SixtyFive, a Florida-based startup that offers a new home equity tapping method for seniors, is trying to take a different approach compared to other reverse mortgage alternatives.
By implementing more technology into the process, including digital application and e-sign platforms, SixtyFive believes that there is room to address the needs of senior homeowners who are not currently being served by reverse mortgages. There is also an opportunity to partner with the reverse mortgage industry to more effectively serve the seniors who are not leveraging their home’s equity in retirement.
To learn more about SixtyFive and how it could partner with the reverse mortgage industry, RMD spoke to its co-founder and COO, Eyal Stern.
Origins of SixtyFive
Growing up in the financial industry with expertise in the senior economy led the founding team to establish SixtyFive, and they developed the company understanding that the reverse mortgage industry has only served roughly 2% of the total addressable market. They also recognized a relative lack of tech innovation in the space, Stern explained.
“The founding team is originally from Israel,” Stern said. “I moved to the states and I live now in Miami. SixtyFive tries to do something very simple: to help seniors in retirement to use the equity they have in their homes in order to supplement their retirement income. We saw that in the macroeconomic and macro demographic sense, it makes a lot of sense to take a reverse mortgage, and we were surprised when we started the company that the usage rate of reverse mortgages across the United States is very low.”
That low utilization stems, in part, from reputation problems that the industry has suffered from, but it may also be due to how the reverse mortgage product is incompatible with the needs of certain seniors, Stern said.
“I think that for many seniors, it’s a product that doesn’t suit or doesn’t fit their needs,” he said. “Because for many seniors, they don’t actually need $100,000 in a bank account. They don’t need to be committed to such a big transaction. They just need $600 or $1,200 every month to supplement their retirement income.”
Shoring up HECM shortcomings
Other potential issues could stem from turn times, which can take anywhere from one or two months in some cases, in addition to requirements, like mandatory counseling and financial assessment. The reverse mortgage product also has a reputation for high upfront costs, which add to the perception that the loan is expensive to utilize.
SixtyFive’s solution is to take its process online and lean into tech platforms that the reverse mortgage business is unable, or unwilling, to incorporate, Stern said. The process begins with an online application.
“If you’re 60 and above, own a residential property today in Florida with enough available equity, you can apply to the SixtyFive supplemental income program,” Stern said. “We work with all kinds of properties, including condos and investment properties, both as first and second position. The first stage is the estimation, which takes as little as one minute and you get your estimated monthly approved amount on the spot.”
If the client is approved, they move on to the next step of the application process, where they answer questions about themselves, anyone living in the property, and any existing mortgage balance. If a client passes this part of the application process, they are made an offer in about two business days.
How it differs from a reverse mortgage
If the parties agree to move forward, then the real differences become apparent. Rather than a lien against the property, SixtyFive has built a trust investment structure.
“Think of it as a triangle,” Stern said. “We have SixtyFive on one side, we have the client on the other side and the top of the triangle is a trust. The property moves into a trust, so the client remains as the primary beneficiary. He can live in the place, rent it out, renovate it, whatever he wants. In fact, the client is the real owner of the property, but on paper, the property moves into a trust. Once the property is moved into a trust and the trust is on the deed, the transaction is done. In order to make the process easy, everything is done online with e-signature and e-notary platforms.”
Once the client enters into the deal, the company provides them with a debit card that can be loaded with as much as $3,000 per month, depending on the company’s underwriting policy criteria, which are largely based on the age of the client, and the value of the property based on automated valuation models (AVMs) and other metrics.
More technology in the process
The company compensation is also different, Stern said.
“Once the property is in the trust, the client receives a debit card that will be loaded every month with the monthly approved amount, without any closing costs or origination fees”, he said. “We charge 2 different kinds of payments. The first is a service fee which ranges between $20 to $60, that is paid monthly. However, we will deduct it automatically from the monthly approved amount, so it won’t become an out-of-pocket expense.”
There is also a management fee, which is based on the aggregated amount of funds used that compounds each month at a rate of prime plus 400 basis points. SixtyFive will also receive a 1-1.5% interest charge per transaction when the card is used, but this is paid by the vendors and merchants who process the transactions, not the client.
“The difference here is that the management fee accrues only on cash that the clients actually used, and not necessarily on the entire amount every month. The payments are clearly differed, until the sale of the property or the death of the homeowner,” he said.
The client can choose to pay at any time, without any prepayment penalties, Stern added.
Reverse mortgage adjacency
Unlike other alternative home equity tapping options that do not have a minimum age requirement, SixtyFive is rooted in many of the same ideas championed by reverse mortgage lenders: seniors being house-rich and cash-poor, insufficient retirement savings and a market with seniors who have seen their home equity levels grow.
At least one company active in the reverse mortgage space has taken notice. According to reporting by the Jerusalem Post, national mortgage broker C2 Financial has engaged with SixtyFive. While that partnership is small right now, owing to SixtyFive’s limited availability, Stern said C2 is likely to be a future distribution partner once the product is available in more states.
SixtyFive has plans to roll out to Texas, Georgia, Pennsylvania and Louisiana in 2023, with a goal of national availability next year. The company does not seek to compete with the reverse mortgage industry; rather, SixtyFive wants to work with the industry to more broadly serve the senior demographic, including those who may not qualify for a reverse mortgage if they seek one out, Stern said.
“We do plan to forge partnerships with different American firms from the reverse mortgage space,” he said. “It’s been a tough year for the entire mortgage industry. We [aim to] offer a new way for brokers and lenders to generate revenues, an offering that could boost their businesses. Our partnership program attracts a lot of interest from the mortgage community, and we definitely plan to strengthen our relationship with the industry.”