Adding to the wealth of proprietary reverse mortgage offerings hitting the market this year, Finance of America Reverse today announced a new product for homeowners over 62 who want to keep a low-rate forward mortgage in place.
Aimed at borrowers who are carrying debt into retirement, the HomeSafe Second, a second-lien reverse mortgage, actually allows the borrower to continue building equity by keeping their low-rate forward mortgage in place — all while tapping into their equity with a reverse mortgage, said Kristen Sieffert, president of the Tulsa, Okla.-based FAR.
“The HomeSafe Second basically allows them to tap home equity but not give up the equity position they are building by having that first mortgage in place,” she said.
Available for properties valued up to $10 million, the HomeSafe Second is a full draw, fixed-rate loan featuring proceeds up to $4 million, no annual or monthly mortgage insurance premium, and no pre-payment penalties. It’s also an option for non-Federal Housing Administration-approved condos valued over $500,000.
Proceeds cannot be used to pay off the debt on the existing mortgage, and because it’s is a reverse mortgage product, all of FAR’s standard pre-loan counseling requirements will apply.
To illustrate the HomeSafe Second, FAR gave RMD the example of a 68-year-old in Irvine, Calif. who has a $200,000 forward mortgage balance with a 4.5% fixed rate on a home valued at $1.2 million. This borrower would qualify for a $287,423 HomeSafe Second loan after costs, keeping $703,200 in remaining equity, and would continue to make payments on the forward loan. A spokesperson for FAR said that costs associated with the loan include origination fees and other expenses that can be charged by third-party vendors, such as title, counseling, appraisal, and document preparation.
The new product, which the company has marketed as the first of its kind, is currently available in California, Florida, and Texas, with more states expected in the coming months. The HomeSafe Second is the newest addition to FAR’s expanding proprietary menu, joining the HomeSafe — which launched in 2014 — and this year’s HomeSafe Flex.
The HomeSafe Second comes in response to data showing both growing equity and growing debt from mortgages, student loans, and credit cards for those entering retirement, according to FAR. Jamie Hopkins, professor at the American College of Financial Services in Bryn Mawr, Pa., said of all the newest products that have hit the market, this is the first to acknowledge the debt retirees have.
“Right now, the reality is that people are carrying mortgage debt into retirement, and that’s what this product is acknowledging,” he said. “We can’t just think everyone has their house paid off.”
Because this product allows a borrower to keep a forward mortgage, it will be marketed more similarly to a home equity line of credit than a traditional reverse mortgage — with the prospect of sparking interest in other reverse products, Sieffert said.
“We actually think the biggest appeal for this product will be in the traditional mortgage circle,” she said. “So many [lenders] provide HELOC solutions for the borrowers, and we wanted to give them an alternative.”
Unlike a HELOC, the HomeSafe Second is a fixed-rate, lump sum loan. Sieffert said the benefit over a HELOC is the “no additional payment” feature.
Furthermore, Hopkins said this product could appeal to borrowers who could not qualify for a HELOC.
The HomeSafe Second is the newest product to enter the expanding proprietary space. Prompted in part by the changes made to the Home Equity Conversion Mortgage program last fall — which has led to lower overall originations — this year has also brought the Equity Edge from Reverse Mortgage Funding, the Platinum from Longbridge Financial, and the HELO from One Reverse.
Written by Maggie Callahan