The HECM Saver and HECM for Purchase are tapping a mere fraction of their potential markets, each with a projected target population that could yield the equivalent to the entire current HECM Standard market, an industry analyst says.
The potential HECM Purchase market includes a whopping 70,000 seniors annually, according to calculations from Revere Market Insight. That potential nearly reaches the total of all HECMs that will be endorsed in fiscal year 2011.
John Lunde, RMI’s president and co-founder, explained the math behind the number at a Texas Mortgage Bankers Association reverse mortgage conference in Houston last week.
Considering a 23.2 million senior homeownership figure for the United States and an annual relocation rate of 6%, Lunde estimated that 1.4 million seniors move each year. Figuring that 20% of those have a mortgage, it leaves 280,000 seniors annually who could use a HECM for Purchase in order to buy their next home. Using a 25% conversion rate for those who choose a HECM Purchase rather than another type of mortgage, Lunde determined that there are 70,000 potential HECM Purchase borrowers each year.
There were just 101 HECM Purchase loans done in 2010, with recent monthly totals around 100 per month.
“The HECM for purchase got to around 100 loans per month,” Lunde said, “but has plateaued quickly and well before its time.”
The same goes for the HECM Saver, which launched in October 2010 and has showed a steady—but slow—increase in market share.
“When the Saver was first announced, the initial impression was: This is a great thing for the industry,” Lunde said. “Expanding beyond the needs-based market.”
Likewise, the Saver has far more market potential than its current reach of 9%. By considering standard adjustable rate loans that could become Saver ARMs, plus age-eligible home equity line of credit borrowers and those who are age-eligible for a HELOC but are declined for credit or other reasons, along with the generation of new customers through several other strategies.
But, he says, the Saver presents a challenge.
“The challenge is much bigger. If you want to have Saver volume that’s meaningful at all, you’re almost talking about two different marketing campaigns.”
Targeting a new kind borrower may take time, but the payoff could be substantial.
“It has the potential to do as many loans as entire HECM market,” Lunde said.
Written by Elizabeth Ecker