For most originators working with the HECM for Purchase (H4P) product, forming partnerships with Realtors has been the key to success. But some reverse professionals have made a name for themselves by targeting the builder community, working with developers to sell new homes designed specifically for the senior buyer.
Julie Didyoung, a HECM specialist at Reverse Mortgage Funding, says H4P transactions account for nearly 90 percent of her business, almost all of which are associated with new construction homes. Didyoung works with seven different builders to garner business, and cautions that originators working this angle need to be patient. “Obviously, since it can take six to 12 months for a home to be built, there is a long lead time,” she says, “which isn’t easy when you are just starting to focus on this type of business. But once it takes off, it is really great going into a new year with a full pipeline of loans.”
Chris Bruser of Retirement Funding Solutions says he has developed a steady flow of H4P business by working with just a few select builders.
“The ones who get it are grasping it and running with it. Some of them are using this as their main market tool; this is what they’re using to get their phones to ring,” he says. “We’ve even trained their main salespeople on how to introduce the concept.”
Find the Right Target
For HECM specialists looking to develop builder connections, both Bruser and Didyoung suggest seeking out developers who are building a specific kind of home.
“I search for builders who are offering one-floor master bedroom plans and low-maintenance living,” Didyoung says. “Of course, 55-plus communities for sure, but it doesn’t need to be an age-restricted community to be a good business source.”
“If you’re selling homes in the 55-plus community, why would you not want a program that is specifically designed for your demographic?” Bruser asks.
Do Your Research
Didyoung says research is vital when prospecting for a builder relationship. “Before I pick up the phone to call, send an email or drop in at a community, I spend a lot of time on their website so I can tailor my pitch to specifically appeal to that builder.”
Didyoung says it’s important to know how many communities the builder is currently selling in; who the likely decision makers are; what makes their communities unique; how many more units they have to sell; and if they have sales reps or are working with a local Realtor.
Present the Bigger Picture
In an H4P transaction, an application cannot be completed until a Certificate of Occupancy has been issued, a requirement that might discourage some builders from pursuing a partnership. While HUD recently said it is weighing objections to this rule and may address it in future policy guidance, for now it stands.
Didyoung says the CO requirement can be a turn-off for some, but is not a complete hindrance. “This has definitely kept the largest national builders from embracing the HECM financing option,” she says. “However, quite a few local and regional builders have managed to get past their concerns over the CO issue, especially those builders selling either 55-plus active adult community homes or one-floor master bedroom plans with low-maintenance living.”
Bruser says the CO requirement is not a problem for his connections. “It’s not an issue at all for the builders I’m working with. They understand that that’s the rule and we’re able to work within it,” he says. “I let them know that, typically, we don’t have the same last-minute fiascos that can occur with a conventional mortgage. We’re documenting where their assets are coming from. We’re verifying that they’ve got the income to cover not only their existing obligations, but also their future obligations with regard to taxes and insurance and the upkeep of the home.”
“When they realize that once they adopt the H4P strategy, they are probably going to be selling more homes at higher price points with probably more options, all of a sudden that two to three week carrying cost pales in comparison,” he says. “I’m able to get them to look at the bigger picture.”
Share Success Stories
To help a builder see the product’s potential, Didyoung says it’s important to present examples. “Show how builders who have already embraced the H4P program have increased sales because of it, and that often the sales are for a higher dollar amount once buyers know the cost to them is approximately 50 cents on the dollar,” she says.
Didyoung says that the most important point to stress with a potential builder partner is that the H4P is not just an alternate means to finance a purchase, it creates homebuyers. “There are so many people living in the home where they raised their family—it has a lot of deferred maintenance needs that can be expensive, it isn’t energy efficient, it requires tiresome outside maintenance, and the neighborhood demographic is changing—but they stay there because they don’t want to take on a mortgage or deplete their assets. Learning about the H4P is what makes them aware they can actually have a new home with modern amenities that is appropriate for aging in place, and they can get that home without jeopardizing their ability to fund the cost of their retirement years.”
Spread the Word
To grow a business through builder partnerships takes real effort. “It’s not going to happen sitting at your desk. You are going to have to go out and target some communities,” Bruser says. “Visit builders and seek out real estate agents who are doing business in 55-plus communities. Go visit with these people and be armed with your materials. Bring real life examples, a loan comparison page, an amortization schedule, a closing cost worksheet. Sit down with them and show them exactly how this program works.”
Didyoung says it’s important to keep the conversation going. “Always incorporate the concept of H4P into any HECM presentation or conversation, no matter who the audience is. Remember that very few people are aware that buying a home with a HECM is even possible,” she says. “I believe the key to making the H4P program mainstream is through getting the word out to prospective homebuyers. Once local builders see prospects walk into their sales office with H4P information in hand, they can’t just ignore it anymore.”
Written by Jessica Guerin