It’s been two years since Financial Assessment rocked the reverse industry, but now that the dust has settled, some say the impact is clear. HECM counselors across the country say they are seeing a distinct shift in their client profile, from someone with limited options looking to access more cash to a more financially savvy individual looking to strategically tap their home equity as part of a larger retirement income plan.
Stacy Stuber, a counselor at Housing Options Provided for the Elderly (HOPE) in the Indianapolis area, says the shift has been noticeable.
“We are definitely seeing more sophisticated borrowers, borrowers who do have assets, who do have savings, who do have other means. They are simply looking at this as a way of leveraging the equity they have in their house,” Stuber said.
Rise of the “mass affluent”
Connie Cline, a reverse mortgage counselor with HOPE in Charlotte, N.C., agrees.
“I see fewer and fewer cases where it is a last-ditch, desperate measure,” she says. “I see more and more people of wealth, what they call the ‘mass affluent,’ who have other assets and other ways of managing things, but they want to have an option during downtimes in the market, or they want to establish a credit line and just let it grow as an optional thing to use in the future. We’ve shifted from the low- to middle-income people who have no other assets — and it’s the only way they can go if they don’t want to sell and move — to people with many other options. I still get a few of those but, boy, not like it used to be.”
Jennifer Cosentini, housing director at Cambridge Credit Counseling in Massachusetts, says that in addition to a shift toward a more sophisticated borrower, she has noticed a jump in the number of borrowers considering jumbo loans.
“We’re definitely seeing a lot more jumbo reverse mortgages,” Cosentini says. “Every week we probably do 500 sessions, and maybe 50 of them are jumbos now, which is pretty good compared with what it was few years ago.”
She also says that the more sophisticated borrowers are better prepared, coming to the table with a greater understanding of how the product works, even though it is often not enough.
“There’s still a challenge in getting borrowers to grasp the concept,” she says. “A common confusion is whether or not the loan actually has to be repaid.”
Cline says that it’s still tough to get through to borrowers, and with insufficient funding limiting the length of a session, it can be tough.
“The hour and a half we give people is just barely enough. As counselors we go through a week of training and people still don’t get the product, so it’s a lot to expect of a homeowner, especially if they don’t have much financial savvy. It’s hard to take a complex product and make it simple enough that people walk away and say, ‘Oh, okay, I got it,’” she says. “I just try to make sure that they understand the growing nature of the loan, that they see the non-recourse, and they understand that they have to pay their taxes and insurance.”
Cosentini says her agency often has trouble communicating with lenders. “We want to go over the paperwork that the client receives from their loan officer. Some lenders are great about getting that paperwork to us, but we’ll request it a million times from others and they can’t get it. We have a lot of cancelations because the client doesn’t have the required paperwork for the counseling.”
“Lenders just need to prepare their borrowers,” Cosentini says. “They have to go over the paperwork with them previously or in some shape or form talk to them about the numbers and explain that counseling is necessary and required. Putting it in a more positive light and explaining why it can be helpful to talk to us would be great.”
Cline says HECM counselors play an important role in the loan process. “I hope most lenders see this as valuable, that we are sending them an informed consumer. We’d like loan officers to see us as a team player in the sense that an informed consumer is the best consumer.”
Written by Jessica Guerin