Home Equity Lending is Coming Back, HECM Saver Can Compete

Guess what’s back?  Home equity lending.  Smart Money is reporting that banks are making a push back into the business but are only catering to pristine type of borrowers.

Three different banks told the publication that home equity lending is up at least 20% across the board.  At Associated Bank, the average home equity loan, taken once as a lump sum, is around $75,000; at Citizens, the average credit line on a HELOC, which borrowers can tap over time, is around $100,000.

That’s enough for cash-strapped homeowners to pay for renovations or home repairs – especially if they’ve decided to stay in a house they can’t, or don’t want, to sell in the current market. “We found an opportunity that we can take advantage of,” says Val Glytas, director of consumer lending at Associated Bank.

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However, not all borrowers will have access to the loans.  In order to qualify, borrowers need at least a 720 FICO score, a minimum of 20% equity in the home, and income verification for the last two years.  WIth such strict qualification requirements, the market for the loans shrinks dramatically. What other options do they have?

If the borrower is 62 or over, the HECM Saver looks very attractive compared to a traditional HELOC.  The rate is roughly the same, low upfront costs, no minimum FICO and no income needed to qualify.  One requirement some borrowers not prefer is the HECM Counseling, but the new product has plenty advantages and is easier to qualify compared to a traditional home equity line of credit.

Plenty of originators have told RMD they aren’t having much luck with the Saver and one said the product lacks the “wow factor” of the Standard and they’re absolutely right.  But when you compare it a home equity line of credit or HELOC, it’s a whole different situation.

Data from the 2009 American Housing Survey shows there are more than 1.5 million seniors (65+) with HELOCs and they have an average loan amount of $50,000.  Odds are good that many of those same borrowers wouldn’t be able to qualify for HELOCs in today’s market, so the HECM Saver is one legitimate option.  Before you go and write off the HECM Saver because it doesn’t stack up against the HECM Standard, take a good look at how it compares with HELOC products, it might surprise you.

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  • If that is all the Saver is good for is a replacement for HELOCs, then that is OK. It seems,however, that this article and the originators who are discussing the product are still not addressing the demographic to whom the product has the greatest potential.

      • REVGUYJIM,

        I hope The_Cynic does not mind but here is my two cents on the subject.

        To date we have been good about helping the financially destitute but have not successfully penetrated the more affluent portion of the senior market to any great extent. To achieve that goal will require a specific marketing campaign to the gatekeepers such as attorneys, CFPs and, yes, even the dreaded CPAs. While their clients could be potential Saver borrowers, it is their sphere of influence which is almost as difficult to penetrate as their client base and is in fact much larger.

        For many this is not feasible. For those who have the ability and can endure the lead time, it could be very beneficial. No one can be sure of the outcome until there is an effort made to move in that direction. The costs are high and the return questionable but we finally have a product with which to move forward.

        While sharing the platform at a NRMLA Convention, a friend of mine once said that our industry has been great in helping the needy but has failed the greedy. While that may not be the best way to say it, the man had a point. He is a retired IRS attorney with years of experience in auditing and negotiating on estate tax matters with taxpayers. Although not in our industry he was speaking of the Saver concept in late 2007.

        Savers are very interesting for younger seniors who have not retired and need cash flow to implement new retirement strategies or bridge through less wages while waiting for retirement plan payouts and Social Security Benefits. They are also very appropriate to replace some types of business loans. It is this group who have not considered our products based on the advice of those who do not know our products either.

  • I seel this as a double-edged sword. HELOC’s are adjustable rates and, when interest rates increase, payments will also increase. Seniors may have trouble making these payments and, having used so much of their equity, may not qualify for a RM in the future – especially with a lower net benefit amount that comes with higher interest rates. If senior did RM with a LOC, instead of doing a HELOC, they would have the best of both worlds. In fact, their world would be even better with the RM since the LOC is guaranteed and with no payments. Senior could always make payments if they so chose.

    • lovemyseniors,

      As an industry we have a tendency to oversimplify and make less than correct statements.

      One concept you leave out of your comparison is that most HELOC borrowers at one point or another borrower against the loan to acquire the cash to make payments.

      While you are right to address the issue of equity you do not look at the two components. Equity is nothing more than a derivation. There is no way to verify the equity on a property. You must verify the components and then you can derive it.

      For example, an owner could have equity of $600,000 but not be eligible for a reverse mortgage because they owe $2,400,000. It is the size of the debt and the appraised value of the home which are the key issues. There is no where on a 1009 or any other document where equity is a factor.

      I have no idea what a net benefit is. This is not a government program.

      While you may deem your language and terminology appropriate for seniors, they would drive a financial professional crazy.

  • The HECM Saver will compete when the origination model changes. It’s only going to happen with large lenders that want to pay an originator a salary to originate zero origination fee Savers. If that happens, then we’ll see some real movement.

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