Business relationships between financial advisers and reverse mortgage professionals have always been tricky arrangements. Like anyone else who lacks detailed product knowledge, advisers may have misconceptions about reverse mortgages, resulting in missed opportunities when attempting to build resilient retirement plans for clients.
Ryan Ponsford used to be one of the skeptics. He’s been in financial services for almost 30 years, with stints in the private banking and Registered Investment Advisor (RIA) spaces. Today, as a Southern California-based adviser with Equity Wealth Strategies, he’s built bridges with the reverse mortgage industry as the two worlds work to better prepare seniors for a financially sound retirement.
Ponsford told HousingWire’s Reverse Mortgage Daily that his makeover as a reverse mortgage advocate in financial planning began years ago when he connected with friends at American Advisors Group (AAG) prior to its acquisition by Finance of America. They wanted Ponsford’s help in educating their business partners on retirement lending solutions.
“I asked how they were doing it. They said reverse mortgages, and when they said that, like any good adviser, I basically threw up in my mouth and told them to go away, you take advantage of old people, you’re a scam, get out of my life,” Ponsford said with a smile.
“We argued for a few weeks and eventually they just challenged me to do the math. I did it and I was pretty blown away. I realized, ‘Wow, there’s a lot here that I think people don’t understand.’”
Editor’s note: This interview has been edited for length and clarity.
Neil Pierson: Can you start by talking about what you currently do with Equity Wealth Strategies?
Ryan Ponsford: There’s two sides to it. One is adviser facing that we do through Equity Wealth Strategies. But we haven’t done a ton with that yet, because we started to focus on the other platform called the Equity Wealth Academy.
It is essentially designed to be a community hub and learning center for people that want to be able to do reverse mortgages effectively — or even more broadly, people that want to integrate housing wealth into retirement planning. That targets loan officers — whether they’re traditional, reverse, whatever their background is — who want to engage professionals and understand the mechanics, math and economics of reverse mortgages in the retirement equation.
We’ve got a 17-module program on engaging advisers. We have HECM foundations — all the details and nuances of a reverse mortgage loan — and then a bunch of ancillary stuff to go with it. We do two live calls every week. Christina Harmes runs one; she’s been a reverse coach for years. We do a ton of work inside that, where people have membership levels to access our live programs and the coursework, and we’re constantly creating new toolkits and developing other things for the lending industry to get it capable of actually addressing the marketplace.
My basic math is there’s 70 million people who are age qualified for reverse — baby boomers. If I take out people who don’t own homes, have more than $3 million in assets, or for whatever reason aren’t a fit for reverse mortgages, I end up with about 33 million households that could qualify and benefit from incorporating a reverse mortgage into their retirement plan.
The industry does, like, 25,000 HECMs a year. It’s more than that with proprietary loans, but that tells me something. It’s like 1/16th of 1% of the total addressable market being captured. And if you look at the stat of 10,000 people turning 65 each day, you’re arguably losing market share every single day. So there’s a problem there about how it’s understood and how it’s presented. There’s a lot of work to be done to change the narrative.
Pierson: You did a presentation last year at the NRMLA Annual Meeting. You said then that retirement is a game of cash flow and that most traditional ways of accessing home equity don’t address the risks that retirees face. For advisers who’ve never been exposed to a reverse mortgage, are they conflating them with HELOCs or home equity loans?
Ponsford: They don’t understand any of it. Part of it is the financial industry not making an effort to understand it. They’re just assuming what they’ve been led to believe. But a big part is on the lending industry for sucking at communicating. Both are at fault, so how do you bring them together? What I’m finding is, once advisers start understanding the flexibility you can get by putting this line of credit in place sooner rather than later, it opens their eyes to a ton of different things.
Once they get their head around the choice of a loan that requires a payment, versus one that has a voluntary payment, which do I want? If I have a HELOC that’s static, I have to make payments on it and it locks down after a number of years, or I have one that’s completely fluid and revolving — and by the way, my access to equity increases every single month — which sounds better?
The idea of never making another payment, while it might sound freeing to a lot of people, it sounds really irresponsible to others. But the idea that you have the option to make payments is much different psychological positioning. Probably 80% of the loans we model with advisers, we model the client continuing to make payments. This is abnormal but critical, especially today. A few years ago, when interest rates were much lower, we weren’t doing that. But now at 7%, we’re modeling that all day.
If I’ve got an extra dollar left over at the end of the month, what am I going to do with it? Well, if I pay down my line of credit, I’m effectively getting that 7% rate of return, because I’m not incurring debt on that 7%, and if I need the money next month, I can draw it back out. So it’s a really simple math equation once you make it simple.
