As more seniors debate additional financial options to make ends meet in order to deal with the economic impact of the COVID-19 coronavirus pandemic, tapping home equity by use of a reverse mortgage seems to have entered into the conversation for many American seniors. While reverse mortgage originators have had to adjust to something of a “new normal” due to the effects of the outbreak, many of those same reverse mortgage industry players have also shared that their incoming queries have only gone up since the crisis began.
For those offering alternative arrangements such as a sale leaseback (where an entity buys the home from the owner and collects rent while they still reside in it), or a shared equity investment (where an entity buys a portion of the home’s equity and gets a return on investment when the home appreciates in value).
Representatives from two alternative equity tapping companies recently shared with RMD what their experiences have been like, how the competitive landscape with reverse mortgages has changed, and whether or not there are opportunities for alternative equity companies and reverse mortgage lenders to work together in the midst of the current crisis.
‘Fully operational,’ with logistical challenges
New York City-based sale leaseback company EasyKnock features two primary products: its sale leaseback, “Sell and Stay,” works by the client selling EasyKnock the home for its full market value, which then turns around and gives customers up to 75 percent of that value minus existing forward mortgage payoff and associated costs and fees. The remaining percentage remains with the house in the form of an option, which is included in the lease language. Rent paid by the tenant is calculated and includes homeowners insurance, taxes and fees.
The company considers itself fortunate that it has the ability to continue operations in the midst of the coronavirus crisis, and has actually seen demand for its product accelerate recently according to company CEO Jarred Kessler.
“We are seeing more demand and more opportunities, and we have been lucky to be fully operational. Appraisals have been delayed a bit but otherwise not much has changed,” Kessler tells RMD. “We have seen a surge in the benefit of selling without having to move.”
Newport Beach, Calif.-based QuantmRE offers an alternative equity release strategy that is tailored for people who are trying to avoid taking on new debt, centered on a partial investment in a homeowner’s equity, and when that home is sold and has appreciated in price, the company then collects its return on investment.
The current environment has not been without its challenges for QuantmRE, according to founder and CEO Matthew Sullivan. However, the challenges have not impacted the company’s ability to serve its customers.
“It has become more challenging, and more expensive, to carry out appraisals and to have agreements notarized,” Sullivan tells RMD. “It has also caused delays with the filing of documents with the respective counties. Our team has been able to transition to working remotely without any disruption. As nearly all of our customer interaction is over the telephone or by email, we have not suffered any delays or interruptions to our ability to provide our services to existing and potential customers.”
The company has also experienced an increase in demand, Sullivan says.
“We have seen an increased response rate to our marketing. We have also seen a number of previous inquiries coming back for more information on Equity Share products from homeowners who are now looking for ways to get cash from their homes without having to take on additional debt with monthly payments,” he explains.
Alternative equity tapping relative to reverse mortgages
The primary effect that the coronavirus crisis appears to be having on senior homeowners is a more immediate need for additional cash, Sullivan says, since many that are at or near retirement are seeing their retirement accounts adversely affected by volatile market conditions.
“Homeowners seem to have more urgency in wanting to explore the various funding options they have, and this includes our programs as well as reverse mortgages,” he says. “Because of this urgency, people are taking the time to understand what our offering is and how it could work for them. This factor is definitely increasing the number of customers that are exploring our solution and how it can help them get much needed cash from their home equity without the burden of monthly payments, interest or additional debt.”
For Kessler, the position of EasyKnock relative to reverse mortgage lenders has not significantly changed from where it stood before the current crisis, providing the same overall considerations for someone choosing between something like a reverse mortgage or a sale leaseback, while also working with reverse mortgage companies to help a non-qualifying client find an alternative solution.
“[EasyKnock] can help lenders in the reverse mortgage community with the turndowns or where they see a halt in operations. We also can serve clients that are under 62,” Kessler says.
Speed of alternative equity release vs. reverse mortgage closings
Especially right now, reverse mortgage originators seem to agree that there often isn’t any set average timeline between when a client first reaches out to a loan officer, and when that client’s reverse mortgage will be closed, according to outreach from RMD.
While one originator estimated that it could take anywhere from 30-45 days for a reverse mortgage to close once the client has been through counseling, the actual time that it may take between that first point of contact and actually going through counseling can vary significantly from client to client.
While Kessler says that EasyKnock is generally faster in terms of getting cash in someone’s hands, that doesn’t automatically mean that the sale leaseback will be a better fit.
“We are quicker than a reverse mortgage, but may or may not be a better fit for seniors,” Kessler says. “We give people cash, and then they rent and can buy the home back or move. We can give up to 70% of the home’s value versus half the value [in a reverse mortgage]. We are more fluid than a reverse mortgage and we are not a lender.”
For QuantmRE, while the company is facing delays with some of the third-party administrative processes involved with applications, the company is still able to close and fund a qualifying transaction within four weeks, Sullivan explains.
“The pandemic has not affected our internal ability to process applications – we are still able to provide the same high level of customer service as we did before the various ‘shelter-in-place’ orders were announced,” he says. “We have streamlined underwriting and approval processes that significantly reduce processing times.”
Collaborative opportunities between the alternative equity and reverse mortgage industries
While Sullivan has previously expressed that QuantmRE is technically competitive with reverse mortgages, he still sees this moment in particular as one that can prove that his company and reverse mortgage lenders can work together.
“We have an active channel partnership program for both traditional and reverse mortgage originators who have clients that may not qualify for a reverse mortgage but could qualify for a home equity agreement,” Sullivan says. “For us, the important thing is to be able to find a solution for the client.”
Similarly, Kessler – who has previously shared that EasyKnock actively works with many of the reverse mortgage industry’s top lenders – shares that EasyKnock is always ready to assist prospective reverse mortgage borrowers.
“We have always worked with the community and now more than ever we can help give them a new tool,” Kessler says. “We can pay a commission of 2% to any lender who wants to expand their offering.”
For Sullivan, it’s also about preparing for the oncoming impacts on the economy that the coronavirus will likely bring, he says.
“We believe that homeowners will need cash as a result of the COVID-19 crisis,” he says. “They will need a bridge to get back on their feet. We have products that can be used for a few years and then paid off compared to reverse mortgages that are less flexible as they are structured for the long-term.”