and so are the lenders. I have a mortgage license. I'm very protective and proud of that license. It allows me to have the career that I have. Not only do the regulators do random audits and look at these loans to make sure that I’m doing business on the up-and-up, but they also audit our files. They look at all the parameters to ensure that we're putting the right people in the right lungs.
There's also independent counseling. Every reverse mortgage requires an independent third party, HUD counseling, there for checks and balances. The counseling can be done face-to-face or over the phone. That's the borrower's opportunity to have an uninterested third party speak with them about the loan, answer questions, confirm that they're working with somebody that is licensed and meets the standards to be able to originate reverse mortgages. That counseling is critical because it’s an extra layer of protection. That is not the case on other mortgage products.
KRIS FLAMMANG
What do you think is probably the biggest misconception the reverse mortgage consumer has?
STEVEN SLESS
The biggest one is that they're only for people who are broke. That's not the case at all. They're actually better for people that don't need them because you can set up a reverse mortgage and put the funds that you qualify for in a line of credit. That line of credit can be used as a buffer asset. Having funds outside of the investment portfolio lets you hedge against corrections in the market, hedge against sequence-of-return risks. That's the first and probably the biggest misconception.
The other misconception is that the government or the lender somehow takes over ownership of your home and that you're renting it back or you lose ownership. That's not the case. At the end of the day, it's just a mortgage. There's a lien on title, no different than any other mortgage. The key difference is you can defer payback until you leave the home. There are a variety of payout options that the reverse mortgage allows that other mortgage products simply don't.
KRIS FLAMMANG
Go through those payout options briefly. You go through the mortgage process. You get the reverse mortgage, and then you have this capital. How can you access that?
STEVEN SLESS
When we're setting up the reverse mortgage, we're asking questions to help us determine how best to structure the loan. The payout options are as follows: One, you can take out a lump sum payment, where we say, “Here's how much you qualify for.” You take all that money and you manage it however you see fit. Two, a term payout. We see this a lot in helping clients defer Social Security payouts. If you're trying to make it from 65 to 70, you can turn on funds from the equity in your home for those five years. Then at 70, you turn on Social Security and turn off the equity from your home, kind of like a spigot. It's very flexible that way.
A term payout provides some flexibility to receive funds from your home for a select period of time. There's also a tenure, which is essentially an income annuity from the equity in your home, where the mortgage lender sends you a monthly check and it's regular cash flow. We see that a lot for folks that need regular cash flow. Maybe they're $1,000 a month short, or an extra thousand dollars a month will make all the difference for them to live a better lifestyle. You can turn it on that way. You can also take the pool of funds that you qualify for and put it in a line of credit. A reverse mortgage line of credit, unlike any other line of credit, has a guaranteed rate of growth.
That guaranteed rate of growth is 0.5% over the interest rate on the loan. Today's interest rates are about three. You're going to get three and a half percent growth rate on that line of credit. Think of it as a credit card. Your limit on that card is increasing every year, giving you more borrowing power over time. You determine when and if to pull those funds. You can also customize all these payout options. You can set up a line of credit in addition to setting up a term or tenure and receive some money upfront. That's where the customization comes into play.
KRIS FLAMMANG
I'm curious what you really like about your business right now. What are you most enjoying?
STEVEN SLESS
We are on the forefront of changing the way retirement is done in America. For most Americans over 62, the majority of their net worth lies with their home equity. Coming in and teaching them how to use that equity to create a more comfortable retirement brings a lot of joy to me and to my team. We're also working with a lot of financial advisors and changing their mindsets. Maybe their client needs to take out 4% per year to live their normal lifestyle. We can come in and say, “Let's supplement with a reverse mortgage, and now we can bring that 4% down to 2%.”
What does that do for the advisor's assets under management, and for the client's portfolio? It extends the longevity of that portfolio and it allows the advisor to manage more of their clients' money longer. It's a win-win and we're really on the forefront of that. We're very proud of what we do. We're also on the forefront of marketing and that's something that I enjoy quite a bit. I have a YouTube channel that I manage. We're big into video. We're big into educating. We do the majority of our educating through opportunities like this. We create a lot of content and our content gets viewed quite a bit.
We receive a lot of business from that content. That's fun for us to do. I love creating videos. I love speaking about reverse mortgages. You can probably see I tend to go on tangents about reverse mortgages because I'm passionate about them. I enjoy being on the forefront of this seismic shift in the retirement-planning industry. We're also helping clients to fund long-term care, whether that's self-funding care or funding the actual insurance policy itself. We're helping in grey divorce. There's an epidemic of seniors getting divorced right now. A reverse mortgage is a fantastic way to divide assets later in life for couples coming out of long-term marriages. We love what we do. We're so passionate and we're just getting started.
KRIS FLAMMANG
Let's shift gears a little bit. I'm going to go into the mind of Steve for a second. What's your first memory of money? It could be as a kid or an adolescent or maybe it was high school or college.
STEVEN SLESS
When I was growing up, my family didn't have a lot of money, but we also didn't have a lot of needs. I can't say that I didn't have what I needed or wanted growing up. My parents worked their tails off to support my sister and me. My mom worked two jobs. My dad worked long hours. Money, or the lack thereof, was always a topic of conversation around the house. That was probably my first memory of money: hearing my parents stress over being able to support us. I think they did a heck of a job, especially looking back now.
