Marketing the HECM for Purchase as a Lead Generator for Realtors

Using a reverse mortgage to buy a home remains one of the white whales of the industry: Long touted as a potential way to boost loan originations and home sales alike, uptake has never quite met the lofty expectations for the product.

But that doesn’t mean that individuals — as well as isolated markets — haven’t seen success with the Home Equity Conversion Mortgage for Purchase program, and a recent webinar aimed at real estate professionals highlighted some of the potential upsides.

“You can be their hero, creating a new homeownership opportunity where they didn’t think there was any,” Christina Harmes, assistant director of C2 Reverse Mortgage in San Diego, said during the call, hosted as part of the National Reverse Mortgage Lenders Association Reverse Mortgage Education Week.

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Harmes noted that while millennials and their homebuying habits — or lack thereof — tend to dominate the national conversation surrounding real estate, people over the age of 60 account for about a quarter of all buyers.

“While that’s true, millennials are a big part of the population making up a lot of homebuyers — but don’t forget about the boomers,” she said. “Boomers make up 75 million people in America, and 80% of them are already homeowners.”

And unlike their younger counterparts, older homebuyers come with their own distinctive advantage when it comes to the standpoint of Realtors.

“You’re not only going to get a purchase — you’re going to get the sale of their [existing] home,” Harmes said.

She applied that logic to a so-called grey divorce, in which an older couple decides to end a marriage and get rid of the family home due to the potential bad memories associated with the property. By being familiar with the H4P transaction, Harmes noted, a real estate professional can help both spouses land on their feet in a new property that they may have not been able to afford otherwise — while also goosing the agent’s business.

“You’ve become your own hero,” she said. “You’ve not just gotten the listing, but you created two buyers out of that as well.”

Chris Bruser, a HECM for Purchase specialist with Retirement Funding Solutions in the Tampa/St. Petersburg, Fla. area, emphasized that the transactions are “distinctly different” from a traditional reverse mortgage, targeting a different potential user than a regular HECM.

“This option, [buyers] are going to want to know about, because the HECM for Purchase allows them to pay a fraction of the full purchase price of that home,” he said.

The question-and-answer portion of the webinar revealed some lingering confusion about the products, with one participant asking if the program was available in all 50 states, and others unsure of where to find local HECM for Purchase specialists. But Harmes and the other participants continued to hammer home the point that for a real estate agent, the program could potentially turn prospective buyers into paying clients.

Harmes gave the example of an older couple that may not have been able to receive enough proceeds from the sale of their home to buy the next-step property of their dreams — a particular concern in hot markets like San Diego, where even modest properties carry hefty price tags.

She encouraged listeners to reach out to recent leads who may have fallen into that category and offer the HECM for Purchase as an option if they’re over age 62.

“Suddenly, they can buy again,” she said.

Check out the full webinar recording at Active Rain University, an online educational resource for real estate agents.

Written by Alex Spanko

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  • >>the HECM for Purchase allows them to pay a fraction of the full purchase price of that home

    Just quoted a 62 year old – the down payment is around 60% – sounds like a bit more than a fraction to me …

  • John,

    As you know I do not see the H4P as anything other than a boutique product for an industry striving to become something other than a boutique industry.

    What you are saying is that by downsizing the borrower lost $40,400 in wealth before looking at the upfront costs of the HECM due to the selling costs on the sale of the prior home. That is a drop of 15.8% of the equity in the home at the time of sale ($40,400/($540,000 – $285,000)) =15.8%.

    HECM upfront costs had to be at least $8,000 if not more. That is a drop of another 3.1% for a total drop in home equity of 18.9%. Yet where are the moving costs and fix up costs to bring the new home to the same standard as the home they left? It would not be surprising if this move cost the couple 21.5% of their prior home equity of $255,000.

    Was the move worth the loss in home equity? As to the future, what will their appreciation rate be? What would it have been on the prior home? Will their annual housing costs go down in their new location in comparison to where they lived before? What about their other costs?

    If the homeowner had sufficient other assets and the prior home was in an area where home values rise at least as fast as home values in the new community, without additional information, the decision seems less based on economics than other considerations. If the borrower had sufficient other assets they could pay off the home with a Traditional HECM and if required, other assets. Then sell the home in the future when they had even more home value and downsize them.

    I love the H4P product but it is and never will be a giant of any size. Its demand is dropping just like HECMs generally. My only objection to the transaction based on the information you provide is that it makes no economic sense to the homeowner. It results in a better cash position but is the economic potential loss in the future worth it?

      • John,

        Rather than saying you disagree, it would help to say why you disagree and point out where I have gone wrong.

        While I believe the H4P can be helpful, I believe that how it has been used in most cases historically has been less than helpful to either the senior or the MMI Fund.

