If your first reaction to the concept of a reverse mortgage is skepticism, Steve Ranson—CEO of HomeEquity Bank, the largest provider of reverse mortgages in Canada—was once in your shoes. More than 25 years ago, as head of Scotia Capital’s securitization group, he met company founder William Turner while pitching him on business. “I remember going into that meeting thinking, What a dumb idea. Who would want this?” recalls 64-year-old Ranson, an accountant by training.
To the uninitiated, reverse mortgages—which allow homeowners aged 55 or older to access some of the equity in their properties, but at higher interest rates than conventional mortgages or secured lines of credit, meaning the interest charges are greater over the life of the loan—can be something of a head-scratcher. But by the end of the meeting, Ranson was a convert. “At the core, this is an incredible product,” he says. “You don’t have to make any payments, you can stay in your home as long as you want and retain ownership, you have complete flexibility.”
He’s been proselytizing reverse mortgages to Canadians pretty much ever since. Nine months after that meeting, Ranson joined the company as CFO, became president a year later and in 2000 replaced Turner as CEO. In that time, he has led the company from its roots as Canadian Home Income Plan Corp. (those of a certain vintage likely remember the firm’s stilted TV ads) through the public offering of Home Equity Income Trust in 2002, and the subsequent creation of HomeEquity Bank in October 2009. He’s seen it grow from $36 million in annual reverse mortgage originations to more than $1 billion in 2021, and a total portfolio of $5.4 billion in reverse-mortgage loans. Last year, HomeEquity Bank’s revenue was $271.7 million—up 63% since 2018.
The COVID-19 pandemic undoubtedly played a role in that surge. Older homeowners who may have previously been getting ready to downsize to a condo or transition to long-term care decided there was no place like home for avoiding exposure to the virus. At the same time, investment portfolios became volatile while property values skyrocketed, leading many to try to access the equity in their homes.
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Conventional mortgages and home equity lines of credit (HELOCs) are often out of reach to retired Canadians, as their incomes may not be high enough to qualify. But reverse mortgages aren’t, because the borrower doesn’t have to make interest payments as long as they live in the home. The accrued interest (and principal debt) is due only when owners sell the home or die, and you can never owe more than the home’s market value, which makes the product attractive to those with cash-flow issues.
But even without the COVID component, reverse mortgages are poised to become increasingly popular. The reason? Demographics. According to 2021 census data, one-third of Canada’s population—more than 12 million people—is now aged 55 or older. About three-quarters of them are homeowners and, according to a 2020 survey by the National Institute of Ageing, at least 91% plan to live in their homes as long as possible. Longevity is another factor; at age 65, the average Canadian can expect to live for another 20 years, so their retirement savings need to last longer. Also, just 4.4 million Canadians are covered by a defined-benefit pension plan, and 79% of those 55-plus surveyed last year said their retirement savings and government benefits won’t be enough to see them through old age.
Downsizing—the traditional way for retirees to free up home equity—is proving too costly in many regions where moving expenses, land transfer taxes and condo fees eat into a sale’s proceeds. Rents, too, are becoming unaffordable. For many retirees, a reverse mortgage is the clear solution. “I always say I was 20 years too early on the demographics,” says Ranson.
Originally from Beaconsfield, a Montreal suburb, Ranson left his hometown in 1976 to pursue a commerce degree at the University of Toronto. Following in the footsteps of his father, he became a chartered accountant, and audited a wide variety of companies—everything from industrial equipment manufacturers to insurance companies—at KPMG precursor Peat Marwick Mitchell. “I got a window into business with a broad perspective and learned different ways of approaching things,” he says. “But in audit, you look at stuff that’s already happened. I wanted to be a part of what was going to happen.”
He decided to switch to financial services, landing various treasury and finance roles in banking, and eventually specializing in securitization, which lead to his position at Scotia Capital Markets and that fateful meeting with William Turner.
Ranson still relishes being in the room where it happens. “I like that HomeEquity Bank is a smaller company where I can effect change relatively quickly,” he says—but there’s more to Ranson than simply getting things done.
