Chart of the Day: HECM for Purchase History

July 1st, 2010 | by John Yedinak Published in Data, News, Reverse Mortgage | 16 Comments

While the HECM for Purchase program hasn’t taken off as quickly as many in the reverse mortgage industry would’ve liked, data from Reverse Market Insight shows it’s on the right track.

Starting in January 2009, only 18 HECM for purchases were endorsed, totaling $6.4 million of loans. However, by the end of 2009, volume had increased to 130 units and $40.1 million according to data from the US Department of Housing and Urban Development. Check out the chart below.

“The market grew nicely over the year even as principal limits were reduced in October, although it’s very early to tell whether HECM Purchase is more or less affected by those changes,” said RM Insight.

Head over to their website to see where the majority of the volume is coming from. Check it out here.

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The_Critic

Realistically, is there any other direction to go but up? Part of the rational why the origination fee structure in HERA would not hurt overall origination revenues is that the HECM for coops and HECMs for purchase would help increase originations by more than enough to offset reductions in origination fees.

What a mess we would be in if Ginnie Mae had not come into the picture or we had lower volume in fixed rate HECMs. It seems that the pick up in volume because of HECMs for purchase propaganda died almost as quickly as it started.
Paul

Yes, up or out……seniors setting tight!
michaelbanner

The #1 reason by far that the HECM Purchase is not meeting expectations is because the great majority of reverse mortgage originators don’t know how to develop relationships with Realtors. This, as a 28 year veteran of the conventional mortgage world I can tell you, is definitely an art in itself…

If you want to be in the purchase world with any type of mortgage then you must be part of the Realtor world.

I have been a long time proponent of the philosophy that the best reverse mortgage people did not come from the conventional mortgage world. (Obviously with me as one of the few exceptions…lol) A reverse mortgage person needs a lot more patience and a real passion to assist seniors. I have observed over the past 4 years that the best reverse mortgage people I have had the pleasure of doing business with came from other industries.

They were former long term care insurance agents, financial planners, social workers, teachers…they had a passion for really helping people and that led them to our industry. I truly feel that is one of the aspects of our industry that separates us from the rest of the pack…

But the HECM Purchase combines the high paced conforming mortgage world with the more passionate and slower paced reverse mortgage world…Realtors, especially successful Realtors, want everything and they want it now…or possibly yesterday… Just getting past the receptionist at the front desk of most real estate companies is no easy task let alone getting to the broker in charge. And most of them don’t even know this product exists!

If the HECM Purchase is going to come close to reaching its full potential then we must as an industry start hiring & training conventional mortgage professionals who already have a strong Realtor base of business.

This then brings us to an entirely new problem… reverse mortgage companies will have to offer conventional and standard FHA mortgages as well as reverses to attract these professionals.

A trend I already see happening and have jumped aboard…
Bill Agner

As long as FHA forbids a bridge or swing loan with the HECM for Home Purchase it will not be utilized very much. As it is now, if the seniors down payment is in equity in their present home they are required to sell their home, find a new one in a very short period of time, close on their present home and then close on the HECM for Home Purchase. That transaction is very difficult for anyone and practically impossible for a senior. FHA allows bridge or swing loans on forward mortgages, why not HECMs?
The_Critic

Paul,

Currently, if there were no HECM for Purchase the industry would be no better and hardly any the worse for it. The volume in this product is no better than annual adjustable rate HECMs. In fact the volume is so low it is hardly noticeable.

Did you mean to use the word “setting” or “sitting?” Seniors are still buying homes but not the volume they were before 2009 but what segment of society is?
Derryhampton

Michael, – Your comments are well taken. The Reverse Mortgage Industry does not understand their new market. They are unsure how to use the new marketing tools available, with the HECM for Purchase Program and, to date, seem reluctent to research this opportunity.

Our new market is the hundreds of thousands of licensed Real Estate people across this Nation. We hear many times, “look outside the box.” It is time for the RM Industry to get out of their two plus decade old box and “get in the new box” and look at the marketing opportunity to the Real Estate Community. We have two products to market.

As a 25 year veteran of the Real Estate Industry and Member of NAR and CAR, I am very excited about the HECM for Purchase Loan Program and the opportunity to market to the REALTORS, etc. I've sold homes, etc and sold conventional loans on the street for six yearrs.

I have a training program and have taught several RM LOs how to apporach and build a relationship with the Real Estate Community.

Learn to assist the licensed Real Estate person be the HECM for Purchase Specialist in their community and you have a dedicated client and referral source.

With an educated sales force, the Reverse Mortgage companies might have enough business with the two HECM products. They will certainly have to entertain a decision in the future to expand in other markets.

