The last year hasn’t been easy on the reverse mortgage industry, but during the National Reverse Mortgage Lenders Association’s “road show” attendees expressed some optimism about things to come.
With at least $140 million provided through the appropriation process so far and the possibility of a two product solution from the Federal Housing Administration, stars seems to be aligning for the industry. Specifically in respect to the tentatively named “HECM Saver”. Designed with reduced costs and lower principal limits compared to the traditional FHA insured reverse mortgage product, the HECM Saver lowers the cost of entry for borrowers.
“The product could help broaden the demographic appeal of reverse mortgages,” said John Nixon, Industry Relations, Sales Support and Channel Integration Executive at Bank of America during the general session. While the traditional HECM product has been used by those looking to eliminate a mortgage payment, the HECM Saver has the potential to reach a dfferen’t audience. “The next generation of the product would really be a retirement planning tool,” he said.
According to John Lunde, President of Reverse Market Insight, the majority of reverse mortgage borrowers have used the HECM to pay off a previous mortgage balance and eliminate their monthly payments. Whether the industry can be successful reaching the 75% of eligible homeowners that RMI estimates have no mortgage on their current house is yet to be seen.
“This group may have needs for periodic cash flow or even monthly payments, but it’s very hard to get them over the upfront fees on a traditional HECM in exchange for modest immediate cash needs,” said Lunde.
Because there has always been a low cost alternative (HELOC) for this group of borrowers, the industry hasn’t been able to reach them. But with the HECM Saver, “it truly does become a matter of choosing which rate makes the most sense, rather than comparing sunk upfront fee costs,” he said.
Even if the HECM Saver note rate is a bit higher than a comparable HELOC, it offers borrowers no monthly payments and the ability for partial payoffs at any time, a pretty attractive offer said Lunde. “Now you have a vehicle for small incremental needs borrowing that bridges the gap to not just a bigger population of potential borrowers, but also significantly reduces the psychological barrier to borrowing,” he said.
Jason Levy, CEO of Guardian First Funding Group, agrees the HECM Saver will compete with the HELOC from a cost perspective, but still sees the HECM product serving the need of borrowers who need to pay off larger mortgage balance. “The product might motivate consumers that were on the fence due to cost conscious concerns,” said Levy, “but I don’t see it causing a shift in our customer.”
When Will We See The Product?
If all goes well, Nixon said the HECM Saver could come out as early as the first or second quarter next year. NRMLA and HUD continue to work closely with the Office of Management and Budget to make the program a reality.
“It’s our hope that we will have a two product viable option in the coming year,” said Nixon. “The good news is that we have very good executions and it’s the best value we’ve ever been able to offer seniors in my fifteen year history.”