Five Essential Reverse Mortgage Comparison Resources

It’s among the most common questions a potential reverse mortgage borrower faces: Would I be better off with a Home Equity Conversion Mortgage or one of the other retirement-funding options available to me, such as a “forward” home equity line of credit, an annuity, or even a less-common shared appreciation mortgage?

RMD scoured the web for the best comparison resources from both unbiased and potentially biased sources, and compiled them into this must-read resource for borrowers and lenders alike.

Is a HELOC Better Than a HECM? — Jack Guttentag, a frequent booster of HECM loans and a professor emeritus at the University of Pennsylvania’s Wharton School, compares home equity lines of credit (HELOCs) and reverse mortgages in this fall 2015 article for the Huffington Post, in which he largely concludes that HECMs are superior. Guttentag admits that upfront costs associated with reverse mortgages are higher, but touts multiple advantages, such as the lack of a draw-and-repayment period system, the ability to purchase a new home with a HECM, and the option for tenure, term, and line-of-credit loans.

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Over 62? Which is Better, A HECM or HELOC for Tapping Home Equity in Retirement? — Over at NewRetirement, an online resource for retirement planning advice, an article that purports to compare HELOC and HECM options ends up firmly on the side of reverse mortgages, labeling HELOCs as short-term options and noting that reverse mortgage lines of credit remain available indefinitely, as long as the borrower meets the standard tax, insurance, and maintenance requirements. NewRetirement also takes a novel stab at the high fees that often scare off potential HECM users, asking readers to imagine the cost of a closing — which the author estimates at $6,000 to $8,000 for a $140,000 line on a $250,000 property — spread out over 10 to 15 years.

Reverse Mortgage or Home Equity Loan? — Investopedia provides this straightforward but informative comparison of lump-some home equity loans, HELOCs, and HECMs, complete with bullet points highlighting important differences in how lenders are paid, how borrowers are required to pay the lender back, and the various age and equity requirements inherent in each. After laying the groundwork, Investopedia recommends HECMs for people who need long-term retirement funding (though the article loses a point for referring to HECM proceeds as “income”), and suggests that HELOCs and home-equity loans are best used as short-term stopgaps.

Retirement Planning: Understanding Lifetime Annuities and Reverse Mortgages — While it’s a few years old, this article from Boston NPR affiliate WBUR’s “Here and Now” program throws annuities — another common and frequently misunderstood retirement options — into the mix along with longevity insurance and reverse mortgages. Ignoring the reference to the now-defunct HECM Saver program, the NPR piece gives a thoughtful and nonjudgemental description of the reverse mortgage program against these other retirement options.

Seniors’ Access to Home Equity — Buried deep in this recent Urban Institute report on why seniors don’t always access their home equity is a discussion of a curious option that hasn’t gotten much coverage: a shared appreciation mortgage, or a SAM. Under these agreements, the borrower receives a lump sum payment in exchange for a cut of the future home equity — either a gain, as the lender hopes, or a potential loss. Not typically advertised and relatively obscure, SAMs don’t represent a major threat to the HECM industry, but the Urban Institute researchers note that they could become a more widespread product regulators and lenders begin to take notice and take steps to streamline the program.

Written by Alex Spanko

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  • Good article by Alex. I don’t know if I agree with all the points that Jack Guttentag brings up. Especially the one about the “Shared Appreciation Mortgage” (SAM)!

    Prior to 1989 a great deal of the so called SAM’s were being done by the private sector mortgage companies and major lenders. This one one good reason for the HECM to come into play during the Regan administration with FHA & FNMA. I personally never liked the shared appreciation clause and feature and still do not! This is my opinion only but I hope it does not become popular again. However, I have heard there are some out there.

    The article by Alex was could because it is one that should create a lot of discussion and controversy!

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

      • The ‘S A M is alive and well in California. See Rex Agreement and Unison Home Buyer Agreement if interested in learning more about these products. As RM professional educators/ consultants it’s important to analyze every option to determine which product truly meets the needs of each borrower.

