Seeking Alpha: H4P is Critical Alternative for Home Buying Retirees

A new home can be an expensive purchase, especially for retirees with limited liquid resources to fund this type of transaction. While most buyers generally have two options when it comes to buying a new home, a reverse mortgage can provide a critical third option for retirees, according to a recent article from Seeking Alpha.

Buyers, if they have the liquid resources necessary, can pay cash for a new home. They can also go the traditional route and get a mortgage for their new home. But retirees age 62 and older have a unique home buying method also available to them: the Home Equity Conversion Mortgage for Purchase (H4P).

“Taking out a 30-year mortgage entails paying interest for the privilege of leveraging other people’s money,” states the article contributed to Seeking Alpha by Dirk Cotton, a fee-only financial planner who has covered reverse mortgages and personal finance topics on his blog, The Retirement Cafe. “The mandatory monthly mortgage payment also imposes a significant cash flow restraint during the lifetime of the mortgage since it is typically paid from income.”

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The Seeking Alpha article, which Cotton notes is a guest post from HECM originator Jim Dean, explores differing scenarios to depict what would happen if a 62-year-old retiree chose to purchase a new home using a 30-year mortgage versus a HECM for Purchase.

“The HECM requires a larger downpayment than a regular mortgage, but the reverse mortgage does not require any payment of principal and interest while the home is the primary residence of at least one borrower,” the article states. “The larger down payment does result in more foregone earnings than a regular mortgage would, but less than an all-cash purchase would entail.”

Read more at Seeking Alpha.

Written by Jason Oliva

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  • Mr. Cotton states: ““Taking out a 30-year mortgage entails paying interest for the privilege of leveraging other people’s money,” How does a reverse mortgage not involve other people’s money? Or is it that a reverse mortgage requires any payment until the mortgage is due and payable in full? In either case, that declaration lacks much substance.

    It is authors like this that make reverse mortgages smell fishy. A reverse mortgage is first and foremost a nonrecourse mortgage. In trying to distinguish reverse mortgages from other mortgages many writers create their own distinctions and make reverse mortgages sound too good to be true.

    H4Ps are a valid alternative to other options to buying a home (but there are more than just 3 options) but H4Ps are badly misunderstood.

  • I have to agree with my friend Jim Veale on his overall comment. Jim is right and I feel not to many of us would disagree with him!

    I also agree with Jim that The H4P program is a very valid alternative. However, it does not count for a great percentage of the market we cover, why?

    I feel a lot has to do with the lack of our industry educating the realtor and the public as well. Have any of you ever seen an add about the H4P program, have we seen Tom Selleck talk about the H4P program, the answer is NO!

    TV advertising about the H4P program would help tremendously, I could never understand why the major advertising players are not capitalizing on this. The product is profitable and the originators make a good income off of the H4P!

    The other area that I first mentioned is the realtor. Those of us that came from the forward mortgage world worked with realtors on a daily basis. They are no different than a financial planner or a small community bank ETC. We must understand their world and what motivates them. The realtor is no different, maybe even a little bit more difficult to penetrate!

    However, the realtor has probably more to gain, it is up to us to get ourselves before them and educate them on the opportunities they can have by using the H4P program in their tool box! It is very important to remember to go through the broker first, don’t walk in to a real-estate office and start talking to agents unless you know them on a personal basis!

    To many originators make that mistake. Once you get the meeting with the broker, try and set up an educational workshop for his or her entire staff. If you sell the broker right and can show the broker how much money he or she and their agents can make, the broker will be happy to arrange that educational work shop for you!

    We have a lot of potential with the H4P program, we just need to approach it the right way!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      Thank you for your kind words.

      It seems, however, that TV ads are not the most efficient or cost effective means to drive up endorsements of H4Ps. If it was, Wells, B of A, MetLife, AAG, and even iReverse would have created those ads already.

      H4P seems to grow at a slow and steady rate generally faster than HECMs as a whole and tend to have percentage losses smaller than HECMs as a whole.

      H4P is not a sleeping giant and continually stating it is, only disappoints and frustrates the vast majority of each new cohort of industry originators who set out to make a living primarily selling it.

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