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.
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.