Hometap CEO: Reverse Mortgages, Alternative Products Can Coexist

Over the past couple of years, an abundance of new, alternative home equity tapping tools have been introduced into the financial services marketplace. While some see these as potential competition with reverse mortgage lenders, others don’t see these kinds of offerings in a competitive light. One company with an equity appreciation investment offering sees a lot of potential in partnering with the reverse mortgage industry.

Alternative equity tapping company Hometap – which offers investments in home price appreciation as an alternative to debt-based lending – sees itself as “reverse mortgage-adjacent,” and hopes to establish firmer ties with the reverse mortgage industry in the future.

This is according to Jeffrey Glass, CEO of Hometap, speaking in an interview with RMD. While the solution Hometap offers could be appealing to some people who could be in a similar situation to a prospective reverse mortgage borrower, it has some features that don’t put it in the same overall arena, Glass says.

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Product offering, history

“What we do is we offer a homeowner capital, today,” Glass says. “And in exchange, what we take is a percentage of the future value of their home when they settle with us, which is down the line when they either sell or refinance or choose to buy us out, and that’s when we receive our settlement.”

Hometap began in 2016 as a solution for homeowners who describe themselves as “house rich but cash poor,” Glass says. Tapping into a portion of the value of an appreciating asset is something that people in the world of business have access to, and hearing stories of homeowners stressed about an inability to tap into their home’s equity led Glass and company to ask a basic question.

“For me as a business operator, I’ve been able to see on the business side that it’s obviously very common for investors to offer a business an equity investment, and they give you cash today. What they take [in return] is a percentage of the future value of the business,” Glass says. “And along the way, they’re not charging you monthly payments or interest. And so it’s very intuitive to me to ask, ‘why shouldn’t an average homeowner be able to have an option, a choice, similar to what businesspeople have?”

While Hometap doesn’t disclose the amount of customers it has served in the three years since its founding, Glass emphasizes that the company is growing. It currently operates in six states: California, New York, Massachusetts, Virginia, Florida and North Carolina, and while the company isn’t ready to disclose which states it’s looking to expand into in the near future, it hopes to be in at least 12 states by the end of 2020.

Differences from reverse mortgages

While there could be some appeal for Hometap among people normally found in the reverse mortgage product demographic, the company describes its primary demographic as being between the ages of 45 and 55, who are typically looking for a short-term solution relative to what older borrowers typically look for out of a reverse mortgage.

“In general, the folks who like our capital tend to be thinking about it for a short-to-medium term timeframe,” Glass says. “These are folks that are thinking about our capital for five-to-10 years. So, to the extent that you’re looking for capital for an extended period of time, Hometap is probably not your preferred solution.”

For people who do have those short-term capital needs, however, Hometap can serve as a viable alternative to taking on additional debt, Glass says. There is another key distinction between Hometap and reverse mortgages, though, which also plainly places it in a different playing field compared to more traditional reverse mortgages.

“If you want to you take out a Hometap investment, you don’t necessarily have to be living in your home in order to take our capital,” Glass says.

Similar goals, different routes

Still, there are similarities in terms of the areas that Hometap operates in, and Glass knows that those comparisons are both inevitable and apt. From his perspective, though, he doesn’t see Hometap necessarily as a competitor with reverse mortgage lenders.

“I don’t think we’re a competitor to reverse mortgages,” Glass says. “It’s definitely at best adjacent, and in some ways complementary. I think a reverse mortgage product is really compelling for a segment of American seniors, and has a different value proposition than that which Hometap offers. So, I don’t I don’t really see us as competitive. As I said, our typical age bucket tends to be somewhat younger, as well.”

That’s not to say that there isn’t some commonality between equity appreciation investment products like Hometap and the reverse mortgage industry, however. In fact, Glass expresses appreciation for the reverse mortgage industry since it helps consumers to recognize that more traditional loan avenues don’t always lead to the most beneficial arrangements for consumers.

“What I think we share in common with the reverse mortgage industry is a recognition of the fact that there’s a lot of built-up value in someone’s home, and borrowing against it in a typical loan situation where you then have to start paying back monthly interest out-of-pocket is just not always the most viable move for somebody,” Glass says. “And so, we really admire some of the aspects of the reverse mortgage product and the innovations that it has brought to homeowners, to be able to tap into some of that equity and not have to pay out-of-pocket.”

That leads to a common goal between equity investment companies and reverse mortgage lenders in terms of showing those with illiquid home equity that there are other methods available to them, Glass says.

“I would say we probably have a common goal of providing innovative products and solutions to homeowners that want something more than just yesterday’s mortgage, more than just yesterday’s loan product,” he says. “I think we have a lot in common there. But again, we don’t really run up against reverse mortgages competitively. [Hometap] seems to be much more adjacent than competitive.”

Potential for reverse mortgage partnerships

There is also openness on the part of Hometap to the possibility of pursuing some kind of partnership with reverse mortgage companies, as some other alternative equity tapping companies have done in the past, Glass says.

“I think we’d like to build some of those relationships,” Glass says. “We’ve had a few inbound calls from folks wanting to explore [those kinds of possible arrangements]. I do think that there is a good place for us to partner with reverse mortgage companies, because again, we do things that they don’t, and vice versa. We tend to focus on a different segment of homeowners than they do.” 

In addition to different eligibility requirements than reverse mortgages and the fact that Hometap’s audience skews younger than most primary reverse mortgage borrowers, Hometap also has generally lower loan-to-value requirements. However, those differences could also serve to facilitate a partnership, Glass says.

“There could be some situations where somebody wouldn’t qualify for a [reverse] mortgage but where they could qualify for [Hometap],” he says. “You could also imagine a situation where our product and a reverse mortgage could coexist. So, I would say it’s likely that over the next year, we’ll spend some more time trying to find a subset of partners where we could collaborate and really put some joint efforts together in trying to ultimately help more homeowners, and make sure that people are getting the right products for their personal needs.”

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  • The article is very accommodative towards reverse mortgages. The concepts are anything other than original. Many of the original reverse mortgage products about five decades ago not only had a debt component but also a real estate transaction component known by various names such as a shared appreciation arrangement.

    Back in 2005 when coming into the industry as an originator, I received several calls from seniors with those pre-HECM products. The amount of proceeds needed to buy out those products could not be covered even for those living in Los Angeles which had the highest county lending limit among those available for HECMs.

    The biggest problem associated with the appreciation rights of yesteryear was measuring the appreciation. In a significant number of cases, the initial appraisal understated the market value of the collateral while the terminating appraisal (if needed) overstated the market value of the collateral. The result was a higher liability for seniors trying to pay off the loan and buy out the option that the lender was holding because of the questionable practices of those providers/lenders.

    What is not presented in the article is how market values are established and if there is a dispute how that dispute will be resolved.

    The difficulty is that if the industry associates with these products, the problems of the past that ended the prior reverse mortgage industry could raise their ugly heads and transfer the poor image of the industry yesteryear to the current industry. This could make the unreasonably negative image that the current industry already has, look like a walk in the park.

    The posture of the industry should be to examine the product and observe the company’s practices before trying to join with it.

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