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During the pandemic, for example, employees called thousands of elderly clients isolated at home, just to check in (it was dubbed Operation Warm Hug). Ranson focused on customers over age 90. “It was a lot of fun,” he says. Were any nonagenarians surprised to hear from the CEO? “I didn’t tell them who I was. It wasn’t about me.”
Staff will also tell you Ranson is a shameless jokester, relying on his ultra-dry sense of humour to pull off legendary April Fool’s pranks. After HomeEquity became a Schedule 1 chartered bank in 2009, he announced it would begin mandatory drug testing. And the April after Justin Trudeau ousted Stephen Harper, Ranson proclaimed the former prime minster would become the bank’s next spokesperson.
This year, after a pause in the antics because of the pandemic, Ranson announced a new hybrid work arrangement where employees work together at one another’s homes. “To make this project even more exciting, we are going to assign employees to each other with an emphasis on pairing employees who live far apart, work in different departments and don’t know each other,” the e-mail read, with pitch-perfect earnestness. “As CEO, you can’t take yourself too seriously,” says Ranson. “To be a leader, it’s not enough to have great vision. You also need some levity,” says vice-president of marketing and sales Yvonne Ziomecki-Fisher. In her mind, Ranson possesses both.
Others finally seem to be catching on. After 30 years of being the sole provider of reverse mortgages in Canada (the big banks have never been interested, in part because the market is small potatoes compared to the larger consumer banking sector, but also because they aren’t keen to issue loans in which borrowers don’t make any payments for years, or even decades) Equitable Bank entered the market in 2018 and has captured a 5% share, and fintech Bloom launched (in Ontario only) about a year ago.
In July, a Morningstar commentary proclaimed “potential for strong growth” in Canada’s reverse mortgage market, given that our penetration rate lags behind some other developed economies. (The United Kingdom, for example, has a penetration rate twice Canada’s.) That same month, the Ontario Teachers’ Pension Plan Board finalized its acquisition of HOMEQ Corp., HomeEquity Bank’s parent company, putting a stamp of approval on the firm and reverse mortgages.
“We view that acquisition positively,” says Shokhrukh Temurov, vice-president of North American financial institutions at DBRS Morningstar, adding that the bank’s previous owner, Birch Hill Equity Partners Management Inc., was happy. But as a private equity firm, it had to sell to deliver returns to its partners. “From Teachers’ perspective, they don’t have such a constraint.”
But Teachers isn’t HomeEquity’s only major champion. In May, financial planner and media guru Pattie Lovett-Reid became the bank’s first chief financial commentator. It’s a shocking about-face, given that she told consumers for years to avoid reverse mortgages unless they had absolutely no other option. But after she wrote a particularly negative piece in 2019, Ziomecki-Fisher asked her to meet.
They went to a Starbucks and before their coffees were cold, Lovett-Reid was worried she’d made a mistake and asked for a follow-up meeting. She later issued a mea culpa with a blog post entitled, “It’s time to reverse your thinking on reverse mortgages,” arguing it could be “the product of choice for seniors who want to stay in their home and pay off debt, help out a family member, eliminate mortgage payments and receive money tax-free (not interest-free).”
And for the past several years, both CARP (formerly the Canadian Association of Retired Persons) and the Royal Canadian Legion have endorsed HomeEquity for their members. Celebrated Canadian actress Jayne Eastwood and four-time men’s world figure skating champion Kurt Browning star in TV ads, while Peter Mansbridge has interviewed Ranson and Ziomecki-Fisher in a series of marketing videos.
“This is a product category that’s been around for a long time, and in the early years of its existence there were many misapprehensions about it that HomeEquity Bank had to overcome,” says David Cravit, CARP’s chief membership and marketing officer. CARP itself had to become more familiar with it before adding it to the more than 100 products and services offered to CARP’s 330,000 members. “Individual circ*mstances may make it suitable or not, and we advocate they do their due diligence, but we think it’s a viable product with options that are worth looking into,” he says.