I too have jumped aboard…
Paul

The Critic,

“Sitting”, is probably the correct term. You are right, the volume is a non-factor…..perhaps this will change over the next few years.
The_Critic

Derry,

Like you I have held a California real estate licensee as a broker a little short of 18 years and before that had a salesperson’s license. But I honestly believe there is more to the issue of why we see so little activity in HECMs for purchase. The first is the economy. But the second is an old adage within the real estate industry: “All real estate economics is local.”

I believe that the first to the real estate licensees with a strong follow up program has the best prospect for success in this niche. However, if more seniors are leaving a community than moving into it, this product could have limited value. Of course seniors may move around in the same community but that is rare.

On the other hand, if seniors are pouring into a community or frequently move around once in it, that situation creates real opportunity for this product. However, I really do not believe this is as much a product issue as it is a community issue. It is a natural principle of business that the fewer the opportunities, the fewer the sales unless the market lacks sufficient penetration.

I understand why you and Michael Banner firmly believe in the HECM for purchase. You both are obtaining revenue not only from your originations but also from training fees. Those originators in areas where senior homeownership is growing should see significant increase in referrals from realtors as the “trickle down” impact of this supposed economic turn around begins to take hold.

I just happen to live in a community where far more seniors move out than move into it. Usually those few who are moving into it are moving in with children, not purchasing another home. Once here few move within it. While it is true that real estate licensees may remember to recommend to sellers about talking to originators before buying a new home, I found that to be very rare since we are not crucial to their sales activity.

I hope you and Michael prove my observations wrong and if so, can provide some guidance.
The_Critic

Hey Michael,

Please see my comment to Derry below.

Thanks.
Micharl Banner

Derry,

You & I should talk…

Please e-mail me @ michael.banner@loanwellamerica.com

Hope you had a great holiday weekend.

Mike
Michael Banner

Critic, my new friend…

As always your opinions are well thought out but just slightly on the negative side…we really have to meet one day so I can turn that frown upside down…lol

Please allow me to spread some sunshine;

Approximately 10,000 Baby Boomers turn 62 years old every day.

The fastest growing age group in the U.S. today is those 85 years & older.

86% of seniors want to age in their own home (AARP)

By 2030 there will be an estimated 71.5 million senior homeowners

According to a survey by Fidelity Research Institute:
40% of those surveyed over age 60 plan to move at least once during retirement!

This is a virtually an untouched market and could literally change the way seniors purchase their retirement home in this country.

Next, you stated “While it is true that real estate licensees may remember to recommend to sellers about talking to originators before buying a new home, I found that to be very rare since we are not crucial to their sales activity.”

That statement, with all due respect, is your inexperience in the conforming mortgage world speaking. In fact, no license real estate agents worth their weight in salt will waste their time with a perspective buyer unless they have been pre-approaved by a bank of their favorite loan officer. The conventional mortgage world is a crucial part of the great majority of all real estate transactions in this nation and has been for decades. The problem is…the reverse mortgage world is not a part of that world!!!!

And lastly, your community should not serve as a litmus test for the nations acceptance of the HECM purchase product.

Respectfully,

Mike
The_Critic

Mike,

With all due respect, since I do not provide forward loans, I am not crucial to real estate licensees who rarely sell to seniors. That is a simple fact of my life. Of course that simply means more potential sales to those in other regions.

As stated before “all real estate economics is local.”
2545

Mike,
You quote this statement as a good thing?
- “86% of seniors want to age in their own home”
This goes against your comments for huge growth. IF the seniors are staying in their homes how are we going to do a purchase?? More like our good 'ol HECM. Its not going to be a big part of our business…ever. We will take em when they come but to rely on them would be crazy!
michaelbanner

The fact that 86% of seniors want to age in their own home makes the HECM Purchase the product of the next decade! With 10,000 baby boomers a day turning 62 they will be looking for the best way to purchase the most house for their retiremnt with the least monthly debt service. Thats us baby!!!!
One more thing…I am not suggesting you “rely” on them right now.. I'm suggesting you go out and get them! Its a business model, it must be developed, it must be worked and worked hard and consistantly. Then you can rely on them!
Best of luck to you.
2545

I like your positive attitude. Although, I disagree with you. If 86% want to age in their own home it means they are not moving or purchasing. I also don't agree if they do end up moving they are looking for the most house. Most senior I know want to down-size. Only time will tell but I do not believe purchase will ever be huge part of anyones business.
2545

I like your positive attitude. Although, I disagree with you. If 86% want to age in their own home it means they are not moving or purchasing. I also don’t agree if they do end up moving they are looking for the most house. Most senior I know want to down-size. Only time will tell but I do not believe purchase will ever be huge part of anyones business.

Chart of the Day: HECM for Purchase History

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