Reverse mortgage originators have long heralded the benefits of reverse mortgage options for some prospects relative to home equity lines of credit (HELOCs). Yet recent changes in the home equity lending environment have brought this comparison back to the forefront, and some originators are receiving even more inquiries due to individuals who are interested in HELOCs but can’t qualify.
“In my opinion any change in the credit markets tends to raise the profile of the [Home Equity Conversion Mortgage],” says Laurie MacNaughton, a reverse mortgage consultant with Atlantic Coast Mortgage. “Just months ago when credit was easily had and rates were low, it was still easy to compare the merits of a HECM to a HELOC. Now the tables have turned, but conditions have simply made the comparison that much more favorable, and the discussion that much easier.”
J.P. Morgan Chase Bank recently announced it would cease accepting new HELOC applications due to the coronavirus pandemic, clearly presenting a competitive advantage for HECMs. Wells Fargo soon followed suit.
Other lenders may have adjusted their lending standards and product offerings as well.
With some prospective HELOC borrowers either not able to qualify, or facing fewer options this is also leading to more conversations with other professionals who are referring borrowers to learn more about reverse mortgage options, originators say.
The conversations extend to forward originators, too, who may not be able to offer HELOCs to interested clients.
“A few times a week a forward LO from a competitor bank or lending institution calls regarding clients who came in seeking a HELOC, but whom they cannot help,” MacNaughton says. “These calls often start with the forward LO simply asking if their aging clients are HECM eligible — and many times, clients are still sitting in the office. I believe this new urgency is due to market turmoil and growing job loss, and clients cannot wait a few weeks to call.”
With much of her business coming from referrals, MacNaughton says she is getting many more in-depth questions from Realtors and attorneys about qualification guidelines.
“I am certain these newly in-depth questions are a result of homeowners having been turned down by a forward lender,” she says.
The no freeze benefit
Highlighting the pros of reverse mortgages during times of uncertainty, and specifically the fact that a lender cannot freeze or cancel the reverse mortgage as is possible with a HELOC, is a major selling point, originators say.
“We are really bringing up this key point to our clients and financial planners because it’s can be a pivotal protection during uncertain times,” says Christina Harmes Hika, an originator with C2 Reverse, based in San Diego. “So many clients are looking for security in their retirement and this feature is able to ensure that.”
Inquiries are coming both from existing HELOC borrowers and prospective ones.
“I just spoke to a financial advisor about this,” says Christine Jensen, branch manager, Fairway Independent Mortgage Corp. in Arvada, Colo. “He’s concerned that his client could lose access to her line of credit when she needs it the most. He told me that it’s never been more urgent for his clients to have access to this product.”
Jensen also cites a personal experience with a frozen line of credit and the problems it can cause for the borrower. In 2010, she received a letter from Chase Bank stating that she could no longer draw money from her HELOC, despite her perfect repayment history
“They just didn’t care, it was infuriating,” she says. “A HELOC can be a great short-term money option, but the borrower is not in charge.”
For some borrowers, it may be too late, but the time is right to stress with referral partners and borrowers the benefits of a reverse mortgage safety net.
“Without reservation I can say the most distressing thing I see is a homeowner who took out a HELOC and now is in greater financial distress than ever,” MacNaughton says. “Currently, many lending institutions are pulling their HELOCs altogether, and older homeowners can be completely at a loss in terms of where they can turn.”
Written by Meredith Landry