Pierson: Let’s compare and contrast different types of clients. If you’re working with somebody who’s 65 and already retired versus somebody who’s in their 40s or 50s and still has some runway before they get there, how are you strategizing at different points in time? How do you incorporate reverse mortgage education at a younger age?
Ponsford: There’s multiple angles to that. When you think about financial planning in general, there are life stages you plan for. Early on, you’re planning for the accumulation phase of life: You’re working, you earn income, you set money aside and eventually you get enough that you can convert it into income.
Once you achieve that, you transition from accumulation into distribution, so now your pile of stuff is distributing assets to you. You have flexibility to choose whether or not you work, whether you need to earn income, but you’re not dependent on anybody else to live that life.
The principles you follow from a planning perspective are different when you’re accumulating. Once you convert assets to income, you have tax management you’re trying to think through and a lot of risk management, because you don’t have time on your side, in most cases, to afford downturns in the market. You have to manage risk differently.
We always try to have different spigots you can pull. You might have money in a retirement account. You’ve saved on taxes today and put it off until later, but every dollar you take out later is going to be taxable income. Most people have Social Security. Maybe you have a pension. You might have a traditional stock-bond portfolio with capital-gains liability from a tax perspective. And maybe you have some tax-free sources — it could be a Roth IRA, life insurance, access to an equity line.
The reverse mortgage line of credit is typically not an option until you’re 62, so you don’t have to spend a bunch of time on it if the client is 50. But I might start positioning them to account for their home in their retirement plan. Our goal might be to pay it off or it might not. But no matter what we design, it’s going to have a different outcome.
Neil Pierson: Let’s go back to Social Security. Most people are aware of the looming deadline in five to seven years where benefits will start to be cut if nothing is done about it. How does Social Security enter your conversations these days? Should people be less reliant on it as a base strategy for retirement?
Ponsford: I don’t see Social Security going away — I think there’s just way too much political pressure for that. Nobody wants to be the one who takes it away. Does it have to be addressed? Absolutely.
The interesting thing on the math of Social Security is, like a lot of things, they take a snapshot today and extrapolate that into the future. The reality is, you’ve got a different pool of people coming in, you’ve got different-sized demographics. I’m sure that’s accounted for, but it’s government math.
The reality for most clients is, it really depends on where they are in the wealth spectrum. For some people, Social Security is a big piece of retirement. For other people, it’s not. With most of the people that I’ve planned for over the years, they say, “Design me a plan where I’ll be OK regardless of what happens to Social Security.”
Pierson: Going back to financial adviser and mortgage professional partnerships, I hear you saying that the planning community doesn’t really understand reverse mortgages, but what about vice versa? Do mortgage professionals need to better understand basic tax strategies and other keys to retirement?
Ponsford: Within the Equity Wealth Academy, we try to teach a lot of core financial principles. A few weeks ago, we did a case study. We gave them a client profile and said, “View this client not as a mortgage person but as an adviser. What are the things you want to know about?” It ended up being a really fascinating session. We didn’t get to reverse mortgage until the very end, because everything else had to be addressed and they had to figure out how to ask questions they would never otherwise ask.
To be successful engaging advisers, you need to understand the issues they face and speak their language. And there’s a big gap there for a lot of people. In general, we have a very undertrained group of people in the lending space. They’ve been taught how to do loans, but very few have been taught retirement principles.
That’s less critical in the traditional lending space, but once you move into reverse, there’s a lot of implications for getting a loan when you’re 65 years old. Everything changes and you don’t have time to make up for your mistakes. These loan officers, I think, need to be way more sophisticated from a retirement planning standpoint than the traditional lending folks.
Neil Pierson: Let’s discuss downsizing since it’s an issue that senior homeowners may face. Baby boomers are the largest group of buyers and sellers today, and in most areas of the country, there’s not enough affordable inventory to go around. How do you start the conversation about downsizing? Does it necessitate more information about reverse for purchase financing?
Ponsford: As an adviser, there’s two scenarios for a downsize. One is financially imposed: I have too much house, I’m strapped, I want to free myself up. In that scenario, the math works out far less frequently than it might seem. In most cases, once you start looking at a new loan, new tax basis, the cost of moving, that math is really tricky. Sometimes, if you incorporate a reverse mortgage into it, it can work.
Where it makes more sense is if somebody has a need to move — like I want to get closer to my grandkids, or my home is not suitable, and I can’t age in place here. Now you’re forced to do the math to make the change, and in that case, the reverse really can work, because now you’ve got the ability to keep some money on the side.
If I’ve got $500,000 and I can find something for $700,000 and not have a mortgage payment, that’s big. It’ll get trickier at today’s interest rates, but for the right person in the right circumstances, it should be part of the conversation. As an adviser, you should know it’s not going to win every time, but I think it’s malpractice not to consider it.
