News that Genworth, the Fortune 500 insurance company, is acquiring Liberty Reverse Mortgage, Inc. is further sign that the “big” players in the financial services sector are making serious moves into reverse mortgages. But this transaction is unique in one respect: Genworth is primarily an insurance company, not a bank.

Why is this important? Well, it may not be.

But it seems to us that the actuarial perspective that an insurance company provides might lead to some new twists and innovations that could benefit consumers. For example, with HECM reverse mortgages, there are a number of “actuarial” factors that go into the loan assessment process that have been standardized and equalized by federal rules so that everyone is treated the same:

• male and female borrowers of a given age are treated the same despite the fact that women, on average, live longer;
• reverse mortgages for couples are computed as a loan for a single person based on the younger borrower’s age, despite the fact that lifespan for a couple stands a good chance of extending beyond that of the younger borrower;
• health conditions play no role in HECM loan determinations - a borrower in poor health with a short life expectancy is treated the same as a healthy borrower of the same age.

Clearly, these are the very factors that insurance companies understand and compete upon. Anyone who has bought a life insurance policy knows this. Anyone who has shopped around for a life insurance policy knows that different insurers interpret and weigh factors like these differently.

To this point reverse mortgages have been regarded as a niche bank loan product - marketed and sold by banks and mortgage brokers. Innovations have revolved around “banking” things like developing products for higher-priced homes, tweaking interest rate terms to give more choices to borrowers, and securitizing the loans to attract investors and bring more efficient capital into the market.

Hopefully, the Genworth acquisition might signal the start of more innovations in the actuarial realm of reverse mortgages. For example:

products designed specifically for people in poor health with short life expectancy, but critical need for cash;

products based on sex, marital status and other important factors;

reverse mortgages efficiently integrated with long-term care or other insurance products.

The press release announcing the acquisition sounds promising:

“This acquisition is a natural extension of our commitment to the senior market and our vision to deliver financial security to consumers,” said Pam Schutz, Executive Vice President—Genworth. “Liberty will allow Genworth to offer senior market consumers new products that provide liquidity, retirement income, and enable funding of their retirement safety net.”

One downside may be that reverse mortgages become even more complex for the average consumer to understand. Still, there’s no question that reverse mortgages are maturing and we’re hopeful that Genworth and other insurers become an integral and innovative part of the market.

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