The new HECM Saver program is designed for a different kind of borrower than the traditional Home Equity Conversion Mortgage product, declared an executive with one major reverse mortgage lender.
Craig Corn, vice president of MetLife’s reverse mortgage division, said, “It was clear that there was a significant segment of the older American population that either dismissed the traditional HECM product outright because of its cost structure, or looked at it but considered than other financing alternatives,” such as home equity loans or lines of credit.
With the HECM Saver there is a tradeoff—the upfront costs are much lower, but the borrower receives fewer dollars in proceeds.
When it comes to financial products, the question is do the benefits outweigh the costs and that was a question asked by a lot of older Americans before the Department of Housing and Urban Development implemented changes to the program on Oct. 1, 2009 that resulted in lower proceeds, he said.
There were “hundreds of thousands of individuals,” whom he defined as the traditional HECM borrower that felt it was a fine value proposition.
But there were “millions and millions of older Americans, who may have looked at a HECM and concluded that there were other products, perhaps a HELOC, that was a more attractive value proposition,” Corn continued.
With the new program, financial planners as well as older Americans who had dismissed reverse mortgages in the past, to them “we’re saying you need to take a look at the HECM Saver because it is a completely different type of HECM,” he said.
The challenge for reverse mortgage lenders, Corn said, is that it will be marketing HECM Saver to a segment of the older American population it has not done business with before.
“We’ve served that traditional HECM customer who was looking for as much money as they can possibly get. That is not what HECM Saver is all about.
“HECM Saver is for that individual who is managing cash flow needs that may be much smaller than the traditional HECM borrower. They’re much more sensitive to costs and they may not need the loan for as long as a traditional HECM borrower has needed the loan for,” which could be many years, Corn noted.
So when the HECM Saver is compared with a traditional HELOC, the HECM Saver is pretty attractive, he continued. Especially because HELOC lending has been affected by the loss of equity in many properties.
The cash flow needs of seniors have not changed, but the choices they have regarding financing alternatives has been reduced. Thus the HECM Saver could fill “a very significant void that has been created in the marketplace,” he said. Because the issue of cost has been minimized, it opens reverse mortgages to those with a shorter timeline.
Marc Helm, president and chief operating officer of Reverse Mortgage Services, spoke of a recent application the firm processed, where the borrower could pay their first mortgage off and get an additional $8,000 with the traditional HECM, but with the HECM Saver the borrower would not have enough to pay off the first mortgage.
“The reality is, I’m not sure about the acceptance and use of the HECM Saver program because it really is built for a person that doesn’t need as much out of the property.”
Thus, reiterating Corn’s point, it is a loan for a different set of borrowers than the traditional HECM, including one who has already paid off their mortgage.
“It is a different kind of program, built for a person with a different kind of needs,” Helm said.
The jury is still out on whether people will be attracted to the Saver product. He pointed out the HECM for purchase product has been available for some time now and it has not gained much traction in the marketplace.
In the RMS portfolio of 3,000 reverse mortgage loans, there are less then 10 HECM for purchase loans.
As a result, HECM Saver “might be the biggest product out there or might not ever take off,” Helm said. It depends on the loan officer’s view on selling this product, as well as what the borrower’s needs are.
If those two get into sync, then HECM Saver could gain market share.
