Lenders face a wide variety of obstacles when attempting to market Home Equity Conversion Mortgage for Purchase loans, from continued confusion among borrowers and real-estate professionals to HUD rules that require buyers to have Certificates of Occupancy in hand before they can even apply for the loan. But the team at Retirement Funding Solutions has managed to make H4Ps a cornerstone of their business with a combination of education and speed, grabbing the largest market share for the segment in 2016 and closing most builder transactions within 14 days.
Alex Pistone, the San Diego-based firm’s president, said his company has taken a fairly standard approach to marketing the HECM for Purchase product, focusing on educating builders and real estate professionals about the ins and outs of the program and the special requirements that borrowers must meet. RFS often touts the relatively easier path toward getting an H4P as opposed to a traditional “forward” mortgage: Borrowers must only pass the Financial Assessment process, Pistone noted, and are not required to meet a credit-score threshold or other benchmarks — which could be prohibitive to retired homebuyers on fixed incomes with limited liquid assets.
Todd Barry, RFS’s Orlando, Fla.-based director of sales for the eastern U.S., said he generally frames the HECM for Purchase to builders and real estate agents in terms of opportunity cost. Most older homebuyers have one of three options for funding a home purchase: traditional mortgages, cash, or a HECM for Purchase.
The former two generally don’t work, since a 30-year mortgage is either impractical or impossible to obtain for people who may not live for 30 more years, and buyers may not have the cash on hand to purchase their desired home outright. How many potential buyers, Barry asks real estate professionals, do you think you lost because the people who walked through the model home or the open house couldn’t get a forward mortgage and didn’t have the cash?
“That’s where you see the light go on, for the builders especially,” Barry said.
But educating buyers, builders, and agents is only half the battle, Pistone pointed out. Shepherding the agent, the buyer, and the mortgage company through the closing process is just as important. “With real estate agents and with builders, you really get one opportunity,” Pistone said. “You screw up their closing, and you’re dead to them.”
With that in mind, when dealing with new construction, RFS typically attempts to wrap up all the loose ends as soon as possible even before the Certificate of Occupancy is issued, ensuring that the application process will be swift once the buyer can officially submit the paperwork. “We can basically fully underwrite that file ahead of time without the collateral, without the appraisal in hand, so when we do get that appraisal, we’re ready to go,” Pistone said.
This strategy requires close contact with the potential borrower and homebuilder over a construction period that can last upwards of six months. Barry said he typically tries to remind borrowers to keep track of any major money movements during that period, as unexplained transactions — such as tax refunds or withdrawals from brokerage accounts — will need to be clarified before the transaction can be completed.
So far, RFS’s two-pronged approach has worked. According to data compiled by Reverse Market Insight, Inc., RFS led the way in H4P endorsements in 2016, compiling 275 to capture 11.9% of the market share. Reverse Mortgage Funding, the number-two HECM for Purchase endorser, finished last year with 158, or a 6.9% share.
In addition to closing HECM for Purchase loans for builders within two weeks, Pistone said the team averages a three-week completion rate for all H4P transactions. HECM for purchase loans account for about 15% to 20% of the company’s overall business each month.
“It definitely takes time, like anything else,” Pistone said of his company’s H4P plan to educate builders and agents. “Getting past that education gap, and getting them to understand how the product works, and then being top of mind when they have someone in front of them that fits.”
Written by Alex Spanko