HECM for Purchase Spotlight: Rightsizing, Home Values Lead H4P in Colorado

While the Home Equity Conversion Mortgage (HECM) for Purchase (H4P) has struggled to gain traction in the reverse mortgage market at-large, taking a look at a list of the top five states for H4P origination may help some in the reverse mortgage industry to discover a path forward for the product variation. Number five on that list is the state of Colorado.

Based on 2018 data, Colorado takes the fifth spot for H4P volume with 146 loans over the past 12 months, according to data from Reverse Market Insight (RMI). The state is also ranked at number 4 in terms of general HECM volume, exceptional considering that Colorado is ranked at number 22 out of all 50 states in terms of its population.

To that end, in this spotlight we take a closer look at H4P within the state to determine exactly what the biggest driving factors for the H4P transactions are in the “Centennial State.”

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“Right-sizing”

For older Americans who are looking for a new place to live that is more appropriate for their lifestyle as they age, H4P provides an option to more easily “right-size” to a home that’s more appropriately scaled for their capabilities. Borrowers in Colorado see that as an attractive option according to Kevin Guttman, reverse mortgage advisor at Evergreen National Bank in Colorado Springs, who estimates he has originated about five H4P transactions in the past four years.

“I have done H4P transactions, mostly for people moving into the area who want to increase their purchasing power, or for people who are looking to ‘right-size’ (i.e. can’t do the stairs any more, don’t want to mow, remove the snow, clean the big house, etc),” Guttman tells RMD in an email.

That desire to find a more appropriately-sized home can be motivated by a lot of other, different desires, according to Kathy Muni, senior loan officer at Silver Leaf Mortgage in Centennial, Colo., the top reverse mortgage broker in the state by volume. These other desires can include upgrading to a newer home with more modern standards for construction and wiring,or simply the desire to leave a home that feels empty after kids move or a spouse passes away.

“The idea of being able to move and not have a mortgage payment and often keep a great deal of the proceeds from the sale of their previous home is very attractive,” Muni tells RMD in an email.

Skyrocketing property values

Another reason that H4P is becoming increasingly popular in Colorado is due to rising property values, which make more traditional methods of financing less possible for seniors with lesser means. According to data from Zillow, average home values in Colorado have increased by nearly 40 percent over the past six years, rising from $235,000 in late 2013 to $379,000 in July 2019, a growth rate nearly 10 percent higher than the national average. Prices are expected to increase in Colorado an additional 1.7 percent by the summer of 2020.

An H4P transaction adds greater flexibility for those confronted with a higher property value who are already in a home they wish to vacate, says one area originator.

“The issue in Colorado is that property values have skyrocketed over the last decade,” says Bruce Simmons, reverse mortgage manager at American Liberty Mortgage near Denver. “It used to be that someone could sell their home in a more expensive state and move to Colorado and pay cash. Now, Colorado has become a more expensive state so they need a mortgage.”

For a senior who may not be able to qualify for a traditional forward mortgage and/or doesn’t want to add a monthly mortgage payment to his or her financial obligations, choosing an H4P option becomes both a viable and sought-after option, Simmons says.

Guttman has observed this as a reason for an H4P transaction in his part of the state, as well.

“[For those who] live in a home with deferred maintenance, and with the increasing values in Colorado, they can move to a newer home, with updated amenities, in the area they want to live in, without a mortgage payment,” he says.

Ongoing H4P program challenges, active adult communities

Similar to other parts of the country, including in the vastly distant and different state of Hawaii, the H4P program still has yet to catch on in Colorado to its full potential even considering its relative popularity, Simmons says, even if he may have originated anywhere between 3-5 H4P loans per year.

“Like a lot of people, I thought [H4P] was going to be a very popular program in Colorado. As we know, that has not been the case,” he says. “Without going through all my closed loan files for the last 10 years, I’d say I’ve closed 30-50 H4P’s. I think we’ve barely made a dent in the numbers of H4P’s we can do. The challenges with this program mirror the challenges with the industry in general.”

Colorado is also home to a number of active adult communities for people ages 55 and over, with 34 separate communities in the state’s Front Range region alone, according to 55places. Access to these kinds of facilities may also help to address the cost issue, according to Muni.

“[Some of our customers] do seem interested [in moving into 55+ communities],” she says. “I don’t think, in my experience, that they are looking for 55+ community, per se, but the price is right. There is a large [active adult] community in Denver, Windsor Gardens, where we have done a great deal of business.”

The prevalence of these kinds of communities could also affect the overall growth of H4P’s prevalence inside the state, Simmons says.

“I think the fact that Colorado has a number of 55+ communities does make a difference in the growth of the program,” he says. “I just took a call from an agent whose parents are looking to move and buy into a 55+ community.”

In the end, while not abundantly different from originating a regular HECM, H4P transactions do come with their own complications that include dealing more directly with Realtors, due to the fact that there are two transactions taking place: a new home purchase and a reverse mortgage closing.

“Also, you have the added pressure of meeting the deadlines,” Simmons adds. “If you mess up, your customers’ earnest money could be on the line.”

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  • This is a very interesting article except Colorado only accounts for 6.1% of the H4P volume for the twelve months ended July 31, 2019. Colorado is an interior state with a population of less than 1.7% of the US population. What this article fails to consider is the basic three rules of real estate, which are: 1.) Location, 2.) location, and 3.) location. Then there is no breakdown between resale and new construction is problematic. So how can any of this be extrapolated to H4Ps nationally? Or even to another state like California where newly constructed homes compose a smaller percentage of all properties sold in California in a calendar year?

    Then we have some interesting statements like: “For a senior who may not be able to qualify for a traditional forward mortgage and/or doesn’t want to add a monthly mortgage payment to his or her financial obligations, choosing an H4P option becomes both a viable and sought-after option, Simmons says.” Followed immediate by the following: “Guttman has observed this as a reason for an H4P transaction in his part of the state, as well.” Which reason was Guttman alluding to 1) not qualifying “for a traditional forward mortgage,” or 2) not wanting “to add a monthly mortgage payment?” Hard to tell from the article.

    The problem with using a state like Colorado is it a landlocked mountain state and no part of it touches either the Atlantic or Pacific oceans (excluding water bodies such as the Gulf of Mexico, the Delaware and Potomac Rivers, and all lakes). While states like Colorado have the largest land mass in the US, they only hold about 42% of the US population. So the real estate peculiarities of Colorado belong to Colorado alone . Yet there are some basic lessons to take away from this article. Their applicability to states like Maryland and Massachusetts is less obvious.

    On the other hand there are practical ideas when it comes to processing and underwriting H4Ps and to some degree prospecting for borrowers. To that end, this article is not only interesting but also useful.

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