Alternative home equity tapping products are largely seen by reverse mortgage originators and an industry observer as uncompetitive with the product, according to outreach conducted by RMD.
The concept of allowing equity-rich and cash-poor homeowners to tap the value in their homes in order to gain access to additional cash has been growing beyond more traditional tools like the reverse mortgage for some time. Commercially-available tools like Boston-based Hometap and San Francisco-based LendingHome are just a couple of examples of alternative ways for consumers to leverage the equity in their homes.
These new home equity tapping tools work in a number of different ways. From sale leaseback offerings that involve selling the home to a provider and the occupant then making rent payments to them, to a shared equity arrangement that allows a provider to partially invest in a home’s full value, RMD examined a number of these offerings in late 2018 to see how they differ from reverse mortgages.
Naturally, comparisons to the reverse mortgage product could arise from an examination of these tools, but reverse mortgage originators express no real concern for these products cutting into their ability to generate new loans.
“I see reverse mortgages as a concept becoming more mainstream with more proprietary products coming online,” said Malcolm Tennant, president of Access Reverse in Clearwater, Fla. “Equity sharing products may open peoples’ minds to the idea of tapping home equity for retirement resources, so overall I think they are a good thing. I don’t see them as a competition because they are such a niche product and loan originators may be able to sell many of them,” he said.
Mike Peerless, reverse mortgage director at Holland Mortgage Services, Inc. in Ormond Beach, Fla., is also unconcerned about these kinds of tools competing with his ability to originate loans.
“I don’t see them as a real threat to the reverse mortgage industry. To me, it’s like comparing apples to oranges, if you’ll pardon the expression,” he said.
Peerless believes that newer equity tapping offerings are generally geared to younger potential clients, since many of them have a due date whether they involve loans or not.
“The Home Equity Line of Credit (HELOC), which has little to no closing costs and requires interest-only payments during the draw period could put a homeowner in a potential foreclosure situation if the line was tapped out and the borrower then cannot pay the principal and interest payments when they become due,” he said.
Comparing this to the HECM line of credit, although closing costs may be higher in comparison, he says, has more unique benefits geared to senior homeowners.
“They can live in their home for the rest of their life without worrying about having to make a mortgage payment, the line of credit can never be frozen or revoked, the unused line will continue to grow and the borrower still retains home ownership, as long as they pay their property taxes, homeowner’s insurance and maintain the property. Those features are important distinctions that more comfortably fit the older homeowner’s lifestyle, in my opinion,” Peerless said.
Dan Hultquist, author of “Understanding Reverse” and VP of education and organizational development for Live Well Financial, also does not see these kinds of products as competition for the reverse mortgage product. In fact, according to Hultquist, both these products and those in the reverse mortgage industry may be fighting some similar battles.
“We’re fighting against public perception,” he said. “When less than three percent of the eligible seniors are getting reverse mortgages, we’re not climbing over each other to dominate. We’re just trying to change perceptions, so we’re kind of all on the same team. Taking a look at those kinds of products, I don’t see it as competition.”
In fact, Hultquist sees the increasing prevalence of these kinds of products as potentially positive for both the vendors behind them and reverse mortgage originators alike.
“People are starting to look at their housing wealth as the nest egg it truly is. If they want to sell off ownership, that’s great. If they want to leverage it with a reverse mortgage product, also great! But, I think that more products like that is a good thing, because it opens up the discussion of housing wealth as an asset class, to be something you can consider tapping for retirement security,” he said.