KRIS FLAMMANG
How do you think that affected you? How did that shape you?
STEVEN SLESS
It's my driving force. I have two young kids. My oldest is going to be five in August, my little one's two and a half. I don't want them to grow up hearing those same conversations. The foundation that my parents laid of hard work and this blue-collar mentality, even in a more white-collar job like the reverse mortgage industry has driven me. I've still been able to hold true to those blue-collar ethics. That's been my driving force throughout my career.
KRIS FLAMMANG
What do you consider to be your biggest life accomplishment? This could be personally or professionally, or both.
STEVEN SLESS
My kids. Just being able to enjoy watching them grow up. They’re amazing. Also, of course, finding and marrying my wife. I'm really proud of our family dynamic over all the accolades and professional accomplishments. It's all about family at the end of the day.
KRIS FLAMMANG
Let's think of about going forward. What do you see as the biggest opportunity for your business?
STEVEN SLESS
The biggest opportunity is, without a doubt, being able to capture more market share. In the reverse mortgage world, there's only 1% market penetration. Of all the folks that qualify for reverse mortgages, only 1% actually have a reverse mortgage. It's an unbelievable opportunity. The only reason that is the case is because there's a lack of education out there. There's a lack of folks like us who specialize in this very niche product.
Not to mention that in the reverse mortgage world, we're fighting all these myths and misconceptions every day. When you say the word reverse mortgage, most folks have a visceral reaction. Who wants to deal with that? Well, we do. We're on the forefront of it. We're battling that every day because we know what an incredible product the reverse mortgage is. The biggest opportunity is to grow market share. 10,000 people a day are turning 65 and that's going to continue until the year 2030.
For the majority of these folks, their home is their largest asset. Look at the cost of healthcare. Look at the cost of long-term care. There is no doubt that the home equity has to play a role in paying for care. If you look at the accumulation of wealth in the country, what's in retirement accounts and 401(k)s and IRAs compared to home equity, the home is where the wealth is. Home is where the heart is; you want to be able to age comfortably in place in a home you love, but the home is where the wealth is. We're on this mission to incorporate that housing wealth with the investment portfolios and to tie the two together to strengthen the retirements for all Americans moving forward.
KRIS FLAMMANG
What is your biggest obstacle going forward?
STEVEN SLESS
We have two obstacles right now. The first one has been the obstacle in the reverse mortgage space for as long as I've been in it. It’s that visceral reaction that most folks have when you mention reverse mortgages. We are trying to overcome that by creating content that is having an advanced conversation. Not the Tom Selleck commercials, which are defending reverse mortgages. I love Tom Selleck, and I love that company. They’re a big partner of ours. Tom Selleck drives the industry. Whenever a commercial airs, people call. However, Tom's not having an informative conversation with you. Through the content that we are creating, we're having these conversations about the advanced planning strategies that reverse mortgages can open up, and in doing so we're organically dispelling a lot of these myths and misconceptions.
Our second challenge right now, probably the most important one, is we're going through some serious growing pains. I just took over the reverse mortgage division for Primary Residential Mortgage a couple months ago. There is a huge interest from all of our forward mortgage originators to be a part of this growing demographic, to grow their reverse mortgage practice. The majority of my day is spent helping them grow their business and helping them to better serve their referral partners, whether it's their realtors using a reverse mortgage to purchase a new home or their financial planners sitting down with them and having hand-to-hand combat. They’re saying, “I know you may think one way about reverse mortgages, but research says otherwise, and here's what we can do to help you help your clients.”
We have to get over those growing pains. I need to grow my team and we're trying to grow our foundation and infrastructure because there's going to be a wave of reverse mortgage clients here at PRMI. We have full intentions on becoming a top-10 or even top-five reverse mortgage lender inside the next 24 months. We're going through that journey to get there. With that journey comes a lot of challenges.
KRIS FLAMMANG
If there was something you could change right now, is that what it would be? You'd be on the other side of the growing pains.
STEVEN SLESS
I love going through the growing pains because it's all part of the journey. It's that journey to the top that I enjoy the most. If I were going to change something about the industry right now, I would change the way that people talk about and promote reverse mortgages. Most of our industry talks about paying off a mortgage and eliminating your mortgage payment and you don't have to make a payment anymore. That's true, but let's talk about the flexibility. Let's talk about what happens when you incorporate housing wealth with a comprehensive retirement strategy.
Those are the conversations that are going to drive our industry for the next 25 years. We have to get ourselves out of that loan-of-last-resort mentality and start having these more difficult conversations about long-term care planning, divorce planning, and estate planning, and doing so with a reverse mortgage. If it was called a retirement mortgage, it would be a totally different industry. Forget the 1% market penetration, there'd be 50% market penetration.
I really do feel that in 10 years when folks that are 62-plus are sitting at the dinner table with their friends, the conversation's not going to going to be, “Should I or shouldn't I take a reverse mortgage?” It's going to be, "Hey, where did you get your reverse mortgage? Which lender did you use?" It's going to be commonplace in retirement planning because it's going to have to be. The numbers prove it. Home equity is where the money is. It's not in retirement accounts. But we're still on that journey to get there. I'm confident that those are the conversations that are going to be had around the dinner table.
KRIS FLAMMANG
Thank you for sharing your insights about something that is becoming much more common.