FAIRFAX, Va. - With the graying of the population, it's no wonder demand for reverse mortgages is on the rise-but that popularity is also coming at a time when it may be trickier for CUs to offer this product.
"As more members are reaching the age of retirement, they are looking for alternatives to conventional mortgages," said Robert Treadway, reverse mortgage consultant for Credit Union Mortgage Association, or CUMA, a CUSO based here.
"There will be more retirements and many will find that they do not have enough savings for retirement," Tun Wai, director of research and chief economist at NAFCU, agreed.
When this time comes, the benefit for CUs will be driven by members "seeking to augment their retirement income and maintaining a relationship with the credit union," Wai said.
But offering this product does bring risks, he warned. "Like other loan products, the loan has to do with what is going to happen to the collateral," he said. "The real estate market is in turmoil and the residual value of the collateral may not be what was anticipated. This has implications on how much money the credit union will get."
Bob Dorsa, president of the American Credit Union Mortgage Association in Las Vegas, said that 80% of CU assets are owned by members with an average age older than 50.
"Ten years ago, when I first learned about reverse mortgages, I thought 'this is made for credit unions,'" said Dorsa, adding he is surprised that more credit unions are not offering these products. Less than 25% of the more than 8,000 credit unions offer a reverse mortgage product, he said.
The reason more CUs aren't jumping on the bandwagon may be "because credit unions are scared to death over the housing crisis," Dorsa said. "Credit unions are not eager to get involved in a product that involves counseling, HUD, FHA."
But there are pros, Dorsa stressed.
Engage Older Members
"You engage your older members," he said. "Hopefully you get their younger family members involved. This becomes the bridge to getting younger members involved. Another benefit of offering these products is that you don't want to lose these members. You have to hang on to these older members, older depositors," Dorsa said.
Scott Toler, president and CEO of CUMA, agreed. "If [credit unions] don't offer it, the member will go to another lender," he said. "Depending on how the proceeds from the closing are disbursed to the member-lump sum or annuity payment-could potentially lead to increased deposits from that member."
The main negative is really the process itself, Dorsa said.
"We've got a lot of liquidity so I don't see that as being a negative," he said.
Credit unions may also be able to offer more affordable rates for reverse mortgages than other lenders, Dorsa noted.
"The fees associated with reverse mortgages seem to very high," he said. "I would think the way we have done with ATMs, credit cards-I think we could find a way to be affordable to members and profitable to us."
Dorsa said another way credit unions can generate income through reverse mortgages is to offer other products with it, such as retirement planning, long-term care insurance and trust services.
The cost to credit unions, he said, would be mainly associated with training, IT and spreadsheets.
Get Involved With HUD And FHA
"Credit unions would need some expertise," Dorsa said, "and have to get involved with HUD and FHA."
The cost of marketing is comparable to conventional mortgages, Treadway said.
"A sign in the lobby, literature on the credit union website, an article in the quarterly newsletter, seminars, statement insert and brochures in the branches," he said. "Most importantly is having an expert available who can educate the member and explain the fine details about the product in order to set the members' expectations."
State Employees Credit Union in Raleigh, N.C., recently introduced its own reverse mortgage product.
"We spoke to our regulators here in North Carolina and researched reverse mortgages, and then attempted our reverse mortgage product," said Phil Greer, VP at State Employees CU and chair of CUNA's lending council.
In the 70 days since the product was introduced, the credit union has received 12 applications that it is currently working on. The product is being marketed to existing members through the CU's website and within its branches.
"We felt it was the right thing to do," Greer said as the reason behind State Employees Credit Union creating the product. "It will become a more popular product in years to come. We're all getting older. AARP reports that by the year 2011, 10,000 citizens will turn 62 every day. The baby boomer population is coming into retirement. From a philosophical standpoint, we wanted to create a product that will counter what is going on in the marketplace.
"It takes a lot of work, a lot of research. Reverse mortgages are more complex. There's a different set of applications, different account aspects. It's something that takes due diligence and may require the purchase of software. Our major cost was what it took to create a product that we would be proud of and our members would be pleased to use."
It's still too soon for SECU to know its ROI, but "it has a return-at least on paper-that will be quite acceptable," Greer said. "We are confident," he said. "We are offering reasonable rates. We're providing a very valuable service. We're not out to have a dramatic return. I think that credit unions need to at least learn about reverse mortgages. They will find more and more of their members inquiring. Credit unions should be able to discuss the product intelligently, and if they can't do it themselves they should be able to refer."
Toler said that the reason many credit unions may not be offering this product is due to the perception of it, such as having a concerned son or daughter question the credit union on offering a product like this to his or her parents.
"But what we've found is that the senior members doing this are very knowledgeable about reverse mortgages," he said. "They're asking a lot of questions that even many younger members are not asking about traditional mortgages. They are very aware and are making informed decisions."
For More Information
www.cumortgage.net
www.acuma.org
www.ncsecu.org
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