Reverse Mortgage Alternative Product Halts Applications, Remains Open

imageEquity release products offered by companies like REX & Co and Equity Key have received a lot of coverage in the past few months, but it looks like the turmoil in the financial markets is starting to take its toll on these types of products.  Last week, REX & Co announced that its REX Agreement isn’t being made available to new applicants at this time but the company remains in business.

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.


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  • I have no idea what an “equity release” is in tax, legal, or financial terms. What the Rex Agreement created was nothing more than a real estate option which has been with us for many, many decades. This optionee only offered options on principal residences. While packaging it innovatively, the consideration paid to the optioner (the senior) for the option was deplorable.

    Can you imagine all that was received was an interest free loan in exchange for half of the future appreciation in the value of the home? Of course, if the loan was substantial enough, it might be an excellent deal but how much was paid to most optioners, 10%-15%? That is cheap consideration in almost any economy. Rather than “equity release” this product should have been named “the true option of last resort”.

    Since no HECM originator can offer the Rex Agreement in California (and I assume in many other states) because only real estate licensees by law can offer them, for most FHA (including HECM) originators this is not a huge loss. For most of us, the loss of the Rex Agreement is no real harm; in fact all this product seemed to have added was more confusion in the marketplace. Since entities that employ HECM originators were not restricted by HUD or FHA from offering this product through other employees, it may hurt their bottom lines.

    Equity Key is a much better product for the optioner since the initial consideration is potentially much greater, but for most seniors, it is hard if not impossible to qualify. Why is the consideration to the optioner so much better? Because for almost the same amount of money received, after the requisite period the optionor keeps all of the consideration no matter what happens to the value of the underlying real estate.

    Equity Key enters into option agreements not only on principal residences but also on almost all other types of real estate except unimproved real estate. Thus seniors can have reverse mortgages on their residence and Equity Key on all of their other investment and commercial properties. One problem with Equity Key is that it is offered in very few states and although generous, like the Rex Agreement minimum loan to value ratios must be met.

    In California Equity Key is a product that requires a real estate license to sell. Thus employers can have other employees who can offer it, but HECM originators cannot.

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