By Chris Clow | January 28, 2019

Demand for reverse mortgages in Canada continues to grow, presenting a stark contrast to the declining volume exhibited in the American reverse mortgage market. On top of specific product differences in the Canadian product, there’s also a different business climate over the northern border that accounts for some of the differences between the two nations’ levels of reverse mortgage business.

While the comparison between the American and Canadian markets is not one-to-one due to the specific differences of the product offerings – such as a different age requirement of 55 in Canada versus 62 in the U.S., an interest rate of 5.9 percent on a five-year CHIP reverse mortgage, the fact that both countries have different lending limits owing to the entirely private nature of Canada’s offerings and a low loan-to-value ratio of 20 percent for younger borrowers – the Canadian market has seen notable volume growth while the United States is observing new lows in its endorsement numbers.

To go deeper on the relative prosperity found in the Canadian reverse mortgage market, RMD spoke with Yvonne Ziomecki, EVP of marketing and sales and CMO at HomeEquity Bank, the nation’s largest reverse mortgage provider. Although the Canadian economy is deeply intertwined with the economy of the United States, the difference in general health between each nation’s reverse mortgage business indicates that the structures of each are different.

“There are definitely structural differences, though I think it would be hard to say which country is at an advantage or disadvantage in this category,” Ziomecki told RMD. “From my vantage point looking over the border, the U.S. has some advantages: the structure of the program, the fact that it’s government-insured is a big advantage because it doesn’t have to be financed by the reverse mortgage companies off their balance sheet, and the fact that there are multiple players in the market spending.”

The advantages of competition

Ziomecki cited the ability for multiple American companies to create different strategic marketing campaigns as a definite advantage for the American market, since that has the potential to lead to greater awareness of reverse mortgages through the use of spokespeople and outreach across different mediums.

Ziomecki also related a belief that more general activity in the market from multiple companies is an advantage. While AAG’s position as the biggest reverse mortgage provider remains largely unchallenged, having a lot of competing entities makes the market more dynamic, but also less consistent.

“For us, if you kind of flip to the other side, we’ve been in business for 32 years. That brings a lot of history and a lot of consistency, so that’s good. We’re a bank, where none of your [largest] reverse mortgage companies are really banks,” Ziomecki said.

HomeEquity is also, far and away, the largest provider of reverse mortgages in Canada. Ziomecki sees this reality as a problem, particularly when it comes to educating potential borrowers across the country about what the product can do.

“The originations last year [of our only competitor] were tiny in comparison to what we were able to do,” Ziomecki said. “So, we only have our marketing dollars to educate all of Canada on the product category and our product specifically.”

While conventional wisdom would hold that a lack of competition would usually be an advantage for a company, Ziomecki says that adding more money to the overall marketplace would allow more people to be educated about the product, resulting in positivity for all players.

However, because HomeEquity is a bank funding the reverse mortgage loans through its own balance sheet, that stands as a major impediment toward other Canadian companies in entering the larger reverse mortgage space in the country.

Why there aren’t more reverse mortgage competitors in Canada

Ziomecki offered a hypothetical scenario to illustrate the difficulties of getting into the business in Canada, describing a new bank entering, designing the product, spending money on advertising and ultimately issuing loans.

“[Those loans are] on your balance sheet, but you’re not starting to make money until your clients start to pay you back,” she describes. “Let’s say an average loan is on the books for six to eight years, so let’s say you don’t make any money for the first six years. […] You’ve put out all that money, you set up the entire infrastructure, you’re spending marketing dollars, and you don’t really start making money until, pretty much, year six,” she said.

The result is that a potential entrant into the Canadian reverse mortgage market needs to have both money and patience. While many of them have money, the lack of patience from several entrants that have come and gone over the years is what ultimately keeps HomeEquity as the dominant player in the space.

“That’s where the 32 years of being in business is really playing to our advantage, because we have constant repayments of mortgages we’ve originated in the past,” Ziomecki said. “That’s the structural difference that keeps people away, but like I said, I think competition would be good.”

Another factor that has led to increased volume for HomeEquity is a brand refresh, which Ziomecki shared has resonated with potential borrowers and led to a demonstrable increase in overall business.

Adhering to the idea that borrowers prefer not to be told that they’re old and that they want to feel empowered, HomeEquity took this information and refreshed its logo, online presence and selection of images to project a sense of freedom that could be gained through the use of a reverse mortgage product.

“Within the first five months, we saw some of the metrics move in the right direction,” Ziomecki shared. “They became more positive, because the brand advertising spots that we were airing were kind of funny, witty and people can really relate to them.”

It became clear through that success that as people age, they appreciate humor and they like to feel empowered, and with a matching marketing plan to accommodate that research, Ziomecki fully expects improved business results based on observed trends.

Comparing American and Canadian markets

While Ziomecki was reticent to offer any “advice” to American companies in terms of how they might be able to improve business prospects, she did offer some observations on the American business that reinforce her own approach to business growth. One of her observations is something that is backed up by the moves of some companies in the United States, namely broadening product offerings by expanding into proprietary jumbo offerings as well as the addition of traditional forward mortgages to product suites.

One difficulty she identifies in the American market is working with regulators, which she sees as somewhat unpredictable.

“The outcomes aren’t always what you anticipate,” she says of working with government entities. “So, it’s really hard, because you may be trying to play to where you think things are going, and that’s not necessarily where they’re [actually] going. I think there’s still opportunities on the core reverse mortgage business, because there are a lot of people – in both countries – who really need the product. Sometimes they don’t know about it, and sometimes what they know is not true.”

In the end, though, she identifies the apparent constant between both the American and Canadian reverse mortgage markets: unpredictability.

“I’m always a believer in kind of going back to basics and growing the core of your business, and then figuring out how to adapt to the new realities,” she said. “That’s always the biggest challenge. There’s just so much unknown.”