Data Shows Big HECM Saver Opportunity, But Adoption Could Be Slow

A look into data from the 2009 American Housing Survey shows there is plenty of opportunity for the Federal Housing Administration’s new HECM Saver, but lenders say it could take some time before the new product catches on.

As an industry, reverse mortgage lenders have become fairly successful at reaching borrowers looking to pay off a large mortgage balance or eliminate a monthly payment.  However, with the HECM Saver, the industry hopes it might have the ability to reach beyond this customer and into a bigger marketplace.

According to AHS data, there are more than 18 million seniors (65+ and older) living in owner occupied units, with 65% having no mortgage balance.  Those with a mortgage balance have an average loan to value of 35% and an average balance of $50,000.


Chart: Seniors Remaining Loan Balance


Seniors Remaining Loan Balance

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For an industry hovering around 100,000 units per year, it’s a huge untapped market that has previously been out of reach due to the upfront costs associated with the reverse mortgages.

“The HECM Saver will allow us to service our demographic more broadly, namely the group of borrowers who have seen the cost as a hurdle,” says Reza Jahangiri, CEO of American Advisors Group.  He sees the program as the next step in the life of the HECM program but admits “it will take a pretty substantial industry wide marketing and awareness campaign to gain traction in terms of volume.”

The industry knows all to well that changing the publics perception of reverse mortgages isn’t a quick and easy task.  So convincing consumers that not all reverse mortgage products have large upfront costs will take some time.  As far as who is putting real money behind marketing the program today, RMD wasn’t able to find anyone… yet.

“It will take some time as lenders will have to entirely re-tool their marketing,” said John Lunde President of Reverse Market Insight.

He sees real opportunity in borrowers who previously would’ve turned to a HELOC in order to meet their additional cash needs.  AHS data shows there are more than 1.5 million seniors who have a HELOC with an average loan amount of $50,000.  Compare this to the 241,000 seniors who reported they have a reverse mortgage and you begin to see the opportunity.

“There are at least 6 times as many seniors using HELOCs and they’re using it for a purpose other than paying off their mortgage,” said Lunde.

After the collapse in the real estate market, the availability of HELOCs has been drastically reduced and makes the HECM Saver an attractive option for seniors.  “If we don’t have people taking a HECM Saver more than the Standard in three to five years, we really missed the boat as an industry,” he said.

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  • Expressing growth in conversation is interesting but not very meaningful. So let’s put some meat on the bones using some conservative estimates.

    In his October 4, 2010 ReverseIQ, John Lunde projected that HUD will endorse between 95,000 to 100,000 units this fiscal year. He did not indicate how much of that volume would be Savers but he did project it would be at least 20% one year out.

    Let’s start with the volume from this year at approximately 79,000 units and using the middle number of 97,500 units, that increase would be about 23% year to year. For sake of argument let’s make the number of Standards as low as possible using John’s estimates. So let’s pretend the number of Savers is 20% of that total (or 19,500 units) leaving only 78,000 Standards. Now growing the 78,000 for four years at just 5% per annum, the volume for Standards for the fiscal year ending 9/30/2015 would be 94,800.

    Using that logic, Savers would have to exceed 94,800 by themselves in the FY 2015. But John indicated that could be done in perhaps as little as 3 years or FY 2013.

    While believing in optimism, the numbers bandied about seem a little low on Standards and much too high on Savers. I hope our volume in three years will more than double what it is today or even in five years. We’ve seen it before but the housing market was much different than now and our volumes in raw numbers were very low back then.

    For the three fiscal years prior to last year endorsement volume hovered between 107,000 units and 114,000 units. With ongoing costs up and home values stuck in depression, it is hard to believe volume will rise that quickly; however, I hope John is right.

  • Most of our customers obtain a reverse mortgage in order to repay an existing mortgage and eliminate a burdensome payment. The HECM Saver rarely provides sufficient funds to accomplish this.

  • Believe the hype!Don’t worry! Especially about home values, appraisals, investigative counseling protocol, SAFE act and licensing requirements, new regulations, or the banks taking the lions share of the business via their order -taker models……the SAVER will SAVE YOU!!!! I’m a bit worried about the delusion that mirrors the HECM purchase hype of yesteryear….what happens if LO’s continue to exit the business and there is no one left to spread the word or offer this product ? While these potential numbers look good in terms of opportunity, do not forget the time we are in. There is currently little consumer confidence about anything, and we expect the senior population ( whose mentality is understandably different from other generations) to all of a sudden adopt and accept a NEW way to get liquidity out of their homes, but it is still called a ‘reverse mortgage’????? Who are we trying to fool, ourselves? Are we going to trust NRMLA to get the word out, to ensure the seniors and their families that this is the right product for them? For those of you keeping score – LAST NOVEMBER, in San Diego, everyone was giddy over the fact that there was going to be a concentrated marketing effort to counteract the negativity still associated with Reverse… we are 1 full year later, and I ask you if you have seen any marketing messages in the public other than your own and your competitors? Wait, NRMLA had to worry about the almighty CRPM designation that has been such a hit, how could they chew gum and do anything else at the same time? While I do agree that this is a needed addition to the HECM world, it’s just another version in a different dress. Until the industry as a whole gets it’s collective act together in terms of marketing beyond the Fonz and Mr. Wagner, hype or projections are just that….hype and projections.

