EquityKey is back and offering a new way for qualifying homeowners to receive 8%-16% of their property’s value in exchange for a share of the future appreciation of the property.

Often referred to as an alternative to a reverse mortgage, EquityKey started to gain some traction right as the markets collapsed but was forced to suspended new deals in November of 2008 after KBC Financial Products (former owner) cut off funding. In March of 2009, the company’s founders were able to purchase the company back from KBC and began looking for additional funding to bring the product back to the market.

The new EquityKey Home option is similar to the old offering but no longer requires homeowners to pass a physical in order to qualify for the insurance aspect of the product.  Previously, EquityKey took out an insurance policy on the borrower when the agreement is signed to help protect the downside of the transaction.

With the new EquityKey Home option, the company determines the appreciation of the home not by the future sales price but by using the S&P/Case-Shiller Home Price Index that covers the area where your property is located.

“We use the Index as an objective tool to measure your home’s appreciation,” says the company. “The Index is managed and controlled by Standard & Poor’s, the world’s foremost provider of independent credit ratings, indices, risk evaluation, investment research and data. We have no control over the Index or its performance.”

At the start of an EquityKey Home Option, the home is appraised and an initial value is established. EquityKey pays between 8% and 16% of a home’s value to purchase between 50% and 100% of the home’s potential appreciation.  As an example, for a home with a value of $500,000, EquityKey would pay between $40,000 and $80,000.

At the end of the transaction, if the Index has increased, the amount of the increase is used to establish the appreciation.  EquityKey then receives its percentage of the appreciation as determined in the original agreement.  If the Index is the same or lower at the end of our transaction, there has been no appreciation and, consequently, EquityKey is not entitled to any payment (assuming you have not breached the agreement or ended it early).

The product was often referred to as an alternative to a reverse mortgage because it can provide more flexibility than the HECMand homeowners aren’t taking on any new debt.  In addition, only one owner listed on title must be between the age of 55 and 85 and the option can be used on your primary residence, secondary residence, residential investment or vacation properties said the company.

The costs are also lower than the HECM, the only fee is a $300 application deposit  which is reimbursed if the transaction funds or they are not able to qualify.  However, the HECM program will typically provide much more money to the borrower, so there are trade offs to consider.

Currently, the program is only available in certain parts of California.  Other areas like Portland, Chicago, Seattle, Denver, New York, and more are expected to be added later this year.  To see how much you can qualify for, check out their calculator here.

According to the statement, the company is in the process of identifying new funding sources with the intention of resuming funding in the second half of 2009.  See a copy of the statement below:

EquityKey is on the move and we wanted to keep you informed of our progress. Effective March 4, 2009, EquityKey is no longer owned or funded by KBC Bank. Our original founders have repurchased the Company from the bank and are in the process of identifying new funding sources with the intention of resuming funding in the second half of 2009.

In the meantime we believe it is in the best interest our potential clients to not accept additional applications as we are focusing 100% of our efforts on securing new funding partners; all of our resources are committed to this effort. For those cases currently on hold with us, please advise your clients that we continue to be optimistic about their case and the future of EquityKey and its ability to weather the ongoing storm in the capital markets. When EquityKey resumes funding, we will pull first from the $500 million in existing inventory of successfully underwritten applications. For those of you who have continued to send us applications during the last few months, thank you! We look forward to rewarding that belief in us with successfully funded deals this year.

EquityKey’s product provided a cash advance on a house in exchange for the right to share in the homes future appreciation and started to take off in 2008.  With the lack of a competitive jumbo reverse mortgage product, it was a great alternative for some people.

However, the company halted funding in November of 2008 as the credit markets continued to deteriorate. 

Over the past year, these types of products have become more popular but the turmoil in the financial markets have caused both companies to suspend funding for new applications.  While it’s unclear when either company will resume business as usual, a new player named NestWorth has emerged and is funding deals in the San Francisco, Seattle, and Portland areas.

"I would think anyone who’s relying on institutional funding in the capital markets right now is having more problems than a company like ours, which is smaller and less reliant on the capital markets," said Graham Williams, NestWorth’s president and chief executive. "We could clearly grow our business more quickly if the capital markets were functioning in a normal fashion, but at this stage in our development, the capital markets aren’t necessary."

Williams, who was Rex’s chief operating officer until October 2007, said NestWorth relies on private investor pools and bank financing and is "very comfortable in our ability to continue through next year."

NestWorth’s website describes its product as a better reverse mortgage alternative and looks to be similar to Rex’s agreement.  Below are the guidelines for NestWorth’s product:

• All participants must be legal owners.
• Available to homeowners 60 – 80.
• Property must be owner-occupied, one unit, single family, detached residence (no condominiums).
• Second homes are acceptable.
• Home value less than 3 million.

If you want to run a scenario you can check out their calculator here. To read a copy of the article from American Banker click the link below.

Home Equity Niche Freezes (Subscription Required) 

While the company is still accepting applications, they have suspended funding for new applicants until the new year.  “We could resume funding before that, or it could extend into a period of time next year, but for planning purposes we’ve communicated that people shouldn’t anticipate a resumption in funding until at least January 1, 2009,” said Jarosz. 

