Local Spotlight: Reverse Mortgages in Southern California

It’s no secret that the reverse mortgage industry took a hit after the U.S. Department of Housing and Urban Development implemented HECM program changes in October 2017.

But with lenders finally adjusting to the new normal, many markets are ready for a comeback. And there’s no market more ready than Southern California, some originators based there say.

Regional Stats:

  • Total Population: 23.8 million (as of 2016)
  • Senior Population (Ages 65 and up): Approximately 3.3 million (based on percentage of total population [14%])
  • Average Home Value: $546,100 (Zillow)
  • Home Price Appreciation: 7% in 2018 vs. 2017 (LA Times)

“This year, we were very reactive because of all the changes,” says Colleen Moore, CRMP, national director of the Land Home Reverse Mortgage Division for Land Home Financial Services, Inc., in Concord, California. “But we’re expecting lots of growth next year. I’m really excited to be in the industry now.”

There are several factors that make Southern California a promising market relative to other markets across the country, says Christina Harmes, CRMP, assistant national director and reverse mortgage specialist for C2 Reverse Mortgage in San Diego.

First, California was among the first states to approve new proprietary products.

“We now have so many options to help our clients meet their goals,” Harmes says.

Second, because home values are so high in Southern California – the six-county region had a median home price of $530,000 in July – most homeowners are more comfortable with debt.

“Californians joke about the ‘sunshine tax,’ meaning we pay more to live here,” Harmes says. “But they also want to live well in retirement and are willing to pay for it.”

And third, many homeowners look at their homes as investments, rather than something that will be passed down to future generations.

“It’s almost unheard of here for anyone under 75 to own their home free and clear,” Harmes says. “People are used to buying homes with financing, having a mortgage and refinancing. They see their homes as an investment, not just a residence.”

Because property tends to be more expensive in Southern California, many residents are working long after they turn 62, according to Moore. And with that comes a different type of client.

“When you work longer, you have a totally different mindset than when you retire,” she says. “So there’s a level of sophistication and financial education with a lot of my clients.”

It’s not all sunshine in SoCal, however. One challenge originators face is an oversaturated market: More HECM loans have been originated in California (16,000+) than in the next two states, Texas and Florida, combined, and there’s no shortage of lenders vying for seniors’ business.

“I’m not afraid of competition,” Moore says. “It’s going to be a dynamite year.”

Written by Meredith Landry

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  • Very good Colleen Moore, we need more optimism like you have displayed from people in our industry!

    It is just not California that is ready for a comeback on reverse mortgages. There are many other states that fit the ticket as well! Colleen Moore’s philosophy and attitude toward the proprietary products are well deserved.

    The HECM itself has its place in the comeback mode as well. We need to seek out new markets, set our demographics and profiles on those senior clients we want to target differently than we have in the past. We also must be positive about the future of our industry and display this when communicating with our senior clients!

    I would say,all in all, this article was a refreshing change of pace!

    John A. Smaldone

  • Despite the fact that this site’s administration doesn’t exactly encourage “the borrowers’ point of view,” these “new proprietary-loan options” are far from being “market tested,” and optimism may only be a term reserved for those who sell them.

    The typical borrower’s benefit of the government-insured/regulated aspect of the HECM is one that the proprietary market seems to deliberately ignore.

    There is absolutely no guarantee that the proprietary loan lenders will be a financially viable “partner” for a borrower throughout their retirement years.

    And because of this “safety-deficit” of the proprietary loan v. the HECM loan, it’s reasonable for borrowers to expect a certain compensation in the proprietary loan contract terms “to-make-up-for-it.”

    But there aren’t any. In fact, the PLF of the proprietary loans are of a lower value-to-loan percentage than the PLF post-October-changes of the HECM loans.

    Not everyone involved in the reverse mortgage industry (news flash: yes, the homeowners/borrowers are involved in the reverse mortgage industry) view being squeezed into “new and inferior deals” as being a cause for optimism.

  • I’m a Southern California Realtor and routinely deal with HECM borrowers who have reached their maximum claim amount and still have equity but cannot qualify for a HECM refi. One of the options I present is the proprietary RM, along with H4P & downsizing, moving in with family, etc.

    So far I’ve discourage clients from using the proprietary RM because of the obscene equity burn rate. A client who I recently rescued from tax default foreclosure called to say he had met with a notary to get a “quote” on a new RM and wanted me to look at the paperwork he signed.

    His first year interest was $42K increasing to $78K by year 10. Upfront fees were approx $17K. He was willing to make this deal in order to pull out $90K and solve his problems – until I went through the math with him. We called the notary and told him to burn the docs.

    I see a strong tendency for RM borrowers to kick the can down the road using successive HECMs (my current record holder has had 5) and extract the last bit of spare change to stay in their home a little longer. The proprietary further enables this behavior, in my opinion at great harm to the borrower.

    One of the reasons HUD gave for lowering the PLFs was to preserve the borrower’s equity. If it was for the benefit of the borrower or lender can be debated, but I’ve had to tell many folks that selling their home will net them $0 unless I can get cash for keys or relo.

    Your clients are going to live a lot longer. It would be better encourage them to downsize and preserve assets rather than find new ways to strip their equity.

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