The reverse mortgage industry is striving for a comeback, but numbers for Home Equity Conversion Mortgages (HECMs) are still relatively low. With several roadblocks putting pressure on loan origination volumes, the need to create a shopper’s reverse mortgage market is now greater than ever, according to a recent article published by the Wharton School of the University of Pennsylvania.
Growth of the HECM market is largely hindered by consumers’ fear, ignorance and distrust of reverse mortgages, writes Jack Guttentag, professor of finance emeritus at the Wharton School, and founder of the consumer-oriented website, The Mortgage Professor.
Such fear, Guttentag notes in the opinion piece, surrounds the idea that HECM borrowers could lose their home if they don’t keep up on their property taxes or homeowners insurance. But he does point out that it’s no different than a regular standard mortgage, because if someone defaults on the monthly payment, the house could be foreclosed upon.
Ignorance and distrust in the HECM program by consumers often revolves around widespread ideas that aren’t necessarily correct such as the assumption that HECMs are more complicated than standard mortgages.
Another idea that Guttentag brings up is creating a shoppers market in the reverse mortgage industry. With HECMs, there are no prices available for shopping, which is one of the top characteristics that makes a marketplace a “shopper’s market.”
“There is no published, widely available data on the HECM pries of individual lenders, as there is in other well-established marketings, including the market for standard mortgages,” Guttentag writes. “With a few exceptions, lenders do not post HECM prices.”
Another characteristic of a shoppers market is buyer confidence in product delivery, and HECM borrowers aren’t all necessarily confident about the product. Yes, they know that the draw amount they were promised will be delivered, but the interest rate they end up paying isn’t set in stone until right before closing, he explains.
To make the industry more friendly for buyers, Guttentag suggests that lenders become more transparent. One way to do so is to transmit complete HECM prices directly to the website, without the intermediation of loan officers, in real time.
Another way to make lenders more transparent would be to guarantee that the prices submitted to the website are as low or lower than those they offer through any other channel, according to the article.
The need for HECMs is going to continue to be present for adults 62 and older, but to gain the trust of those who could really utilize it, there may need to be some updates done to the reverse mortgage market as a whole.
Read the full article.
Written by Alana Stramowski