Earlier this summer, RMD highlighted the differing perspectives of some reverse mortgage industry professionals on the Home Equity Conversion Mortgage (HECM) for Purchase (H4P) program. Designed to allow seniors to purchase a new home with the proceeds of a reverse mortgage loan, the program has not seen a lot of widespread adoption across the industry even though certain pockets of the country swear by its ability to help bring in new borrowers.
After sharing perspectives from major lenders including American Advisors Group (AAG) and Reverse Mortgage Funding (RMF) in June, RMD received correspondence from other reverse mortgage loan originators in other, comparatively smaller real estate markets who aimed to assure this publication that H4P loans are certainly a viable path forward for some reverse mortgage practitioners.
However, while certain pockets of the country do anecdotally report sustained interest and business in the H4P arena, the data that spans the entirety of the reverse mortgage industry does not lie: at last count, H4P loans made up less than 5% of reverse mortgage volume nationally, so while it may work for some, it still appears there is a long way to go in terms of getting the H4P niche to catch on in a widespread fashion.
‘Don’t count out H4P’
One such perspective championing H4P loans due to first-hand experience with them is Curtis Mangus, a loan originator with Premier Home Mortgage in Meridian, Id. Mangus reached out to RMD after the publication of our initial story earlier this summer, aiming to assure industry peers that this is a business avenue that can bear fruit for those committed to it.
“[N]ot everyone is lagging [with H4P business],” Mangus said. “I closed 20-plus H4P out of a 100 units in 2020. I had 20 personal units in April of this year, seven of which were H4P. I have 16 for the year so far in 2021. Based on that 16, I am 2% of the national total, and growing marketshare steadily.”
For Mangus, the generally low H4P penetration rate comes from industry peers not seeking out relevant referral partners, such as real estate agents.
“The reason the penetration is low is because reverse loan officers have not figured out how to market it to real estate agents,” Mangus says. “They also need training on how to present it, and the positive impact it can have on their bottom line.”
When asked more specifically about where the disconnect comes from, Mangus said it can likely come down with a way to frame the potential H4P transaction in the minds of prospective borrowers.
“Who doesn’t want to buy a house for half price, and never make a payment? Think what it does to their buying power when they can sell their house, buy the next one for half, and keep the difference,” he said. “When plugged into a retirement strategy, it is truly life-changing for them. It is very powerful when presented correctly.”
Another loan officer who asked to remain nameless also emailed RMD shortly after the publication of the June story, operating out of Arizona. This person related only that their business consists of 50% HECM-to-HECM refinances and 50% H4P, describing the success in gaining H4P business as a matter of personality, networking and advertising up to and including a regular spot with a local TV affiliate.
There are some major reverse mortgage lenders who are encouraged by the continued development of the H4P product category, even if the general uptake is not as high as the lenders and industry would likely prefer. One such lender is Open Mortgage, according to its national reverse retail sales manager Patty Wills.
“The H4P market has made progress toward customer adoption and real estate agent acceptance and understanding, but even with this positive change, H4P makes up only a small percentage of purchases that are financed with reverse mortgages,” Wills says. Because most of the country is currently in a seller’s market, cash is king. If a buyer is possibly paying with cash, they will likely not risk a finance contingency in the offer.”
Even a lender with a sizable national footprint and with a noted dedication to developing H4P business recognizes potential shortcomings, but sees the primary path forward through the lens of developing relationships with referral partners in the real estate industry.
“With 600 offices and 3,500 loan officer boots on the ground at Fairway, expanding on real estate agent relationships has always been a key ingredient to helping home buyers find their new home on the forward side,” says Harlan Accola, national reverse mortgage director at Fairway Independent Mortgage. “It is natural that we would leverage those relationships on the reverse side as well. We work hard to provide value for our real estate agent partners by providing webinars and seminars to help educate them on the benefits of a reverse mortgage loan and to give them co-branded marketing tools.”
However, some real estate agents may be prone to advise a buyer against the use of H4P, according to Wills. That’s not to say, however, that there is no path forward.
“From a real estate agent’s perspective, even if they are well informed of the benefits of H4P and think it would be a good fit for their client, they may advise the buyer to not use a reverse mortgage for their initial purchase offer in fear it may impact acceptance if the seller or their agent is not familiar [with the product],” she says. “They may prefer a more commonly known traditional mortgage. Once housing stabilizes and homebuilding rebounds, we expect new housing inventory to balance this out.”
The power of appealing to real estate agents
Another part of that path forward to greater H4P uptake is a series of dedicated lender and broker initiatives designed specifically to appeal to real estate agents, Accola says.
“Our operations team has pioneered turn times such as our 17-day reverse mortgage close option and innovative support by being able to close on or before the offer to purchase date,” he explains. “We know that if we take care of our real estate agent partners — on both the forward and reverse sides — they will come to depend on us for helping their clients at any age. We expect this to grow to more than 20% of our total volume in the future.”
That optimistic perspective is not without other potential paths forward for H4P, according to Wills.
“Alternatively, one way we are making progress in the H4P market for Open Mortgage is we are speaking with the buyers and often setting up a plan to refinance to a reverse mortgage after their initial purchase is complete, even if they originally paid in cash or financed with a traditional mortgage,” she explains.
At last estimate, H4P volume thus far in 2021 – with 16,984 HECMs endorsed between January and April – shows that there have been 822 H4P endorsements, coming out to a penetration rate of 4.8% in the first four months of the year. If that trend continues through to December, then the rate of H4P loans in comparison with broader HECM volume will have diminished at nearly the same pace that it did last year.