Equity Key is owned by Belgium based KBC Financial Products, which also owns the Senior Lending Network.  SLN also suspended funding of its proprietary products and doesn’t expect to accept any new applications until January 1st, 2008.

I’ve spoken with several reverse mortgage originators who have started offering the product since jumbos have disappeared and their clients have been very happy.    Even when a few jumbo options were around, for some borrowers Equity Key’s product made more sense than a jumbo reverse mortgage. 

Equity Key is expanding into new states, so if you have clients with higher home values, this might be a good option for them. 

Equity Key

The REX Agreement allowed homeowners to receive cash in exchange for a percentage of their homes future appreciation.  Over the past year as homeowners struggled to find a way to get cash from the equity in their homes, the REX agreement started to take off.  According to a recent article from the Wall Street Journal, REX saw the dollar value of deals completed in the first half of the year rise 20% from all of 2007. 

The company’s decision to halt applications could be related to the problems of its largest minority investor American International Group (A.I.G.).  Last Wednesday the Federal Reserve Board said that it would provide up to $37.8 billion to A.I.G. to help it deal with a rapidly dwindling supply of cash.  This assistance comes after the Federal Reserve extended $85 billion in a bridge loan to the company in September.

While the companies decline to say how many clients they have enlisted, it’s clear there is a market for these types of products.  According to the WSJ, Equity Key has seen applications jump 112% in the first six months of 2008, from the previous year.  Rex has seen the dollar value of deals completed in the first half of the year rise 20% from all of 2007.

As the availability for jumbo reverse mortgages has almost totally disappeared, reverse mortgage originators are finding these products are a good fit for some people vs a reverse mortgage.

The WSJ points out that these type of agreements can make financial sense for some older adults. For one, they offer some protection against the current turmoil in real-estate markets by allowing homeowners to cash in a portion of their home’s current value. But these deals also carry considerable risks, according to some real-estate experts.

In the first few years of a contract, lenders are generally protected from bearing their share of the losses. And if a home appreciates over the life of an agreement, this approach could prove more costly than a conventional loan.  “From the perspective of the companies, this may be a very good time to do these deals,” says Susan Wachter, a professor of real estate at the University of Pennsylvania’s Wharton School of Business in Philadelphia. “When prices rebound, they will capture that in their share of the appreciation.”

Homeowners are using the money for a variety of things including investing in stocks or other investments they expect to outperform residential real estate.  Some others are trading away future profits to pay down debt and fund indulgences, such as renovations and vacations.  The WSJ article goes into much more detail about the products, definitely worth the read.

Trading on the Future

Technorati Tags: Reverse Mortgage,News,REX,EquityKey,HECM,FHA,Wall Street Journal

Both companies have received a good amount of press in the past couple of weeks so I wouldn’t be surprised if you receive a couple questions from borrowers about the programs.  Most recently REX & Co. announced their product is now available in New Jersey, New York, Pennsylvania and Virginia.  With the addition of these four states, the REX agreement is available in 13 states.

The REX Agreement allows homeowners to access their equity without ever incurring debt, interest, or monthly payments. Homeowners have the ability to convert a portion of their home’s value into cash now in exchange for granting REX & Co. a portion of the future increase or decrease in the home’s value when they sell or decide to end the Agreement.

"Responsible homeowners have worked hard to build equity in their homes. Through no fault of their own, an increasing number of homeowners have suddenly discovered their HELOCs frozen and access to cash from their home equity denied," said Tjarko Leifer, managing director at REX & Co. "The REX Agreement is a debt-free alternative that can replace the frozen HELOC and give homeowners a large, lump-sum cash advance to use anyway they wish without having to pay interest or make monthly payments."

If you have a client that is interested in the program check out a recent story from Marketwatch that goes over the agreement in more detail here.  You can also check out REX’s website at the link below.

REX & Co.

While Virgin Money may not operate like a traditional bank which lends money, Virgin organizes and processes loans among family, friends, and business associates.  One of the products Virgin Money offers is a Retirement Mortgage which operates a lot like a reverse mortgage.  To learn more about the Retirement Mortgage you can  check out the product here.

According to the NY Times, Virgin Money has originated $350 million in loans since 2001 and has grown 75 percent in the last 11 months.  Below is an excerpt from the interview where Advani talks about the Retirement Mortgage.

Q. Are mortgages also character-based?

A. We have two products in mortgage: a family mortgage and a retirement mortgage, which is a reverse mortgage.

A family mortgage enables kids to get a loan from their parents at a lower rate than they could get from the bank. We say you should combine that with a traditional first mortgage so that your blended rate is better than you can get from anybody else. You deduct the interest payments you make to your parents just like you can deduct the interest payments you make to a bank.

Q. There has been concern in the mortgage markets about home equity lines of credit. What is the prospect for a reverse mortgage when there is so much uncertainty?

A. We introduced a product we call a retirement mortgage. It allows the adult kids and the retired parents to do a deal among themselves and keep the home within the family. It’s at least 50 percent cheaper than a bank reverse mortgage.

Q. How do you figure that?

A. Bank reverse mortgages start at $10,000 in cost, and our product is a couple thousand dollars plus $9 a month. All and all, it will be less than 50 percent of the cost of a bank reverse mortgage.

To read a copy of the full interview click the link below.

Making a Business of Family Loans (NY Times)