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