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) 

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.

This is the first article from a big publisher whose main focus isn’t on the costs associated with a reverse mortgage but the solutions the product can provide.  One example has to do with John Thompson, C.E.O. of Horizon Resources Group in Atlanta, a consultancy, and his university administrator wife, Dr. Patricia Sager.  Using proceeds from a reverse mortgage on their primary residence as a line of credit, Thompson says he wants “to provide for unforeseen emergencies and opportunities,” while expanding his company into England.

Portfolio points out that with the credit crunch continuing, the leveraged-to-the-hilt homeowners are seeking ways to raise cash without selling their houses during a slump.  If the borrowers are leveraged to the hilt a reverse mortgage might not be an option but maybe something like the REX product would work.

The article also points out that as houses continue to linger on the market for more than a year, many homeowners aren’t willing to wait to sell until prices bounce back and are looking at reverse mortgages as an interim solution, allowing them time to hold onto their homes until home values adjust.

While some of use might not see a reverse mortgage as the best solution for some of these cases it’s nice to read something from the mainstream media that doesn’t bash reverse mortgages.

Trouble Reverse? (Portfolio.com)

Technorati Tags: Reverse Mortgage,HECM,News,Portfolio,Conde Nast,FHA

• 1st Reverse Financial Services – 1st Reverse Financial Services offers a complete Wholesale Correspondent Lending Program, featuring a wide assortment of Reverse Mortgage Products including the Fixed4Life™ Fixed Rate HECM, the Fixed4Life™ XL JUMBO Fixed and the HECM Pathway™.
• Lender Lead Solutions – LLS is your complete solution for Reverse Mortgage wholesale. Our cutting edge product line will maximize your profitability and provide you with the most personalized service in the industry. Take advantage of our complete arsenal – the Simple 60, the Equity Plus Advantage, the 75-200 FlexMargin Advantage, and the Fixed HECM – as well as our comprehensive training and marketing tools.
• Liberty Reverse Mortgage – Liberty Reverse Mortgage is the largest independent Reverse Mortgage company in the nation. Our exclusive focus on Reverse Mortgages has allowed us to develop unparalleled product expertise and to deliver a superior customer experience.
• REX & Company – The REX Agreement is helping people just like you unlock home equity without debt, interest, or monthly payments. It’s ideal for everything from reducing your debt to funding your retirement.

If you are interested in becoming a sponsor please contact me.

Thanks for reading!

The owner of a home valued at $750,000 might obtain $100,000 in cash by giving REX a 50% share of the change in the home’s value. If the home sold for $850,000, REX would receive $150,000 — the original $100,000 invested plus half of the increase in value. If the home sold for $650,000, REX’s share would be $50,000, half of what it had invested.

If you are looking to see more examples, REX provides a calculator that shows how much cash a homeowner would be able to receive using the product on their web site.  Also, REX recently added a new feature to the product which acts as a pre-payment penalty of sorts that starts at 25% of the amount advanced in year 1 of the agreement and phases out 5% per year until the end of year 5 it then disappears.  According to the web site a REX agreement typically (different in IL and & NC) remains in place until the earlier of 50 years or when the homeowner sells the home.

REX is looking to offer the product through different business channels like mortgage brokers, real-estate agents, and financial planners.  Currently the product is available in California, New Jersey, Virginia, Florida, Illinois, Washington, Colorado, New York and North Carolina.  To read a copy of the WSJ article click the link below.

Product Taps Home Equity Without Taking out Loan (WSJ)

Technorati tags: REX, Reverse Mortgage, Reverse Mortgage News, Reverse Mortgage Alternative, Home Equity

Real Estate Equity Exchange, Inc. (Rex)

Mr. Hanson from Liberty Reverse Mortgage noted in the article “the biggest downside is the 50% of capital gains for a measly 15% of the house.”  I agree with Mr. Hanson but if your are unable to qualify for a reverse mortgage this could be a good option.  Rex’s managing director Jeff Cusack notes that, “Rex shares in the downside with the homeowner-something an originator of a reverse mortgage doesn’t do.”  The borrower is not required to repay any of the 15% it would receive to enroll in the program which is the overall benefit for the consumer.  At the moment this program is being offered in Florida, Illinois, New Jersey, Virginia, and Washington.  Below is a link to the full article.

Have a great weekend!

Investment News

Technorati tags: Reverse Mortgage, Hedge Fund, REX, Equity Finance