Lessons Learned: Cracking the Reverse Mortgage for Purchase Code

Many have identified the Home Equity Conversion Mortgage (HECM) for Purchase product as an area of major growth potential for reverse mortgages. 

But only a handful of originators have reported ongoing success with the product; many of whom have established early relationships with real estate professionals as sources of referral business. 

Particularly in some areas, like Texas, the product has been slower to catch on. In the case of Texas, the delay stems from legal hurdles that prevented the HECM for Purchase loan from being offered until recently.

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Now, just over a year following a Texas constitution change that allows the product, lenders are reporting some success. Georgetown Mortgage, based in Georgetown, Texas, is responsible for 11% of the HECM Purchase loans closed in the state since May 2014, when the first loan of this type was closed.

“It was a challenge to educate Texas-based real estate agents and consumers,” says Barry Scoles, national sales manager for Georgetown Mortgage. “That remains the challenge across the country. One of the reason this program is so underutilized is there is a tremendous learning curve that involves lots of people. We are excited to accelerate this process in Texas.”

To date, 33 lenders have funded 101 HECM Purchase loans in Texas according to Department of Housing and Urban Development data; with Georgetown comprising the greatest number of loans among those lenders. 

And while many have talked about the vast potential the HECM for Purchase offers, Georgetown has honed in on several best practices as to closing reverse mortgage for purchase loans in Texas, and beyond. The company began education of real estate professionals in Texas even before the constitutional amendment passed allowing for the H4P there and shared some lessons learned with RMD. 

1. Talk to real estate agents and other participants as early on as possible. Not just on the educational front for Realtors, but for all parties involved. Loan originators will need to work with two sets of real estate agents as well as a title agent who may or may not be families with the process.

“Inform them of the three to four specific items to properly address in the contract,” Scoles says. “We try to point out with the real estate agents that there are some very specific requirements related to the contract. These are not differences anyone takes exception to, but they are differences in what the contract can and cannot say.” 

Have the conversation with the agent before any progress is made on the contract so there’s an understanding before anything needs to be changed or rewritten. 

“They just want to know these things going in rather than having to change later,” Scoles says. 

2. Educate on the transaction process. Address the protocols and differences between a forward loan and a reverse mortgage. Address when the case number can be ordered, and when an appraisal can be ordered. 

“Take a few minutes and explain to them what’s different about the timing, and what information we will be documenting—especially now with financial assessment,” Scoles says. “Help them understand we can’t view the reverse mortgage through the lens of a forward mortgage.” 

This goes for title closers who are generally used to the forward business and may not understand the differences in the HUD documentation.

“We’ve seen back and forth with title companies trying to get HUDs balanced in 11th hour,” Scoles says. 

3. Sell the product’s benefits to real estate professionals. “This is not just an alternative mortgage product, but this is a program that allows seniors who otherwise might not think they can sell and buy a new home a path to do that,” Scoles says. “Any real estate agent who grasps that they can actually use it to increase listings and sales—who  understands they have opportunity to do two transactions with one client—they do see the vision.”

Don’t make it more complicated than it needs to be, but educate thoroughly upfront so the Realtor isn’t worn out at the end of a transaction. 

4. Inform prospective borrowers—even those in the market for traditional HECM. Don’t miss an opportunity to inform a prospective borrower who thinks he or she is already sold on the traditional product. 

“We have had many prospects come to us with the intent to look at doing a reverse mortgage refinance. After meeting with them and going through their options, we have had a significant number of clients where the conversation started out for a refinance but turned into: ‘I’m going to buy a new home with a reverse for purchase,” Scoles says. 

Does it make sense for the borrower to remain in his or her current home? Or buy a different home that may be closer to the doctor’s office, lower on maintenance needs, or generally newer or better located? These are the questions originators should be asking borrowers upfront. 

Written by Elizabeth Ecker

 

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  • Elizabeth, let me congratulate you for this article you wrote, I think it is great! I hope many of us reading this issue will take the time to read your article because it explains the HECM for purchase program the way it needs to be explained.

    I know that I am going to copy the article and paste it in a word doc. I will beef it up a bit and put it into a presentation format but I feel you did our industry a great service by writing the article the way you did.

    Like I said, I hope many in our industry will take the time to read your article, it could be extremely profitable for them!
    The realtor is the key to this program and by us showing them how they can open a whole new market place for themselves will make us a hero in their eyes while increasing our business flow at the same time.

    Thanks Elizabeth,

    John A. Smaldone

    • John,

      What Elizabeth has actually said is that there is a lot of people talking about H4P being a major growth potential “but only a handful of originators have reported ongoing success with the product…” when she says:

      “Many have identified the Home Equity Conversion Mortgage (HECM) for Purchase product as an area of major growth potential for reverse mortgages.

      But only a handful of originators have reported ongoing success with the product….”

      To a pauper like me she is saying there is a lot of smoke-like-dust in the air but hardly any fire or in other words, there is a lot of talk but little action.

      I agree with Elizabeth.

  • I feel more Consumers would use the H4P program if they weren’t penalized for using it. The fee structure should mimic the FHA Forward programs. It’s unfair for the Buyer to be required to pay the Seller’s portion of the fees.

  • Having just completed one of these transactions, I can tell you that the buyer and his agent were very unhappy. Customary seller paid closing fees, and the resolution of inspection items are all paid by the borrower, making this an extremely expensive deal. Doubtful the realtor will ever repeat this experience! Be warned and make sure everyone knows there can be no adjustment to contract sales price. How to handle inspection objection items? The buyer pays for all of them.

    • >>and the resolution of inspection items are all paid by the borrower

      That shouldn’t have happened. The Seller is required to pay 100% of repair costs. That’s another area that should mimic FHA’s Forward programs.

      • Not repairs. Inspection items. If the sales price of the house is adjusted after inspection, it is a seller concession. Not allowed.

  • Michael,

    Go get them!!

    Oh, but don’t forget that Florida still does not produce anywhere near to its proportionate share of HECM endorsements based on either its population 62 and over or its general population.

    So who can blame a Floridian H4Per for being so gung-ho on a product that has yet to show anything close to the potential you guys ascribe to it? (Sort of reminds me of Florida annual endorsements.)

    BUT while you promote H4Ps, please don’t give up on traditionals or even bigger than H4P, refis. With annual endorsement counts so low, it seems the industry is failing those as well.

  • Let’s hope that when we visit H4Ps January 2017 (about 18 months from now) we will see evidence of the Code being cracked in underlying endorsement numbers which have yet to reach 2,500 for a single fiscal year.

    So far we see a lot of blowing dust (looks like smoke) but no real fire.

  • Mike,

    What I get out of what Liz actually says is that there are industry people trying to sell us on the idea that there is major potential in H4P but few who have experienced that. She just has a less offensive way of saying that.

    Or maybe you have a better way to interpret what she means when she writes:

    “Many have identified the Home Equity Conversion Mortgage (HECM) for Purchase product as an area of major growth potential for reverse mortgages.

    But only a handful of originators have reported ongoing success with the product….:”

    I absolutely agree with the assessment she makes in the quotation. I find little fault in stating facts even if they sound negative in some people’s ears.

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