Under the leadership of Bart Johnson, the company appears poised to capitalize on what's expected to be an upcoming boom in reverse mortgages. Read on to find out Johnson's keys for technologically savvy reverse-mortgage lending.

Reverse mortgages may be new territory for many lenders, but not for Bart Johnson.

President of Financial Freedom Senior Funding Corp, a subsidiary of IndyMac Bank, and co-chair of National Reverse Mortgage Lenders Association, he has been immersed in reverse mortgages for several years. He has become a leading expert on technology used to automate reverse mortgages, having done extensive due diligence on which systems will help his company achieve its objectives in this growing space.

With almost 40 years in the industry, Johnson was originally focused on forward mortgage lending but became involved in reverse mortgages about five years ago. At that time, the industry did just 14,000 reverse mortgages, he said, with Financial Freedom, then owned by Lehman Brothers, accounting for half the market.

When Johnson joined Financial Freedom, application volume was high, but closing loans was a challenge.

He brought a vision to change that by applying document technology, business rules and data-driven workflow queues so that whenever a task was ready to be performed on a loan, it would automatically appear in the right place.

"When I came into this industry, the pipeline was entirely manual," he said. "We immediately began growing closings significantly. One month, we got a call from Lehman Brothers, who asked for another 100 loans that month. I called my operations manager in Atlanta and asked if she could do another 100 loans. Her comment was, 'Sure, which 100?' She had a rack with 3,000 loan files on it and absolutely no way to know which was ready to be worked on."

Market opportunity
According to Johnson, there are 35 million seniors, and 77 million baby boomers who will soon join them. Reverse mortgages are now 20 years old, but lenders' penetration into that market stands at just 1 percent.

The business has failed to reach its potential because lenders have lacked the right kind of capacity and fulfillment, Johnson said. When he joined Financial Freedom, he began working to apply forward-lending ideas to reverse mortgages. First, that meant putting the right technology platform in place.

Freedom hired a consultant who had done LOS implementations for other clients. That consultant started with an overall technology review and helped Financial Freedom get from 40 LOS vendors down to five. At that point, it did on-site presentations and had each vendor do a workflow exercise. Finally, there was a proof of concept with two firms. It eventually chose Mortgage Cadence's enterprise lending platform over Gallagher's NetOxygen.

At the time of this decision, Financial Freedom was still owned by Lehman. The deal with Mortgage Cadence became a negotiating point when IndyMac first showed interest in Financial Freedom. IndyMac had already chosen Gallagher's NetOxygen for its lending system and was eager for Financial Freedom to do so, as well, but the company held out for the platform that would best meet its needs.

What it takes to succeed with reverse mortgages
The key to technologically savvy reverse-mortgage lending, Johnson said, is to create an electronic file on the front end scanning documents and writing rules so that when documents appear, tests are fired to send work activities to workers. It's a lesson Johnson learned at Mellon Financial years earlier.

"A lot of companies look at imaging as a back-end archive tool. I believe the key to an efficient, productive fulfillment is creating an electronic file at the front end," Johnson said.

Mortgage Cadence was able to provide both capabilities via its ACE rules engine and integrated imaging technology from partner Stellent.

"The vision we had of using imaging to create this electronic file to drive workflow was fairly advanced and not done well in many of the big forward-lending companies," Johnson said. "But the integrated Stellent and Mortgage Cadence imaging solution feeding the ACE rules engine let us build rule about where we wanted documents to go and what we wanted to do with them. That became the foundation for how we do our work today."

Financial Freedom's first investment in technology has been "the obvious stuff," Johnson said.

"I think there's a big opportunity beyond that," he said. "We took a powerful tool and retrofitted it to our somewhat manual business. It's resulted in more capacity, which has driven some good business results, but I don't think we've captured the full power of the system."

For example, Financial Freedom's document-driven workflow ensures that when a document comes in, 10 tasks are fired for three different people. Ultimately, more refined used of the ACE engine will bring data-driven tasks.

The secret to his success
There have been several factors in Johnson success in reverse-mortgage lending.

"I came with a different vision," he said. "I told Jim Mahoney (Financial Freedom's chairman and CEO) that I could take his 500-loan-a-month business to 10,000 loans and create a billion-dollar franchise."

Two things the company did well, he said, was build capacity and establish a strong platform. Although it went from 280 employees to 1,600 and doubled space in four cities twice over three years, the platform was the biggest investment.

"If this was going to continue to be a manual process, where they went to a rack with 3,000 files and randomly pull one, they were never going to be able to grow," he said.

Johnson ran the company from 2003 to the end of 2006, during which it grew the volume from 7,000 loans to 49,000 and $450 million to $5 billion. It also went from 80 to more than 500 retail sales offices in that time, although retail dropped from 45 percent of its mix to 20 percent as the wholesale business grew.

"By virtue of putting a platform in place, automation, technology-driven process, workflow queues and investment in people, we allowed a lot of correspondents to enter the business," he said.

In the future, the recipe for reverse-mortgage success for all companies, Johnson said, will revolve around better execution.

Which vendors will help lead the way?
"It would seem like the forward LOS companies would be the most likely guys to extend into the reverse product," Johnson said. "There's been one problem with that: A lot of forward mortgage companies consider the reverse mortgage to be just another product in a menu of 150. Those that are successful will recognize it as almost a separate industry."

The other opportunity going forward, Johnson said, is product innovation.

Most of the "newer" products to appear on the market in the past few years have really just been tweaks to older products, such as the lower-margin HECM (really just a price change, Johnson said).

"The real power to take this to a mass market," he said, "is to create faster and easier products that give customers what they need."