HECM Saver Risk Appetite: Not everyone has it

When the HECM Saver was rolled out last October, many in the industry were quick to call it the next big thing and in time, it’s a real possibility.

While the Department of Housing and Urban Development (HUD) provides data on applications, the monthly reports don’t break out HECM Saver numbers as of yet, so it’s difficult to figure out how successful the initial roll out has been.

However, new data published on Thursday shows HECM Saver endorsements reached 75 in December, up from 15 in November.  When RMD asked for application data on the HECM Saver, a spokesperson for the agency said “it is still too soon to have any meaningful data” to gauge the interest in the program.

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For many lenders, the HECM Saver wasn’t their first priority when it was announced.  Along with the new product, HUD lowered the floor on the HECM Standard and lenders were able to help a big group of borrowers who previously didn’t qualify.  With that group of loans just about closed, lenders tell RMD they’re starting to direct resources towards the HECM Saver and are finding some challenges in terms of pricing.  As of last week, the HECM Saver rate is .25% higher than the HECM Standard according to several rate sheets obtained by RMD.

Asking borrowers to pay more for less money is a difficult proposition and doesn’t make much sense, especially when lenders able to credit most of the upfront costs on the HECM Standard.  However, as rates continue to increase and back end pricing falls, the ability to credit all costs could be going away soon and open the door for the HECM Saver.

“As long as there is a huge price difference, it’s hard for the broker to make this part of their business,” says Bryan Hendershot, CEO of Urban Financial.  “Once pricing stabilizes, you will see the HECM Saver pick up because it will make more sense.”

To help improve the pricing on the product, Knight Capital Grouppurchased Urban Financial last year — is putting additional resources into developing investor interest in the product.  Knight sees the HECM Saver as an opportunity to make reverse mortgages more attractive to a different cohort of borrowers.

“It’s exactly what we need to get the mainstream acceptance we’re looking for,” says David Fontanilla, trader at Knight Capital Group. “However, a key driver of that is to have investors get more interested in the product and more clarity on pricing.”

Fontanilla tells RMD that investors are asking asking about the product but want to know if the prepayment speeds will be similar to the HECM Standard, which history has shown are fairly consistent.  “One camp thinks they will be bridge loans to the standard and the other thinks it will be used more like a traditional HELOC,” he says.

In order to answer that question, Knight is holding a group of HECM Saver loans on its balance sheet to get a better idea on how the loans perform.  Once they have the data, investors can price the product appropriately and hopefully bring rates down.

Cantor Fitzgerald, another Wall Street Trading firm that has a dedicated reverse mortgage desk run by Jeff Traister, Managing Director and Head of Agency/non-Agency Reverse Mortgage Trading, isn’t taking the same approach. “I really like the product and in time, it can be a big part of the overall business,” he says.  But investors are worried about moving too quickly on the HECM Saver, “the fear is that it prepays quickly and you’re going to pay a premium for it.”

Cantor is playing the new product a bit more cautiously than others and has no plans to hold any of the loans on its balance sheet to gather data.  “I just don’t have the risk appetite that others do,” he says.

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  • Most of the clients I deal with still want to maximize the money available to them. I think they are scared of declining values, and no opportunity to refi, or the minimal savings juts aren’t enough to offset the reduced amount available. We are waiving origination fee, serviceing, so most of the fees are going to third parties…maybe BofA has had luck since they are waiving MIP?

  • The HECM SAVER does not meet the needs of all seniors. This is a nitch product as far as I am concerned.

    The program can work for the senior that has a lot of equity in their home and for the senior that wants lower closing costs. The big draw back to the program today is the interest rate. When the rate is above the HECM standard fixed, the SAVER becomes a hard sell. The loan originator needs to be on the look out for the right candidates for this program. Until the rate comes down to the standard fixed, it will be more difficult to sell the program.

