Home Equity Conversion Mortgage (HECM) for Purchase (H4P), a transaction in which a reverse mortgage can be used to fund the purchase of a new home, represents only a small share of the full activity of the larger reverse mortgage business, a figure pegged at 6.7% according to 2019 HMDA data. However, two lenders who have seen major growth in the H4P sector recently related how expanding focus on that kind of business segment has led to new opportunities for them.
This is according to a webinar hosted recently by RMD on the topic of H4P business. While one company leader details ways in which H4P allows the reverse mortgage professionals to build on skills they already have in facilitating a consultative sale, another saw a clear pathway to greater H4P incorporation due to October 2017’s highly influential product changes.
The importance of the loan originator in H4P
Specialty in the reverse mortgage space is important for any lender, particularly for those who operate in both the traditional mortgage arena and in reverse. For Open Mortgage, encouraging H4P is an active component of the company’s reverse business, and stems from other elements of reverse business that the company already has a solid handle on according to Patty Wills, national sales manager for reverse mortgages at Open Mortgage.
“We do encourage the HECM for Purchase,” Wills says. “It’s something we know how to do as a company, so we encourage [and] have training for the originators, we have training for processors, underwriters, closers [and] everyone in the system knows how to get the loans through.”
Pivotal to smooth operation in the H4P business segment is the loan originator, since the originator’s impact is felt far and wide throughout the process of an H4P loan, Wills explains.
“I’d say most important in that piece is the loan originator, because if they can impact the entire process, they can impact the contract, the loan type, the settlement agent, and can set the correct expectations for the real estate agent and for the customer,” Wills says. “And that is what makes a good process. When it’s set up [correctly] from the beginning, then it can [proceed] well. That’s what we work to do.”
An attractive customer for Realtors
In other cases, lenders saw a necessity in branching out to other potential business avenues due to the influential reverse mortgage product changes handed down in October of 2017. This was the motivator for Scottsdale, Ariz.-based V.I.P. Mortgage to dive more deeply into H4P, and what the company found was a distinct opportunity according to Tim Nelson, reverse mortgage department manager at V.I.P. Mortgage.
“We’ve always been going after financial planner business and realtor business, [and borrowers] who use the product strategically as a part of a retirement plan,” Nelson says. “Sometimes, the more sophisticated borrower that you get from financial planners [does not have] that urgency in the loan, since it may not close for 6-to-12 months down the road. So when the product changed in 2017, we saw an opportunity to go after that H4P business.”
Some of the reasons for the initial desire to go after more H4P business include that sophisticated borrowers generally have an easier process to qualifying for a loan, but homebuyers also come with a sense of urgency while retaining sophistication normally associated with financial planning customers, Nelson says.
“There is a sense of urgency with that client, because it’s a 30-to-45 day close of escrow,” Nelson says. Another big plus is you have a higher unpaid principal balance (UPB). Generally speaking, they’re taking the full draw at closing. And you can offer them perhaps a higher purchasing power, which the Realtors like as well. So when the product changed in 2017, we tried to concentrate more on [the H4P] product.”
The importance of education
Like many businesses, continuing education (CE) classes are an important component to keep professionals up-to-date on modern practices as well as new business opportunities. Because of the stigma that often surrounds reverse mortgages, though, it may be difficult to try and get a full class-sized audience to learn about the specifics of products that they may already have an aversion for, whether due to the proliferation of misinformation about the business or some other component.
Tailoring a CE class to a new kind of audience is key, and part of that may be in the way a potential class is initially presented to prospective attendees, according to Nelson.
“Nobody wants to come in and hear about a reverse mortgage, because [they may feel] it’s not for [them] or their clients,” Nelson says. “When we can get in front of them once, and we can explain what it really is and how it’s used, now we’ve opened the door and we have a great opportunity to grow that business.”
Education needs an audience
Designing CE classes for Realtors about H4P, and promoting them as such, did not yield a lot of attendees, Nelson explains. This caused him to go to V.I.P.’s forward mortgage loan officers to pool topics of both forward and reverse relevance into a single class.
“We came up with a CE class called ‘government lending,’ where the topics are VA, FHA and HECMs. And, again, it’s just trying to get in front of those people in order to educate them on what the product is,” Nelson says. “Fortunately, in Arizona, we have three hour [CE] classes for Realtors. So, there’s plenty of time to cover all three topics. Because people are really coming to hear about VA, FHA and ‘oh, by the way, they’re going to hear about reverse when they get there,’ we’re getting instead of three-to-five people, we’re getting 25-to-50 people in the class.”
As some CE events have gone virtual due to the COVID-19 coronavirus pandemic, taking this approach still yielded over 100 people in a webinar environment, Nelson says.
“Once you get in front of these people, the reverse mortgage product piques their interest, and there’s a lot of interaction from the Realtors.”