Realtor Panel Presents “Power” of Reverse Mortgage for Purchase

The National Association of Realtors hosted a lively webinar on using reverse mortgages in real-estate transactions — and in the process revealed that real estate professionals have many of the same questions about the program as potential buyers and borrowers.

The Chicago-based trade group, whose membership includes more than 1.2 million members across about 1,100 regional associations, aimed the event directly at agents who may not know about the program. Scott Trembley, the CEO of the Trembley Group real estate firm in Myrtle Beach, S.C., discussed the transactions and fielded questions alongside his counterpart on the loan side of the equation, Reverse Mortgage Funding originator Frank McInerney. 

The home equity conversion mortgage for purchase transaction — HECM for purchase or H4P for short — represents a “powerful” tool for real estate professionals, Trembley said, noting that many of the agents at his firm who learn about the program realize how many potential sales it could have helped them close in the past.

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“It brings, as a Realtor, a whole other level of respect,” Trembley said, adding that clients feel more confident in an agent if he or she explains HECM for purchase alongside other potential funding options — whether they eventually use an H4P to buy a home or not.

“This program will add to your portfolio for sure, as a Realtor,” he said.

One of the key benefits that both Trembley and McInerney mentioned: the ability to use a HECM to buy a home without having to wait for an existing property to sell. Trembley gave the example of an older couple looking to move in order to be closer to their grandchildren. They needed the proceeds from the sale of their existing home before they could buy a new property, but they were having trouble finding takers at their asking price.

Instead of waiting, Trembley said, the couple used a HECM for purchase loan to secure the funds necessary to buy their new home, then lowered the price on their existing home in order to sell it more quickly. 

Webinar host Jon Boughtin, an NAR media communications specialist, fielded multiple questions from attendees, with particular attention focusing on whether or not H4P loans can be used to fund renovations at the new property. McInerney noted that because most borrowers are bringing their loan balance to the table as part of the purchase, they have no further credit line to fund additional improvements — nor, as many have asked him in the past, can H4P borrowers usually receive monthly payments. McInerney did add that in some cases, borrowers can put more money down than the requirement, thus freeing up an available one of credit.

McInerney also called out another key difference between H4P transactions and standard mortgages: Sellers are not allowed to make any concessions, such as the partial payment of closing costs, in order to sweeten the deal if a HECM is involved in the purchase.

The panel closed the event by noting that educating both borrowers and real estate professionals is still vital to the expansion of the H4P program, which was first introduced in 2009, as these transactions still account for a tiny sliver of all HECM loans issued.

Though the NAR did not have an estimate of attendance, 74 people were watching the panel according to the live-streaming service used to broadcast the event. For those who missed it, the NAR plans to release a recording of the webinar on its website, Realtor.org.

Asked and Answered in the Chat

Participants in the webinar asked several common questions in the associated chatroom. Here’s a quick roundup of the questions and answers:

Q: Does the program apply to condos?
A: Yes, but the condo has to appear on a HUD-approved list — and few typically qualify. 

Q: Are there any prepayment penalties associated with a HECM for purchase?
A: No.

Q: Can you use a HECM for purchase to buy a second home?
A: No, the purchase must be for a primary residence.

Written by Alex Spanko

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  • NAR has “about 1,100 regional associations” which is slightly less than half of the total HECMs endorsed in fiscal 2016. A product that on average has never had 3 such mortgages per regional association is of national interest? That seems crazy.

    So will this meeting produce at least 3 H4Ps on average per regional association? If not, should the H4P be considered as little more than an exotic mortgage that is more marketing too than serious mortgage product? After all many H4P self proclaimed experts tell us they get more Traditional HECM applications than H4P applications through Realtor continuing education meeting.

  • In the scenario used in this article the borrowers the borrowers did not take out a HELOC on the property they wanted to sell to to the HECM for purchase to purchase the one closer to their Grandkids as there is a 12 month seasoning issue still correct?

    • Denine Marie,

      Your question is somewhat confusing. Why would there be any seasoning requirement in a HECM for Purchase? There is no refinancing going on. If you are talking about a HELOC on the prior home, that was paid off through the sale of the home.

      The only place a 12 month seasoning (or similar type) rule comes up is with refinancing, traditional, and with manufactured homes as to existence.

  • The scenario above sounds like a very viable use of the H4P program. However, unless I am reading this wrong, the purchasers of their new home must of had enough cash on hand to buy the new property under the H4P program. If that is the case, they did not have to sell their existing home right away to close on the new home?

    Or, they did the transaction simultaneously, lowered the price on there existing home, entered into a sales contract subject to their existing home being sold and subject to an approval on a HECM, in order to purchase the new home to be closer to their grandchildren?

    One of my understandings of what the article meant, I think is right but I am still a bit confused??

    Never the less, the H4P program does have a great deal of potential in our industry. The problem is that we have to reach out to the real-estate broker or brokers to set up educational workshops, face to face. We need to educate the real estate industry the value of using the HECM tool to put many seniors in homes where they do not have mortgage payments anymore.

    Keep in mind, the borrower, by using the H4P program does need to have a substantial amount of verifiable funds to pout down on the property they are purchasing!

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

    • John,

      As of 11/30/2016 (the latest data HUD has posted as to H4P), the total number of H4Ps endorsed since 7/31/2009 (date HERA was enacted) is only 14,150. I know people believe that H4Ps are a great production HECM but most of the country believed Hillary Clinton had won the election until the actual ballot count by state was released.

      H4P endorsements clearly show that to date H4P is not even a mainstream reverse mortgage product. It is an exotic mortgage and a great marketing tool with Realtors.

      Most originators who go to Realtors and present H4P education tell us that the result is more traditional applications than H4P applications. So far it is an exotic mortgage and a great marketing tool with Realtors, but not a real endorsement producer for lenders.

  • Actually there were on average around 174 folks on the webinar attending, a lot of whom were originators, but to me, anyone we reach is important. It is an EDUCATIONAL battle we have to win. Look at the early numbers from when the HECM started….numbers were low until education really got out there. The_Cynic makes it sound like education doesn’t matter, but it does. Just to put it in perspective, I do more H4P’s then I do USDA loans whereas I have a big market for homes and buyers that would qualify for USDA loans, but the realtors don’t know the program. Eventually education will get it out and it will become a program that everyone is used to. The program is now an integral part of our Texas Purchase Contract financing addendum and that in itself will get folks interested in what it is.

  • ” the ability to use a HECM to buy a home without having to wait for an existing property to sell.”

    This quote is a misnomer and the writer goes on to contradict his own statement. The couple absolutely needed their sales proceeds. Why not just say they were able to drop their sales price because they were pre-approved for the loan? As one who has closed many contingency sales with the H4P, I can tell you that we absolutely must have “sales proceeds” in the bank before we can draw loan documents no matter how pre-approved the couple is.

    “instead of waiting, Trembley said, the couple used a HECM for purchase loan to secure the funds necessary to buy their new home”

    You cannot “secure funds”. This is so misleading. Lenders don’t “secure funds” we fund mortgages. We don’t fund mortgages for a couple like this until they have their sale proceeds in the bank. No wonder real estate agents are confused and mad at lenders when national spokes people mislead them on a national level with bogus gray area feel-good fuzzy ‘facts’. Tell it like it is why don’t you.

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