How and Why Reverse Purchase Mortgages Are Lagging In 2021



In general, reverse mortgages are considered to be something of a niche financial product with low penetration rates compared to the world of traditional forward mortgages. Adding to the niche status of reverse mortgages can be attributed to the multitude of product options available, including the widespread home equity conversion mortgage (HECM), a growing variety of proprietary “giant” options, and new product offerings that seek to integrate traditional mortgages. with some of the qualities of a reverse mortgage.

Another option that remains underutilized is HECM for Purchase (H4P), which gives qualified seniors the opportunity to purchase a new home using proceeds from a reverse mortgage. H4P option utilization remains minimal, although some regional lenders have seen some degree of promise by devoting part of their operations to the H4P business, respecting meaningful height in some cases.

To see how the H4P business will evolve in 2021, RMD checked several major lenders as well as a reverse mortgage industry analyst to see what is happening with the H4P business segment and how lenders see the opportunities it can provide.

Lender Thoughts: Why H4P Lags behind Traditional HECM

The big lenders using the H4P product think differently about why this particular option is not yet widespread in the reverse mortgage market. It is believed that for employees with reverse mortgage loans, the H4P option is still relatively new compared to other types of reverse mortgage loans, especially HECM.

“[I think] the product is relatively new to the market in terms of affordability, ”says Jesse Allen, executive vice president of alternative distribution at American Advisors Group (AAG). “So there is definitely an ‘awareness-raising opportunity’ for consumers, adult children, realtors, builders and loan officers.”

Jesse Allen

Another potential obstacle to using H4P could be due to the lack of knowledge of how purchase transactions work in relation to reverse mortgages, in particular, Allen says.

“Another thing that I think is holding the industry back a little [and keeps us] product underutilization is just the general awareness of the sales force and their subject matter competence. [H4P option]Allen explains. “We have sellers, as an industry, who have historically not been so comfortable working with realtors or builders. [or] purchase understanding. Historically, this has not been a product that the reverse mortgage maker would have worked with. So, A) this is a new product, and B) is a skill set acquired on many fronts with industry sales teams. ”

Another lender describes that while expanding the H4P business is a top priority, building important trade relationships will be key to increasing H4P penetration, both in the original sender lender and in the industry as a whole.

“While there is a knowledge gap about HECM for Purchase, we believe family relationships can help create a powerful platform for product familiarization,” says Rob Cooper, National Purchasing Program Manager at Reverse Mortgage Funding (RMF), Sales … “To facilitate this relationship, RMF is expanding its corporate marketing programs to reach leads and invest in a team that builds strategic business alliances.”

Allen adds that lenders need to go where customers are, and compelling evidence from a research group from the National Association of Realtors (NAR). studyThe 2019 Home Buyers and Sellers Trends Report helps further highlight where the growing seniors segment is headed.

“One cannot ignore the fact that almost 39% of all home purchases – not only new but existing ones – are made by baby boomers,” Allen says, citing the report. “Baby elites are active in the home buying market, and we also know that this activity continues because perhaps only 4% of the homes they currently own are equipped for limited mobility. So they have these problems in the homes they own, and not all of them want to age on the spot. ”

Aging is, of course, a long-standing argument in favor of a reverse mortgage market, but if an increasing proportion of the target demographic is seeking to move into a new home for one of, often a wide variety of reasons, then the opposite. According to Allen, the mortgage industry must make a concerted effort to meet the needs of older people if they are ready to make a purchase.

“[Our audience is] tell us they are active and some of them want to move to other communities, ”he says. “They want to buy a new nursing home, maybe they want to move closer to a place with a better quality of life or for reasons related to family, health care or transportation. If their existing home is simply not suited to the limited mobility and health care needs that come with age, then this may be a viable option for them. ”

Data: how far behind H4P

According to HECM endorsement data over the past couple of years, the overall H4P endorsement rate appears to be declining. Data compiled by Reverse Market Insight (RMI) and shared by RMD shows that there were 2,305 H4P approvals in 2019 for a year, for a total of 34,420 HECM approvals, resulting in an H4P penetration rate of 6.7%.

In the next 2020, when there was a noticeable surge in general interest in the reverse mortgage industry during the COVID-19 coronavirus pandemic, the total number of HECM approved loans increased by about 10,000 loans, but the H4P approval rate increased only marginally. Of the 44,418 HECM approvals in 2020, 2,493 of these were H4P loans with a 5.6% penetration rate, down more than one full percentage point, even though the raw numbers were higher.

So far in 2021 – with 16,984 HECM approved between January and April – there have been 822 H4P approvals, reaching a 4.8% penetration rate in the first four months of the year. If this trend continues until December, then the rate of H4P loans compared to the broader volume of HECM will decline at almost the same rate as last year.

“The industry is clearly on a downward trend in terms of the share of H4P approvals,” said John Lunde, President of RMI. “But that’s mainly because other areas of the industry are growing much faster than H4P, especially refinancing.”

Stay tuned for additional H4P views on RMD in the coming days.


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