The general complexity of the Federal Housing Administration (FHA)-sponsored Home Equity Conversion Mortgage (HECM) is one of the single most complex financial instruments that an American consumer can entertain, but the actual practice of shopping for one is difficult and cumbersome especially if a prospective borrower wants to compare options available from different institutions.
This is according to Dr. Jack Guttentag, aka the “Mortgage Professor,” in a new column published by Forbes. He came to his conclusion based on an analysis he conducted of over 20 websites for different reverse mortgage lenders, describing that the process of “shopping around” for a HECM is far too unintuitive and laborious.
“Shopping for HECMs on lender web sites is an exercise in futility because lenders do not provide information that allows users to compare one lender’s offers with those of another,” Guttentag writes. “I recently examined the web sites of 24 HECM lenders including all the largest ones to see what information they provided on the 4 HECM draw options. I found 5 lenders of the 24 who provided information on the amount of cash draw, 3 who provided information on credit lines, and none who provided information on monthly payment options.”
Instead, the primary objective of the sites he visited all appear to be focused on obtaining the contact information of a prospective borrower, before a more detailed conversation about potentially taking out a reverse mortgage inevitably moves to a more direct conversation with a loan officer or broker.
“HECM borrowing decisions are based not on price but on referrals, advertisements, third-party endorsements, and the persuasiveness of loan officers,” Guttentag says.
He did, however, call out six specific lenders who do allow for comparison shopping, calling the cohort “dare to compare (DTC)” reverse mortgage lenders. The lenders he found which do offer the ability to comparison shop are All Reverse Mortgage, Goodlife Home Loans, Longbridge Financial, Mid America Mortgage, Mutual of Omaha Mortgage and Signet Mortgage, respectively, Guttentag says.
“The information [the ‘DTC lenders’] provide to prospective borrowers contrasts sharply with industry practice,” he explains.
This is for three reasons: shoppers are not required to identify themselves until making a choice among the lenders who allow for comparison shopping; all the so-called “DTC lenders” provide rate, points and amounts for all of the available draw options; and the prospective borrower can find the lender “that offers the best terms on the particular features of a HECM that best meets their needs,” Guttentag explains.
Read the column at Forbes.