    One suggestion of who to sell the program to would be to go after RV and Boat dealers. As an example, lets say you are a senior, fairly well to do financially and own a home with very little debt against it. You and the wife want to travel six months out of the year and decide to buy a motor home. You find exactly what you want, the cost, $210,000. To finance it, you are looking at an 8% rate and high payments. The alternative could be the HECM SAVER! You have enough equity in your home after paying off your small $33,000 balance to give you the $210,000 plus another $22,000 left over. You buy the RV free and clear and you have no payments on either the motor home or your home with the HECM SAVER on it. Not to bad of a deal is it? Not only did the home owner accomplish their goal but you have an RV dealer to do future business with. The dealer would not have made the sale because the payments would have been to high for the senior’s to handle!

    I could go into other examples of how the SAVER could work for you. Remember, in our example above, the SAVER was at a higher rate than the other HECM programs. However, the rate was lower than the RV loan would have been and the closing costs were less on the SAVER than the other products.

    I still feel the HECM SAVER is not the greatest program as it has been billed to be. However, the program can fill the gap that the other programs may not. The SAVER also gives a loan originator a good come back to those that say, “Don’t get a reverse mortgage, the closing costs are a rip off”! This is my food for thought for the day.

    Have a great day,

    John A. Smaldone

    • John,

      Personally I look at the Saver much differently. It is an ideal product for the more affluent and active senior community. It could do well IF the acceptance of the product by the investment community was equal to the Standard.

      While qausi OK as a retirement product, it is more suited to those not in retirement but in need of better debt and cash management. Its use by employees is of limited value.

      With a little imagination and marketing dedication, those who understand active seniors who are not employees but still working or actively involved in other income making situations could find an interesting niche. The product could not only save thousands of dollars annually but also lost time in debt administration.

      In a very practical sense, the Standard is a niche product. Very few even mildly affluent seniors have availed themselves of it because it is viewed as the mortgage (not even loan) of last resort for the financially desperate. High percentage upfront cost products are the bane of that senior population segment and thus Standards bear the marks of a loan of last resort for those who are in desperate need. Buried in the upfront cost concern is also the troubling warning lights which are triggered by this lingering invisible mark even after many lenders have substantially reduced upfront costs and eliminated the need for the servicing fee set aside.

      Just another opinion….

  • The HECM SAVER does not meet the needs of all seniors. This is a nitch product as far as I am concerned.

    The program can work for the senior that has a lot of equity in their home and for the senior that wants lower closing costs. The big draw back to the program today is the interest rate. When the rate is above the HECM standard fixed, the SAVER becomes a hard sell. The loan originator needs to be on the look out for the right candidates for this program. Until the rate comes down to the standard fixed, it will be more difficult to sell the program.

    One suggestion of who to sell the program to would be to go after RV and Boat dealers. As an example, lets say you are a senior, fairly well to do financially and own a home with very little debt against it. You and the wife want to travel six months out of the year and decide to buy a motor home. You find exactly what you want, the cost, $210,000. To finance it, you are looking at an 8% rate and high payments. The alternative could be the HECM SAVER! You have enough equity in your home after paying off your small $33,000 balance to give you the $210,000 plus another $22,000 left over. You buy the RV free and clear and you have no payments on either the motor home or your home with the HECM SAVER on it. Not to bad of a deal is it? Not only did the home owner accomplish their goal but you have an RV dealer to do future business with. The dealer would not have made the sale because the payments would have been to high for the senior’s to handle!

    I could go into other examples of how the SAVER could work for you. Remember, in our example above, the SAVER was at a higher rate than the other HECM programs. However, the rate was lower than the RV loan would have been and the closing costs were less on the SAVER than the other products.

    I still feel the HECM SAVER is not the greatest program as it has been billed to be. However, the program can fill the gap that the other programs may not. The SAVER also gives a loan originator a good come back to those that say, “Don’t get a reverse mortgage, the closing costs are a rip off”! This is my food for thought for the day.

    Have a great day,

    John A. Smaldone

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