Top reverse mortgage lender Finance of America Reverse (FAR) today announced the introduction of a new proprietary offering called “EquityAvail,” described as a product which combines elements of a forward, traditional mortgage and a reverse mortgage. EquityAvail is set to launch in April as the newest addition to FAR’s proprietary product suite, and the first addition to be separate from its line of “HomeSafe” proprietary reverse mortgages.
EquityAvail is a single, fixed-rate mortgage, which is fully disbursed at closing with a maximum loan amount of up to $4 million. A tax and insurance escrow account is used for budgeting and administration, similarly to traditional mortgages. When the property no longer serves as the borrower’s primary residence, the remaining loan balance is paid back. The product maintains the non-recourse feature of other reverse mortgages, contains no origination or monthly servicing fees, and has no minimum home value requirement.
To better understand the impact of the new product on FAR’s current and future operations, RMD sat down with Kristen Sieffert, the company’s president, to better understand what EquityAvail will aim to provide to borrowers over the age of 60 and what impact the new product will have on existing partnerships the company maintains with third-party origination partners and others.
What the product is, and aims to do
Calling the product a “hybrid solution,” Sieffert describes EquityAvail as an option for a senior who is already looking to refinance their existing mortgage into something that makes more sense for someone preparing to transition into living on a fixed income.
“We’ve deemed it a ‘retirement mortgage,’ that creates a better way for pre-retirees to ease into retirement,” Sieffert told RMD in an interview. “Basically, by having the ability to refinance into this new innovative retirement mortgage, a borrower can greatly reduce their existing mortgage payments for 10 years. And then after that point, they’re eliminated automatically altogether.”
One of the ideas in starting things off in the realm of a more traditional mortgage before moving into reverse is to slow the negative amortization that comes with a more traditional Home Equity Conversion Mortgage (HECM) or HomeSafe proprietary loan, she said.
“We really wanted to find a way to offer a loan-to-value (LTV) that was higher than the typical reverse mortgage LTVs in the marketplace,” she explained. “And also, find a way to slightly slow the negative amortization. This product does both of those things. It has an LTV that is higher than a HECM or a HomeSafe in most ages – not all – but then again, because of that payment component, it does slightly slow the negative amortization that’s tied to a typical, traditional reverse mortgage.”
In terms of the target demographic, EquityAvail begins with a minimum age requirement of 60 or older when it launches in April, but the intention is to be able to lower that age threshold over time, according to Sieffert. In that vein, the product is designed for homeowners who could benefit from the features of a reverse mortgage, but have difficulty committing to the product because of legacy misperceptions that exist around the category.
Keeping current circumstances in mind
The product is also designed for people who may need more proceeds than those that are typically provided by a traditional reverse mortgage, and those who are over the age of 60 and looking to refinance their existing arrangement.
“On the forward side, ability to repay rules typically only requires that a lender confirm a borrower can afford payments for three years,” Sieffert told RMD. “If you’re 65, and you’re still working, you can potentially easily afford your payments. But if you have to retire earlier than you expected, you’re potentially forced into a situation that you’re not prepared for. And so, this product is also for them.”
This is a particularly salient circumstance for many retirees in the age of the COVID-19 coronavirus pandemic, a crisis which has indiscriminately struck many Americans and impacted seniors significantly, she said.
“There are a lot of people that really were forced into an early retirement [due to the pandemic],” Sieffert said. “And when they are forced into an early retirement, their ideal plans go out the window. We think [EquityAvail] is a really elegant solution to help those people solve for things like that.”
Pricing and partnerships
While not yet ready to talk about specific components as it relates to pricing, the inherent risk built into a proposition like the one proposed by EquityAvail is not lost on FAR as it developed what the offering would look like, Sieffert explained.
“The launch of this product for us really illustrates the depth and breadth of our expertise in product innovation,” she said. “When we innovate, we consider all aspects of a product as well as the customers’ needs. Because our team is very active across all types of financings throughout our enterprise, we really have a unique insight that allows us to execute on ideas that initially seemed very challenging. And we believe EquityAvail will be a great product, both for the customer and for Finance of America.”
For third-party origination (TPO) partners, EquityAvail will be made available with special online tools designed to support different choices for prospective borrowers. In terms of technical and regulatory specifics, EquityAvail is a forward mortgage product that must conform to regulations governing both forward and reverse mortgages, so the tools available to partners were designed with that in mind, Sieffert explained.
“We absolutely, obviously, love our partners, and they are really the main thing we think about whenever we’re sitting down to innovate,” she says. “So we will be rolling this out with a ‘concierge desk’ that will support them in the origination of the product. We’ve also built some online sales tools, so that originators can very easily go on to a website, plug in a borrower’s information, and see how this product would compare to a traditional forward mortgage, a traditional reverse mortgage or a proprietary reverse mortgage.”
If originators have borrowers who decide to move forward with EquityAvail, the concierge desk will be able to get them the application and any other information and tools the loan officer requires to continue in the process.
Partners and other interested parties can find details on FAR’s dedicated EquityAvail product page. Upon its launch in April, it will be available in four states: California, Florida, New Jersey and Virginia.