Inside the Reasons Why Seniors Choose the HECM for Purchase

Lifestyle, ease of upkeep, and proximity to family are main criteria for seniors who choose a Home Equity Conversion Mortgage for Purchase loan, many originators agreed.

Christina Harmes, assistant manager for C2 Reverse in San Diego, said she has clients looking to upsize, downsize, move to the city or relocate to the country, but most of them have one shared prerequisite.

“I was looking for the common thread and it seems to be family,” she said, giving examples of borrowers looking to be closer to grandkids — or even searching for homes where their aging parents can live with them.

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Because people are living longer, retirees of today are healthier and seemingly younger than the seniors of other generations, according to John Leer — a reverse mortgage officer at KleinBank in Chanhassen, Minn.

“A lot of seniors are different from the seniors 13 or 14 years ago,” he said. “They might be moving to Florida or closer to friends and family.”

Tim Linger, owner of HECM Senior Home Financing in Orlando, Fla., said that his clients are looking to leave houses that are no longer suitable for their lives.

“When it comes to Florida, it’s all about purchasing a retirement home,” Tim Linger said. “It’s not about upsizing or downsizing. It’s about right-sizing and lifestyle, which might be moving near a pool or golf course.”

And of the right-sized homes, many of those on seniors’ wish lists are newer with lower maintenance demands, Linger said.

Leer agrees, adding that many times it is a single-level home where owners will not need to “shovel driveways or mow the grass.”

As for why borrowers eventually choose a HECM for Purchase over traditional mortgages, it typically comes down to less financial strain and more cash flow. Because these non-traditional mortgages allow borrowers to purchase a home with only half down and no mortgage payments, they can be very attractive to retirees.

“When we present the option with no mortgage payments, you can see relief wash over them,” Harmes said, adding that many times ,the borrowers are not familiar with H4P.

Leer added that every HECM for Purchase he originated in the last five years has been with people who had no idea about the program prior to their purchase.

Written by Maggie Callahan

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  • With about 6.1 million homes sold in the US during calendar 2017, 22% of these purchasers were seniors. That is over 1.3 million homes purchased by seniors in 2017. So with only 3,047 H4Ps endorsed in calendar 2017, the industry has not made a dent in the cohort of seniors buying homes. So less than 1 in every 400 homes sold to seniors in calendar 2017 were closed using a H4P.

    Some would have us believe that the H4P is a sleeping giant. It is not. It is, on the other hand, a useful means to wake up Realtors as to the value of HECMs generally. As to sleeping, not as much as one might think since generally it is growing in endorsements each year. But is it a giant of any kind? With sufficient propaganda, illusions of grandeur can persist.

    H4Ps are what they are. They can be quite useful for seniors when not promoted under “the H4P business model.” We hear H4P originator after H4P originator telling us how different H4Ps are from Traditional HECMs as to how they should be considered by seniors. Not once has this been demonstrated other than in the same way that we once heard that fixed rate Standards were superior to adjustable rate Standards. It was nonsense then as it is nonsense now.

    Luring seniors with the idea that they should keep as much cash as possible out of the purchase transaction. The question is why? A line of credit is not suddenly a bad thing for seniors. The FHA insurance on the availability of the cash in the line of credit is no worse with a H4P than with a Traditional HECM. The growth rate is no different for an adjustable rate H4P than for a Traditional HECM. So why is a fixed rate H4P better for THE SENIOR than an adjustable rate H4P? The answer is — it is better for many originators, TPOs, approved Mortgagees, and Ginnie Mae issuers. But what about H4P borrowers?

    One East Coast writer with whom I sporadically correspond, asked me to look at the Sponsoring Mortgagees who have the highest fixed H4Ps and then those who have the highest adjustable rate H4Ps. Rather than looking at the number of endorsements, I focused on the total Initial Principal Limits of the H4Ps by Sponsoring Mortgagee.

    The highest Initial Principal Limit for all Sponsoring Mortgagees during the month of April 2018 (or SM1) saw H4P Initial Principal Limits of $3,897,796 of which $3,836,542 were adjustable rate H4Ps (or about 99.3% of its H4P Initial Principal Limits were from adjustable rate H4Ps). The second best (or SM2) had H4P Initial Principal Limits of $3,839,658 of which $3,689,788 were from adjustable rate H4Ps (for about 96.1%). SM1 and SM2 had almost opposite results. The total Initial Principal Limits for all adjustable rate H4Ps was $10,462,983 which was just 35.4% of all H4P total Initial Principal Limits.

    It seems one firm knows how to sell adjustable rate H4Ps while the other (like most of the rest of the industry) is lost and stuck in an earlier era. Since they are a model on how to sell adjustable rate H4Ps, SM1 is Fairway Mortgage. The other you will need to discover.

  • We see little new in this post.

    While some have attempted to excuse the fixed rate H4P by claiming that financial planners recommend them as part of a financial plan, we see absolutely no reference to a formal financial plan or its professional financial planner.

    There is nothing that provides a path to making H4P a fully awake giant. Perhaps if I am wrong, someone will correct me but I cannot find a month where the HECM ever had more than 500 endorsements (503) other than September 2017. It also has had one month of just over 300 endorsements (306) during September 2015 and also one month in the four hundred endorsement range at 406 endorsements during January 2018. The rest of the months in the two hundreds.

    If H4Ps are ever to be seen as a giant of any kind, it has got to show it has the ability of reaching a monthly endorsement level of at least 5,000 endorsements per month. Currently that seems more “drug induced hallucination” than reasonable forecast. Here is a product that has never reach 5,000 endorsements in a year when it should be closer to 5,000 endorsements per month to be considered even a sleeping giant.

    For now H4P is little more than a very boutique product in a cottage industry. Yet the industry needs it to move forward.

  • Good article Maggie,

    Your timing is good as well. The H4P program is starting to catch on, even though it has a long ways to go, it is defenitley starting to catch on!

    All the points brought up by Christina Harmes, Tim Linger and John Leer are very good reasons why the H4P is a good program ! This is exactly why we need as an industry, to continue to go out in front of the public and our seniors to educate them that there is an H4P FHA insured program out there!

    We need to educate our seniors and their family members on a continual basis, if we can do this in numbers, the future can look bright for us all in the H4P product line!!

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

    • John,

      I am never sure what sales managers mean when they say things look like, H4P is starting to catch on. Yet demand is dropping. Endorsements for April 2018 (the latest data available) were just 171, the lowest endorsement count for a single month in 22 months.

      With less than one in 400 senior home buyers in 2017 using H4P to acquire a home, how is that anything close to H4P catching on. Or look at case number assignments. Through April 2018 there have been just 1,216 case numbers assigned in fiscal 2018. This time last year for that same seven month period, the total was 1,647. The industry is experiencing a drop in demand of 26.2% for H4P this fiscal year.

      So again how are H4Ps begin to catch on except in anecdotes? I for one can not find it in the numbers. Since my prior comment in this thread was not posted before your comment was even though my comment was submitted over 24 hours before yours, you will find some interesting numbers about H4P.

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