A Massachusetts-based peer-to-peer lender sees a huge market opportunity in rolling out a new family-funded, low cost alternative to traditional reverse mortgages.
The Caregiver Mortgage is the latest product offering from Boston-based National Family Mortgage, a company that provides online lending services between family members. The company specializes in helping parents and their adult children—as well as other family members—property structure, document and register mortgage loans.
While National Family Mortgage has traditionally structured loans that enable parents to help their adult children purchase their first homes, as a result of growing demand from existing clients, the company is now providing the inverse of that via the Caregiver Mortgage starting May 1.
And the new product stands to rival the traditional reverse mortgage in more ways than one.
“There is a perception out there that reverse mortgages are not the most consumer-friendly product in general,” National Family Mortgage CEO Tim Burke tells RMD. “There’s also a perception that some folks feel like they aren’t necessarily getting the benefit they deserve based on the equity in their home.”
Many of National Family Mortgage’s clients have explored the prospects of getting traditional reverse mortgages, but were “turned off,” Burke says, by origination fees, relatively high interest rates, mandatory annual insurance premiums, and the fact that the lender or the bank is building equity in the house and not the family.
Enter the Caregiver Mortgage: an inter-family loan boasting a low interest rate jointly chosen by the lender and borrower, no insurance premium, no age restriction, no counseling requirement or primary residence restriction, and above all, keeps the house within the family. There is, however, a one-time set up fee of $2,500 for National Family’s services.
The loan also offers greater flexibility of disbursements than traditional reverse mortgages, by allowing family lenders and borrowers to send and receive disbursements whenever they want for the life of the loan.
Families who decide to use the Caregiver Mortgage have access to a management platform developed by National Family Mortgage, which lets them keep track of the collective disbursement they decide to lend mom or dad, as well as their individual disbursement activity.
Depending on a person’s particular financial means, family members on the lending side of the Caregiver Mortgage can negotiate amongst each other how much they will disburse to their borrowing parent. For example, that means one person can choose to give $1,000 a month toward the loan, while another can give $500, or however much they decide.
“Some families out there might have the means to help out, but don’t have the means to necessarily gift it,” Burke says. “They want to formally structure that assistance.”
Because in some states various laws require either an attorney or title company must handle the notarization and registration of the mortgage document, National Family Mortgage works in partnership with local attorneys and closing agents, which collect the initial funds and disburse them to the borrower.
Family members are repaid pending their decision on what to do with the property in the event of their parent’s death, whether that means choosing to liquidate the home by selling it or assuming an ownership share of the residence.
Since National Family Mortgage launched in fall 2010, the company has funded approximately $286.3 million in forward loan volume to date. And based on the inquiries coming from existing clients, the company sees the market opportunity for the new Caregiver Mortgage being significantly higher than its current product line.
“Obviously, it’s not for everyone,” Burke says. “Not everyone is in a fortunate enough position where the adult kids can afford to offer a credit line to their parents, but there are families out there who do have the means.”
Written by Jason Oliva