The reverse mortgage product category is very specifically focused on serving one primary demographic cohort: American seniors. While reverse mortgage industry professionals and even some commentators have commented on the potential that a reverse mortgage could have to help a wider segment of the population, the restriction of reverse mortgages for seniors is unlikely to go anywhere especially as it pertains to the Home Equity Conversion Mortgage (HECM) program sponsored by the Federal Housing Administration (FHA).
Nevertheless, reverse mortgage lenders are beginning to experiment with the reverse mortgage offering in new and novel ways, particularly in the case of two major recent examples on the proprietary, non-agency side: Finance of America Reverse (FAR) and its new hybrid forward/reverse “EquityAvail” product, and the even more recent announcement by Reverse Mortgage Funding (RMF) which lowers the qualifying age for its proprietary “Equity Elite” reverse mortgages to only 55, the youngest age yet able to be served by the reverse mortgage industry.
These two approaches could demonstrate that the reverse mortgage industry is becoming more sensitive to the necessity to bring in new borrowers, without relying strictly on the product features of the HECM alone. Whether or not these approaches will be enough to convince a segment of new borrowers to consider reverse mortgages is anyone’s guess, but the industry appears to be ready to take some bigger swings toward that goal.
Borrower stagnation and the refi boom
Reverse mortgage industry players and analysts alike have recognized that while the current boom the business is seeing in HECM-to-HECM refinance transactions is potentially beneficial for both lenders and borrowers alike, the fact of the matter is that refinances do very little to expand the pool of borrowers that the industry serves. Lenders are going back to customers who have already engaged with the reverse mortgage product category at least once previously, and such borrowers are a finite resource that will be exhausted at a far faster pace than newly-initiated customers would be.
The industry knows this, but it’s hard to turn away customers who come to a lender for a refinance considering the double whammy of high home price appreciation and low interest rates. This was further emphasized in a summer presentation made by industry analysts to an audience of reverse mortgage professionals, which also made clear that some of the trends pushing refinances are a bit outside of the industry’s control.
However, things that are within the industry’s control are the kinds of products which come to market, particularly those which do not involve FHA or other kinds of government sponsorship. This is where the necessity for innovation on the market side comes into play the most, and both FAR and RMF have aimed to provide an answer for that innovation need in two very novel ways.
Proprietary product innovation
In the case of FAR, the company announced “EquityAvail” — its hybrid, proprietary forward/reverse mortgage product — in early March of this year. As a brief refresher, EquityAvail is a single fixed-rate mortgage, 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.
So far, the performance of EquityAvail — which was first made available to borrowers in April — appears to be making the FAR parent company Finance of America Companies happy. In both the company’s Q1 2021 and Q2 2021 earnings presentations, FOA CEO Patti Cook has lauded the performance of FAR in general and the launch of EquityAvail specifically as major features of the parent company’s diversity of product offerings. Q2 saw the funding of the first EquityAvail loan, and both Cook and FAR President Kristen Sieffert have related their overall optimism about what the hybrid product will mean for the company’s future going forward.
“This product will combine elements of a traditional mortgage with a reverse mortgage, to improve cash flow and help retirees accomplish their retirement goals,” Cook said during an earnings presentation for Q1 2021 results. Finance of America Home Improvement and EquityAvail are the latest examples of our proven ability to innovate and create products that meet the evolving needs of our customers.”
For RMF, its Equity Elite suite of proprietary reverse mortgage products has been leading the company’s development of practices it hopes will prove innovative for the industry. This year, RMF introduced new underwriting guidelines for Equity Elite that are being implemented in the hopes of capturing additional borrowers, but the major occurrence for the company came this month when it announced that it would be lowering the minimum eligible age to 55 for Equity Elite in 19 states and the District of Columbia.
This is a move that has the potential to open up the reverse mortgage product to a host of new, potential borrowers that were previously not eligible, and based on comments from RMF personnel it also has the potential to be forward-looking by beginning a transition process.
A new generation
RMD has explored the implications of the impending transition the reverse mortgage industry will need to make in the coming years to serve borrowers of a new generation, namely “Generation X” consisting of people born in the period between the early-to-mid 1960s and the late 1970s or early 1980s. Unlike the current predominant generation served by the reverse mortgage industry, people who grew up as part of Generation X have demonstrably different financial circumstances than their Baby Boomer parents.
This is emphasized by a recent a Harris Poll conducted for publication Fast Company in 2021, which found that older members of Generation X were the least likely of any age group to believe that wealth is even an achievable goal in the modern United States, and the pessimism about financial prospects only seems to get weaker when looking at the succeeding Millennial generation.
“As an industry, we have been thinking about how to serve Gen X with the products that were in the market,” said Joe DeMarkey, strategic business development leader at RMF in an interview with RMD after the announcement. “We’ve just accelerated our ability to service Gen Xers who might be interested in a reverse mortgage product by lowering the age of eligibility to 55 on Equity Elite.”
Whether or not other members of the industry follow suit and accelerate the ability for the industry to serve Generation X remains to be seen, but considering the potential it would be a difficult prospect to ignore.