Next Generation Product Could Expand Demographic Appeal of Reverse Mortgages

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.

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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.”

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  • It is a little troubling to read the comment of Mr. Levy. It is obvious he does not believe that these options (as Mr. Colin Cushman calls them) will help change the perception of the program within the financial, accounting, tax, and legal communities. Mr. Levy is extremely bright and is no oneu2019s fool. rnrnI appreciate the view of Mr. Nixon but I do not view the new options as principally a retirement tool; that view emphasizes the use of proceeds. While I agree that the use of proceeds can be greatly expanded, it is not the key. The key lies in understanding debt, interest, and even the MIP. rnrnMany of us share the view that reverse mortgages have been relegated to loans of last resort due to lack of knowledge of the product and high upfront costs. We also believe that originators are ill prepared and insufficiently educated to demonstrate the practical use of the product in financial, income tax, estate, and estate tax planning. Most originators believe that is not their responsibility and shy away when questioned about some statements they make about reverse mortgages. This is clearly illustrated in a recent thread of comments and replies between rainmand and The_Cynic.rnrnWhile most loan officers are good with ideas about the use of proceeds in a responsible manner, few know how to work with the loan itself in maximizing its benefits to borrowers. That is where the complexity of reverse mortgages lies and few seem to understand its proper and correct use in estate, tax, and financial planning. Too many outthink themselves in expounding on the use of proceeds to avoid current income tax liabilities, etc. when the real value of the product many times lies in knowing the correct use of debt.rnrnA few in the industry are beginning to rise up to educate a core within their originators to be able to exploit this new version of the HECM products. I hope Mr. Levy is proven wrong but if we do not rise up, his assessment will end up being correct. rnrnWe are at a crossroad in the industry. Either we will see reverse mortgages remaining what they have always been in the past or there will be a bifurcation into a new line that makes reverse mortgages far more useful and valuable to a larger portion of seniors than they are today. Getting to a new realization of the value of reverse mortgages is our challenge. Like Mr. Levy, I strongly believe HECMs will always be a useful loan of last resort; however, like Mr. Nixon, I hope many will be working to see the perception of HECMs and proprietary reverse mortgages change within the financial, accounting, tax, and legal communities into a product that is much more than it is now.rnrnWe are a young industry which desperately needs to mature. rn

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