Reverse mortgage for the purchase: hot in some areas, cold in others

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Earlier this summer, RMD drew attention to the different perspectives of some reverse mortgage industry professionals on the Mortgage Conversion Mortgage Conversion (HECM) for Purchase (H4P) program. Designed to allow seniors to purchase a new home with the proceeds of a reverse mortgage, the program has not been widely adopted by the industry, although parts of the country swear by its ability to help attract new borrowers.

Following an exchange of views from major lenders, including the American Advisors Group (AAG) and Reverse Mortgage Funding (RMF), RMD received correspondence in June from other reverse mortgage lenders in other relatively small real estate markets that sought to reassure this publication that that H4P loans are definitely a viable way forward for some reverse mortgage lending practitioners.

That said, while some regions of the country unofficially report sustained interest and business in the H4P arena, the data that covers the entire reverse mortgage industry isn’t lying: at last count, H4P loans accounted for less than 5% of reverse mortgages. the volume is nationally, so while this may work for some, it still seems like there is a long way to go in terms of the H4P niche gaining widespread acceptance.

‘Don’t count H4P’

One such promising advocate for H4P loans due to direct experience with them is Curtis Mangus, a lender at Premier Home Mortgage in Meridian, Illinois. Mangus reached out to RMD after posting our initial story earlier this summer, seeking to reassure peers in the industry that this is a line of business that can pay off for those who stick to it.

“[N]not everyone lags behind [with H4P business]Mangus said. “I closed 20+ H4P units out of 100 in 2020. I had 20 personal units this April, seven of which were H4P. I have 16 for 2021. Based on these 16, I am 2% of the national total and the market share is growing steadily. “

For Mangus, the generally low H4P penetration rate is due to the fact that industry peers are not looking for relevant referral partners such as real estate agents.

“The reason for the low penetration is that the reverse lending department hasn’t figured out how to sell it to real estate agents,” says Mangus. “They also need training on how to present it and how it can have a positive impact on their bottom line.”

When asked more specifically about where the outage is coming from, Mangus said it would likely help shape a potential H4P transaction in the minds of potential borrowers.

“Who doesn’t want to buy a house at half price and never pay for it? Think about how this affects their purchasing power when they can sell their home, buy the next one for half and keep the difference, ”he said. “When they are incorporated into a retirement strategy, they really change lives. It is a very powerful tool when presented correctly. “

Another loan officer, who requested anonymity, also emailed RMD shortly after the June article was published, operating from Arizona. This person only revealed that their business consists of 50% HECM-to-HECM refinancing and 50% H4P refinancing, describing the success of getting an H4P business as personal, network and promotional, all the way up to a regular infomercial with a local TV partner. …

Large lenders

Patty Wills

There are several large reverse mortgage lenders who are encouraged by the continued development of the H4P product category, even if overall demand is not as strong as lenders and the industry would like. One such lender is Open Mortgage, according to Patty Wills, its national reverse retail manager.

“The H4P market has moved towards customer acceptance and real estate agent acceptance and understanding, but even with this positive change, H4P accounts for only a small percentage of purchases funded through reverse mortgages,” says Wills. Since most of the country is currently in the seller’s market, money is king. If the buyer may be paying in cash, they will most likely not risk financial liabilities under the proposal. ”

Even a lender with a significant national presence and a notable commitment to business development H4P recognizes the potential shortcomings, but sees a major way forward through the lens of developing relationships with real estate referral partners.

“With 600 offices and 3,500 loan officer employees across Fairway, expanding relationships with real estate agents has always been a key element in helping home buyers find their new home on the front lines,” said Harlan Accola, National Director of Reverse Mortgage Lending at the company. Fairway independent mortgage. “Naturally, we used this relationship from the other side. We’re working hard to provide value to our real estate agent partners by hosting webinars and workshops to help them learn about the benefits of a reverse mortgage loan and provide them with co-marketing tools. ”

However, according to Wills, some real estate agents may advise a buyer not to use H4P. However, this does not mean that there is no way forward.

“From a real estate agent’s point of view, even if they are well aware of the benefits of H4P and think it is a good fit for their client, they may advise a buyer not to use a reverse mortgage for their initial purchase offer for fear that it will happen. may affect acceptance if the seller or his agent is not familiar [with the product], “she says.” They may prefer the more well-known traditional mortgage. We expect that after the stabilization of the housing stock and the restoration of housing construction, the new housing stock will counterbalance this. “

Possibility to contact real estate agents

Harlan Accola

Another part of this journey towards wider adoption of H4P is a series of specialized lending and brokerage initiatives designed specifically for real estate agents, says Accola.

“Our operations team have pioneered the use of turnaround times such as our 17-day reverse mortgage closure and innovative support through the ability to close before or before the offer date,” he explains. “We know that if we take care of our partner real estate agents – both on the front and back – they will depend on us to help their clients at all ages. We expect this volume to grow to over 20% of our total in the future. ”

Such an optimistic outlook has other potential opportunities for the H4P, Wills said.

“Alternatively, one of the ways we are making progress in the H4P marketplace for open-ended mortgages is that we talk to buyers and often set up a reverse mortgage refinancing plan after completing their initial purchase, even if they originally paid in cash or financed by traditional mortgages, ”she explains.

IN last assessmentThe current H4P volume in 2021 – with 16,984 HECM approved between January and April – shows that 822 H4Ps have been approved, 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.

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