By Joyce Moed, Reporter

Fairfax, Va.–When it comes to reverse mortgages, one thing most credit union executives agree on is that as that CU members age there will be a rising demand for these products in the future.

"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.

Tun Wai, director of research and chief economist at NAFCU, in Arlington, Va., echoed Treadway.

"There will be more retirements and many will find that they do not have enough savings for retirement," Wai said.

When this time comes, the benefit for credit unions will be driven by members "seeking to augment their retirement income and maintaining a relationship with the credit union," Wai said.

But with benefits, there are usually risks.

"Like other loan products, the loan has to do with what is going to happen to the collateral," Wai 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 credit union assets are owned my 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 a reverse mortgage product. Dorsa said that less than 25% of the more than 8,000 credit unions offer a reverse mortgage product.

The reason more credit unions aren’t jumping on the reverse mortgage 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 Dorsa does agree there are pros for credit unions.

"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 lose these members. We have to keep that base in the credit union. You have to hang on these older members, older depositors."

Scott Toler, president and CEO of CUMA, agreed.

"If [credit unions] don’t offer it, the member will go to another lender," he said.
And most CUs want to able to offer their membership the types and products and programs that will best meet the individual needs of the member, Treadway explained.
"I expect to see more interest to come because the age of members is getting to that age range," Toler said. "There’s also more of an awareness and people are less scared of the mortgage than they used to be."

There are other benefits for the member, too, Treadway noted.

"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. In situations where a credit union is heavily vested with a member, it could potentially reduce its overall exposure by consolidating that debt with the proceeds. This would also reduce the member’s monthly expenses which will leave them with a larger disposable income."

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 be associated with training, IT, and spreadsheets.

"Credit unions would need some expertise," Dorsa said, "and have to get involved with HUD and FHA."

While profitability does have the potential to be slightly higher on these types of loans, Treadway said, CUMA operates with a "credit union mentality," and only offers the programs with the lowest possible margins, "which in return gives the member the most amount of available cash along with the lowest possible rate."

The cost of marketing or offering a reverse mortgage product 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. "The cost of a reverse mortgage is relatively comparable to that of conventional mortgages with the exception that they have to pay a larger Up Front Mortgage Insurance Premium on the HECM products.

"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. In addition to a satisfied member, the credit union has the potential of increasing member deposits as well as reducing the overall exposure to that member."

State Employees Credit Union in Raleigh, N.C. recently introduced its own reverse mortgage product.

"It’s a program we developed internally," said Phil Greer, VP at State Employees CU and chair of CUNA’s lending council. "We spoke to our regulators here in North Carolina and researched reverse mortgages, and then attempted our reverse mortgage product."

In the 70 days since the product was introduced, the credit union has received 12 applications that it is currently working on, Greer said. The product is being marketing 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. We are all getting older. 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."

Greer said the credit union is also providing these members with counseling to make sure they are not getting involved in any predatory situations.

"It takes a lot of work, a lot of research," Greer said. "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."