      • Wendy,

        The REX Agreement has never been a SAM, since it is not a mortgage. Instead it is a recorded real estate option on the property.

        Even the Unison Home Buyer website states the following: “The money we provide is an investment, not a loan, so there are no interest charges and no monthly payments.” It also seems to be a recorded real estate option.

        So I am not sure where you get the idea either one is a mortgage. They are SAROAs (Shared Appreciation Rights Option Agreements). Neither agreement requires a NMLS license but in California at least they require a real estate license to sell them.

        If you are selling these products then you are in violation of not using your real estate license in any activity other than mortgages under FHA rulings unless you are not an employee of a FHA approved mortgagee or not under a requirement under a supervision agreement between your employing TPO and a FHA approved mortgagee.

      • Wendy,

        Here is what the Unison Home Ownership Agreement says about itself on its own website when it comes to purchasing a home: “Unison HomeBuyer typically provides half of the down payment funds you need. The money we provide is an investment, not a loan, so there are no interest charges and no monthly payments.” As to existing home investments, here is what the company says: “Unison HomeOwner offers an innovative solution for people looking to access the equity in their homes. This is not a home equity loan – this is a home ownership investment.”

        So first and foremost the Unison agreement is an option, NOT a mortgage. So it cannot be a SAM. Rather than a NMLS license, it takes a real estate license to sell it.

        As to the REX Agreement, here is what the ABA has to say about it: “As explained in more detail below, REX Agreements form a financial product that is based upon a real estate purchase option, and which allows homeowners to receive an initial payment of cash, in exchange for giving up a portion of the future value of their home.” It is not a SAM because it is an option, NOT a mortgage. Like the Unison agreement, a real estate license is required to sell it.

        Finally one of my favorits, Equity Key was similar to the other two in that it was never a mortgage but a real estate option.

        If you are planning to offer any of these products, FHA does not permit those who offer their products to use real estate licenses for anything other than selling mortgages when they are employees of FHA approved mortgagees.

        Even if you are not employed by a FHA approved mortgagees but offer FHA products, you probably cannot offer any of the products discussed above because your TPO employer has an agreement with its supervising FHA approved mortgagee(s) that prohibits such activities.

    • John,

      I am sorry but by not pointing to the HECM Handbook, the existing and proposed HECM regs that go into effect 9/19/2017, begs the question of how RMD scoured the Internet.

      If the HUD website was not scoured, what was???

  • There is one very big point that is very off and that is so called SAMs. A HECM in its fullest features is in fact a SAM. That has been true of HECMs since their introduction in fiscal 1990.

    The HECM stands for home equity CONVERSION mortgage. The conversion feature of the HECM is its Shared Appreciation Rights feature; however, no lender has currently offered that feature. It can be found in the existing regulations at 24 CFR 206.23 as well as in the proposed final regulations that are scheduled to go into effect on 9/19/2017, also at 24 CFR 206.23.

    The SAR is a significant portion of the discussion on the proposed regs (final effective 9/19/2017) in the Federal Register on 1/19/2017. So how is the following accurate? “…the Urban Institute researchers note that they could become a more widespread product regulators and lenders begin to take notice and take steps to streamline the program.” Obviously the Urban Institute shows its lack of research since HUD considered it in 1988 and in the discussion about the proposed regs on 1/19/2017 AND they do not seem to know that SARs are available in a HECM, just not offered by HECM lenders at this time.

    How the current and proposed HECM regulations were not included in this “scoured search” of the web is a mystery. It is even a greater mystery that HUD HECM Handbook 4235.1 with a whole chapter (out of 9) solely dedicated to the topic along with 3 of its 23 appendices was left out of the scouring.

    Even more questionable is the fact that the reverse mortgage industry used to offer a SAM through the Fannie Mae HomeKeeper. In my time in the industry I originated several HomeKeepers in Laguna Woods, CA but without SAMs since Fannie Mae decided to stop offering its appreciation rights feature due significant lender actual and likely fraud related to that feature. Again it is odd that a mainstay in this industry was overlooked in a “scoured” search of the web.

    The article, therefore, is a huge disappointment.

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