        Perhaps if you explained what the senior was attempting to accomplish with the HECM, the result will appear far more reasonable. Based on the numbers alone, where is the rationale?

      • John,

        I am not against H4P but neither am I for calling it any kind of a giant.

        HECMs which are no giant reached over 114,000 endorsements in fiscal 2009. Both 2016 and 2017 had endorsements of not even 50% of the endorsements of fiscal 2009. As to HECMs we can say they are sleeping right now.

        H4P has never reached even 3,000 endorsements in a fiscal year. Total endorsements for fiscal 2017 is the largest they have ever been. So how can you that H4P is sleeping? It was growing last fiscal year. Where is the H4P giant?

        The argument that there were so many seniors who bought homes last year and if we had 25% of them and on and on making H4P a true sleeping giant is like saying because over 10,000 Baby Boomers turn 62 daily and have for the last decade, we should be seeing 22.7823% of them getting HECMs is nonsense.

        H4P by its own admission (number of fiscal year total endorsements) is a boutique product and has been so for almost a decade now.

      • @j@johnsmaldone:disqus @@James_E_Veale_CPA_MBT:disqus

        Gents:

        This is an interesting discussion, but I want to point out what each of you are debating reflects what “external” problem someone who is age 62+ faces when selling their current home and purchasing a new or newer home.

        The external problem is indeed a fact in that couples who net $200,000 at closing then are faced with the reality that the home they really want costs a lot more than $200,000. These are the “facts”, or what I call the external surface problem that almost everyone wants to base this discussion on.

        However, the real reason some originators are doing well selling the HECM for Purchase option is because they understand that home buyers age 62+ are not basing their decision on just the external “money thing”, they are actually basing their decision on what I call the solving of the internal problem.

        The internal problem is rooted 100% on emotions and not logic. I don’t care how many spreadsheets you present to your H4P prospects talking about all the pros and cons, they purchase because of the emotional factor…they want to live in a new or newer home because of what it means to their every day lifestyle.

        Guess what, they do care about the money thing but that’s not why they fill out the loan application.

        Over and over and over again I see people trying to offer the HECM for purchase as a leveraged purchase option, and it is, but the reason the smart originators get the business is because they do a great job of selling the lifestyle (living) benefit the the HECM for Purchase program offers as compared to paying cash or securing a traditional mortgage.

        So James, save your fees discussion for your smart academia friends because the fees weigh less in the home buyers mind as compared to the lifestyle benefits.

        And just one thought from my view as to why we don’t see more H4P origination’s…it’s because most loan originators don’t know how to position the program.

        So the blame falls on the licensed professionals who represent the loan program and not on the public not accepting it as a viable option.

  • Mr. Stemen,

    This is in response to your reply to John Smaldone and me yesterday.

    Most of us who were originating HECMs back in 2008 were happy that HUD had given us H4P in exchange for generally lower and capped origination fees. Based on the National Association of Realtors stats back then, the potential for H4P looked exciting. One analyst was looking for the day in the next few years when H4P would be 50% of all endorsed HECMs. He was predicting about 150,000 HECMs per year within a few years with about 75,000 of them coming.from H4P endorsements. Then the harsh realities of life hit.

    Today there is still the frivolous description of H4P being the industry’s sleeping giant. A better name would have been the Inert Sloth. In the last ten years total annual fiscal year H4P endorsements have never exceeded 2,885. They seem to stay at about the 5% level of total endorsements in a month.

    Based on your view that money matters to borrowers but they are looking for a new lifestyle, H4Ps should be doing great. The problems is only 985 applications have gone through CNA (case number assignment) in the first six months of this fiscal year. At best that is only about 867 endorsements. Those “smart” originators seem to be letting H4P (and you) down; otherwise why did H4P go down by over 28% when comparing total H4P CNAs for the first six months of fiscal 2017 to that of fiscal 2018?

    If the “smart” originators you talk about average just 2 H4P CNAs per month now, then all you have to track are the HECM activities of just 85 “smart” originators to know what is going on with H4P in the first months of this fiscal year. I now see why you feel you can speak for the vast majority of these originators since there are so few of them.

    No doubt, you and Ann Marie know at least 85 originators who claim to be H4P experts. But the challenge is can you find more “smart” originators as you call them? The strange thing is with so many H4P borrowers caring more for lifestyle than cash flow, why the drop in H4P (dare I call it) volume. Sometimes the numbers tell the story we do not want to hear. Some refer to it as being negative. I have always found that odd since the numbers are neither positive nor negative but they are facts without emotion.

    The strange thing is if the H4P endorsement and CNA numbers were in line with your desires you would be touting them everywhere as would I. There is a big difference between relying on the numbers no matter what the message and avoiding them unless they tell the story you want to tell.

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