Reverse Mortgage Funding (RMF) has introduced a new interest rate option for its Equity Elite proprietary reverse mortgage product, which is designed to broaden the reverse mortgage product landscape and capture a wider segment of senior borrowers.
In an effort to compete more directly with traditional avenues of financing, Equity Elite has introduced a new option with a 4.99% rate, a 200 basis point origination fee on principal limit, and the same principal limit factors (PLFs) as other Equity Elite options.
This way, RMF hopes to be more competitive with traditional mortgage rates while maintaining the unique features of a reverse mortgage, including not having to make mandatory monthly mortgage payments, non-recourse loan features, and the potential for a borrower to improve his or her cash flow.
“The impetus for this was that we receive a lot of incoming calls and leads from consumers on a daily basis, and an overwhelmingly high percentage of consumers don’t move forward [with a reverse mortgage] because they have a relatively good rate on their existing loan,” said David Peskin, president of RMF in an interview with RMD. “They’re making their monthly payments, and while they have very little free cash flow, they’re not willing to go to a loan that has a much higher interest rate versus just continuing to make that payment.”
Finding a reverse mortgage that offers a rate comparable to the conventional mortgage rate can go a long way toward making consumers feel more comfortable, since it is immediately more familiar due to its similarity to what they see in the forward market.
“If you think about it, I pay homeowners insurance, a couple thousand dollars, at the end of the year,” Peskin said. “I don’t look at it and say that because my house didn’t burn down, it was a waste of money. I look at and say that I’m paying this yearly premium for this tremendous insurance policy. What if I could tell you that depending on the customer, their cost is similar to homeowners insurance, but they have this insurance policy?”
That “insurance policy” is in the form of reverse mortgage attributes such as the non-recourse feature, and the requirement not to have to make a monthly payment.
“They can never have a late payment. They never have credit delinquencies on their credit report,” Peskin said. “What’s that worth to somebody? If they say that 5.75%, 6% or 6.5% just doesn’t do it for them, maybe 4.99% does. And that’s where we need to close the gap.”
This kind of rate strategy can also present a wider opportunity for the reverse mortgage industry to capture a greater share of senior borrowers, Peskin said.
“That’s exactly the point of this product,” he said. “This is not to go after the $6.2-6.4 billion that’s being done now between proprietary and HECM. This is to go after the 94% of the market that is choosing not to get a [reverse mortgage] loan because the rates are too high. This is to, hopefully, broaden the market. It’s not to shift the customer from one product to another. It’s to get that customer that just didn’t want to move forward with either a HECM or [proprietary] loan. That’s where we have to be innovative.”
RMF hopes to continue to be a leader in creating innovations that the wider reverse mortgage market needs to encourage growth, Peskin says. However, innovation for the sake of generating additional loans may not mean much if it can’t serve to expand the reverse mortgage market as a whole, he adds.
“There’s no point in creating a product for an extra few loans a month,” Peskin said. “So, we want to make sure that as we think about the next stage of products, it makes a lot of sense [to aim] for a bigger audience [than the market is currently reaching].”