Reverse Mortgage for Purchase Market Fares Well Under New Rules

It’s been more than two months since the reverse mortgage Financial Assessment (FA) went into effect, and while the new guidelines may have a slight impact on loan volume, it doesn’t seem to be having a noticeable impact on Home Equity Conversion Mortgage for purchase (H4P) activity.

While it may be too soon to tell what the future holds for H4P volume in a new FA landscape, data from before FA’s implementation on April 27 suggests a healthy H4P market relative to other HECM activity.

“It’s still early to talk about closings that would be impacted by FA, but we do know that case numbers issued in May for HECM for purchase loans only dropped 27% compared to a 56% drop for case numbers issued on all other HECM types,” John Lunde, president at Reverse Market Insight tells RMD, noting the trend may be spurred by seasonally higher home buying activity.

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Indeed, the H4P market has not shown signs of slowing down since FA’s implementation, says Michael Banner, president at Professional Mortgage Alliance, LLC and founder of American C.E. Institute. American C.E. Institute hosts classes on reverse mortgage products, including the H4P.

“We’ve had a very busy two months since April 27,” Banner says, noting the company has written a fair amount of H4Ps. “I’ve seen no problems with getting loans approved, especially when the borrower must put down 50% as one must with the HECM for purchase.”

Professional Mortgage Alliance, LLC, based in Clearwater, Fla. operates in Connecticut and Florida and is currently applying for licenses in New Jersey, Texas, Oklahoma, Tennessee and Kentucky.

While Banner admits some clients are initially surprised by the extra documentation required by the FA, clients were more likely to be surprised prior to the FA when less documentation was needed.

“Our industry overreacted a bit by worrying how the client would respond [to the FA],” he said. “But they were probably more surprised before April 27 when we didn’t ask for anything. You can’t get a mortgage, car loan or any loan without proving income and providing documentation. Consumers are accustomed to providing the information the FA requires.”

Ultimately it falls on industry members to be transparent about what clients must provide in order to be approved for a H4P, he said.

“Clients are more than willing to supply the needed documentation to see their mortgage approved. It’s our industry that needs to be retrained on getting these materials upfront and not being too embarrassed to ask.”

Looking ahead, Banner sees more opportunities for the H4P product because of the FA.

“The H4P is the sleeping giant of our industry and the senior real estate market,” he said, noting that relationships with real estate agents are key to helping consumers understand the benefits of H4P. “This can help consumers achieve their goal of buying their dream home.”

Written by Cassandra Dowell

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  • It is far too early to assess how any particular type of HECM transaction is faring. Although RMI has a significant amount of information on closings, it is not complete.

    No one really knows how many seniors have been discouraged from even applying for a HECM because of what they fear is a disqualifiing credit history or capacity. There is no way to tell how many applicants have dropped out before case number assignment due to fear of the magnitude of an estimated LESA.

    While it is valuable to know if the pull through endorsement rate on HECMs for Purchase following case number assignment is greater than that of other HECM transactions, for awhile anything close to certainty is some time off. In fact we will need at least another 17 months to see a full fiscal year of data.

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