    • Kevin,

      Last year you were ready to give up on the industry. Now you see great hope.

      The MBA expects overall mortgage borrowings to drop by 30% next year. Many economists expect more home sales activity but mainly due to more of the shadow home inventory of homes in foreclosure (and default) slowly flooding the market. Some see this as such a glut that they expect home values to stay depressed until late 2012 or even deep into 2013.

      The problems facing us are far greater than anything celebrity marketing or NRMLA can do for us. Yes, now is the time to move Savers forward but I am not so sure they will save anything. If there is a unified voice on Savers, perhaps they will make the next few years bearable and prosperous but it will take work by everyone to see that happen.

      Despite the opening paragraph, it is good to see you back.

  • Will the Saver save the industry? That is an open issue.

    HECM Dude writes as if he has no idea who to target or how to market Savers. He is NOT by himself. Then we have those who believe they understand the product but don’t.

    The education given to (not by) originators must exceed the mere information contained in Mortgagee Letter 2010-34. An important aspect of this (dare I say) education is learning to check on how market conditions impact the differences between Standards and Savers. Apparently some originators are living in the clouds when explaining differences.

    For example, the other day a very bright and intelligent borrower called to let my company know that she was so confused and troubled by what she was hearing about all of her different options, she had cancelled with the broker but wanted to make sure we stopped her loan from moving forward; her loan had just been approved for closing. Her problem was she felt as if she was being given the bum’s rush. It turns out the originator got the points in Mortgagee Letter 2010-34 correct but failed to note that the borrower would pay a higher interest rate with a Saver than with a comparable Standard.

    If the Saver will significantly move us forward this year, lenders must move quickly to train originators on this product. While there are some meaningful efforts, most seem based on marginal conviction in and to the product and most have no idea how to market to the financial community.

    For example, I received a marketing email from a major university advertising a full day of continuing education for CFPs with one hour dedicated to using reverse mortgages to preserve investment portfolios. While it is being presented by two originators from a major bank, neither presenter has any financial credentials and it is the only hour for which credit is still pending approval. If we mean business about reaching out to the financial community, we need to do better, much better and save ourselves the embarrassment of speaking on subjects on which we have few qualifications

  • 10.30.10 This is Barbara B. Howard, Cofounder of HECMs for CO-OP GROUP at Laguna Woods CA (since 07.24.10), addressing “Showing 6 Comments” to “Data Shows Big HECM Saver Opportunity, But Adoption Could Be Slow”:

    Representing a condominium and stock cooperative community totaling some 12,500 dwelling units, believe my comment might enlighten you. Our group was formed to express the reverse mortgage needs for many of our 6,300 co-op resident owners.

    These owners are at a loss to understand why condo owners within a stone’s throw of their dwelling unit, in the same type building, with the exact same floor plan and square footage, are able to access a HUD-FHA home equity conversion mortgage while they as co-op owners cannot. No need to “sell” these co-op owners on a HECM, they understand the product because their need is great. They have been pounding on the HECM door without success for going on three years.

    Over 50 of us petitioned the HUD Secretary after our first meeting, July 24, 2010. After repeatedly speaking to HUD managers about the 2010 HERA by asking when a co-op HECM package would be implemented, we were essentially told: in a few months. Response to our petitions to the HUD Secretary came from a lower-level manager rather than the Secretary, or even a deputy or assistant secretary. After all this, the HUD letter stated, “soon.”

    The November 3, NRMLA 2010 Annual Meeting & Expo is an opportunity for lenders to appeal to NRMLA Leaders and especially Ginnie Mae President Ted Tozer, FHA Commissioner David Stevens, and Deputy Assistant Secretary Vicki Bott for their co-op HECM help. The tragedy is that both Standard and Savers HECM packages that could cover 429,000 owner-occupied co-op dwelling units are unavailable. The HERA states that HECMs are to be implemented for “single family, condominium and stock cooperative” properties.

    Believe me, there is no need to “market” to these co-op owners. Some lenders already know this as owners have been beating down their door for a HECM loan. NRMLA leaders know this too. They have been pinging HUD for co-op HECMs, but sadly without success. Some HUD officials too are aware of this need but are helpless to take action. The backdoor word is that where HUD rescources are concerned, co-op HECMs are on the “backburner.”

    Yet here’s a prime opportunity for those of you attending the NRMLA New Orleans meeting in just four days. SPEAK UP FOR HECMS FOR CO-OPS. You lenders marketing to Southern California co-op owners have a 6,300 ready-made pool ready to listen. I’ve talked our community leaders about a HECM learning conference for some 12,500. We would consider inviting presenters representing local HUD officials, HUD-certified lenders and housing counselors, as well as certified financial planners and interested officials.

    Barbara B. Howard, M.A. [email protected]
    Conflict Manager & Gerontologist
    Cofounder HECMs for CO-OPs GROUP at Laguna Woods CA • 949 855.3990

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