Ranson agrees reverse mortgages aren’t for everyone. “No product is,” he says. “Not everybody should have a credit card or a HELOC.” HomeEquity insists clients obtain independent legal advice before they sign on.
Detractors warn that compound interest charges on a reverse mortgage can quickly eat up a home’s remaining equity. The math, however, often proves otherwise. For one, there’s a limit on how much home equity owners can borrow based on their age, location and type of property, and they cannot hold any other debt against the home. (The maximum loan-to-value ratio at HomeEquity bank is 55%, but only for the eldest clients; the average client borrows just 30%.) So, while interest charges on a reverse mortgage will snowball over time, appreciation on the home should offset that—particularly during periods when interest rates are low and property values soar, like in 2020 and 2021.
With interest rates rising and home prices softening, the numbers may now be less favourable for homeowners. If property values were to collapse, it’s possible HomeEquity Bank would not recover the full debt when a homeowner settles up, because of the bank’s guarantee that borrowers can never owe more than the home is worth. But HomeEquity mitigates that risk through its low loan-to-value ratios.
Owners, too, can alleviate the effect of higher interest rates by forgoing a large lump sum loan upfront and instead taking small amounts monthly, like a HELOC, which can help them minimize the interest accruing. “The advantage that a reverse mortgage has over a HELOC is that it’s not callable,” says David Field, a certified financial planner based in Mississauga who specializes in retirement planning. “The bank can recall a HELOC at any time. If your debt keeps mounting, they might get worried and ask you to repay it all.”
While he generally recommends clients first draw evenly from their registered and non-registered retirement savings, he views reverse mortgages as an important part of his toolkit as a retirement planner. For example, if one spouse dies early in retirement, the surviving spouse will lose some of their Canada Pension Plan payment and will be down to one Old Age Security benefit. They’ll also lose one of the most advantageous tax-saving measures available to seniors: pension sharing. “In that situation, a reverse mortgage can be a good option because it provides additional income without tax consequences,” says Field.
But HomeEquity Bank’s clientele is far more diverse than that, using reverse mortgages to pay off debt, assist adult children looking to buy their own homes, and finance purchases that help borrowers live in line with their values.
Take retired couple Rachel Corbett and Martha Hunt, both in their early 60s, who took out a reverse mortgage in January, borrowing 22% of the value of their $500,000 home in Marmora, Ont. Between Hunt’s defined benefit pension (she was a high school teacher) and an annuity Corbett purchased (she was a self-employed sport arbitrator) and their collective CPP, they have decent retirement income—especially since both still work part-time. But they wanted extra money to replace their roof so they could install solar panels, as well as purchase an electric vehicle. “It was important to us to make a strong statement and a green commitment for our kids and grandkids,” Corbett says.
With a five-year fixed interest rate of 5.84%, they’ll accrue about $37,000 in compound interest on the $110,000 loan by the end of the term. But the home would have to appreciate by only 1.5% annually to offset that amount. Even if the value of their home decreases over the long term, Corbett isn’t worried. “We could sell the home and still walk away with a bunch of cash,” she says. (There are hefty mortgage prepayment fees if owners sell the home within the first three years, but those fees go down significantly after that, and are waived entirely after 10 years or upon the owners’ death. Prepayment fees are also reduced by 50% if the owners are moving into long-term care.) They also own two cottages, worth about $800,000 each, which their adult children would prefer to inherit over the home or cash.
For his part, Field isn’t entirely comfortable with a reverse mortgage if, say, a relatively young client seems to have lower-cost options. “They have some guaranteed income sources and might have been able to use the cottages as collateral on a loan or mortgage,” he says. At the same time, he thinks it’s irresponsible for financial planners and homeowners to disregard reverse mortgages as an option. “I’d be distressed if these products went away.”
That should be music to Ranson’s ears. “The conversation I had with William all those years ago made me appreciate the things the product can do, and I’ve had the same conversation with many others explaining the unique benefits. We try to help people manage their money and stay in their homes,” he says. “It’s been a tremendous journey over the past 25 years.”
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