Home Equity Conversion Mortgage (HECM) for Purchase (H4P) business remains a fraction of total HECM volume, but H4P is typically absent from the discussion, even when it comes to moving to a new home during retirement.
A new report published by Vanguard Group details ways in which retirees can unlock the home equity gains they made during the pandemic, noting methods such as downsizing and relocation to an area with lower living costs. However, while reverse mortgages are mentioned, it’s only in terms of retirees choosing to remain in their current homes.
“Retiring and relocating could be useful for many retirees,” the report states. “Investigating millions of migration records from the American Community Survey (ACS), we find that roughly 60% of movers age 60 and above go to a cheaper housing market. Over a ten-year period, this translates to 25% of all retirees having the potential to shore up their retirement funding through relocation. This contrasts sharply with the general lack of traction in reverse mortgages—a financial product specifically engineered to facilitate access to housing wealth—among retirees.”
The report also notes that based on data analysis, the authors estimate that while 93% of all eligible retirees remain where they are each year, up to 52% of retirees relocate over a ten-year period.
“The less-than-2% use of reverse mortgages by the same group [according to 2017 research] highlights the relative importance of relocation in tapping housing wealth,” the report notes.
As the reverse mortgage industry continues to face the end of a pandemic-fueled HECM-to-HECM refinance boom, advocates have said that H4P could be a growth area for the industry moving forward.
At Fairway Independent Mortgage, Tane Cabe, who was hired for an H4P specialty, has ascended to a new role as president of the reverse mortgage lending division. When asked if H4P would continue to play a role under his leadership, Cabe remained bullish about the business opportunity.
“Most definitely, [H4P] will be a major component,” Cabe said. “That was my original hire, to be the H4P business development manager here, which is an area that I focused on when I was originating. But there is lots and lots of opportunity out there, especially in this current market for H4P. It’ll continue to be a major focus of ours.”
Other lenders recognize the potential of H4P but also acknowledge the challenges related to it. American Advisors Group (AAG) President and COO Ed Robinson noted how companies involved in the home building and selling industries need to buy into the concept before it can become a larger portion of reverse mortgage business.
“[Those industries have] got to get on board with the understanding that this product takes longer to originate,” Robinson said in 2022. “In the forward space, if you take longer than 30 days to originate a loan for a purchase, you’re dead in the water because the vast majority of contracts are written on 30-day paper. So, I think we’ve really got to do more as far as connectivity with those ancillary industries and the system if you will. They’re still quite immature in understanding what it takes to do a HECM for Purchase.”
According to data released by the Federal Housing Administration (FHA), the rate of H4P loans went down in FY 2022, continuing a downward trend observed in the two fiscal years prior.
H4P endorsements accounted for only 3.2% of all HECMs in FY 2022. H4P penetration reached an all-time high in FY 2019 when it made up over 7% of all HECM endorsements, but dropped under 6% in FY 2020 and just over 4% in FY 2021.