The tide is turning for reverse mortgages. Is your company poised to ride the wave?
Misconceptions have abounded when it comes to reverse mortgages. They’ve historically been seen as a product of last resort, for which borrowers pay excessive fees and risk losing their homes. The reality is, though, that Home Equity Conversion Mortgages (or HECMs, commonly known as reverse mortgages) are a viable and potentially more suitable option that allows an expanding consumer segment to tap their home equity in retirement. Which means, for mortgage originators, there’s a significant opportunity to serve more customers and increase revenue by offering this product.
Why the changing outlook?
First, HECM product offerings have been reengineered in recent years, and a number of innovations and positive changes have led to new benefits and safeguards for both lenders and borrowers.
Second, more people — including financial advisors — are becoming educated about reverse mortgages, and as a result, perceptions are shifting away from the old negative myths. For example, those who know the facts about HECMs understand that borrowers don’t give up ownership of their homes; that interest rates are comparable to conventional FHA* rates; and that it can be used as a financial safety net or to upgrade into a new home, rather than as a last resort.
Additionally – and perhaps most importantly – this product serves a rapidly growing demographic that is feeling a financial pinch: homeowners age 62+. With increasing life expectancies, skyrocketing costs for healthcare and housing, and the need, for many, to self-fund their retirement, it’s more important than ever for Baby Boomers to have financing options that allow them to use their home as a strategic asset.
In fact, according to a recent study conducted by the National Council on Aging (NCOA) and funded by Reverse Mortgage Funding LLC (RMF), 83% of older adults are concerned about having enough money to live comfortably in retirement and worry about outliving their savings. Paired with another of the study’s key findings – that home equity represents a whopping 60% to 80% of their total net worth – an enormous opportunity for mortgage originators is revealed: to deliver a beneficial new loan option to an important and growing market.
What exactly is a HECM?
A HECM is a highly flexible loan option specifically designed for homeowners and homebuyers age 62+. FHA-insured* HECM products include refinance, line of credit, and home purchase options, all with a flexible repayment feature, which means borrowers can pay as much or as little as they like toward principal and interest each month (as with any home-secured loan, they must keep current with property taxes, insurance and maintenance). The loan balance becomes due when the borrower either sells the home, passes away or no longer lives there as their primary residence.
The flexible repayment feature, which gives borrowers greater financial control, is just one advantage the HECM provides over traditional home equity products. Take the HECM Line of Credit, for example. With this option, the unused portion of a borrower’s credit line grows over time providing more available funds. And its non-recourse feature means that they, or their estate, will never owe more than the home is worth when the loan is repaid. Also unlike a traditional home equity line of credit (HELOC), the credit line cannot be reduced or revoked by the lender, as long as the borrower meets their loan obligations —so it’s sure to be there when they need it.
For older Americans looking to buy a new home, the HECM for Purchase option makes it easier for them to afford the one they really want, by using a HECM to finance the home they are buying. Rather than tapping into their savings or spending all of the funds from the sale of their current home, they can maintain more of their money to spend on other things they might need in retirement. A HECM for Purchase could increase the buying power for a large segment of mortgage customers – and create new ones. In fact, 25% of all new homebuyers are age 60 and above.
Because of these clear benefits to consumers, the scale of the marketplace, and the considerable business growth opportunity, many mortgage originators have already begun leveraging this product and seeing the substantial impact it has on their bottom lines.
How can you get started?
Adding this versatile loan option to your product mix is not difficult. RMF, an industry leader, provides the expertise and resources to help originators seamlessly enter the business and excel. To learn more or to register for a free educational webinar, call 866-318-2982 or visit Partners.ReverseFunding.com.
*This material has not been reviewed, approved, or issued by HUD, FHA or any government agency. The company is not affiliated with, or acting on behalf of or at the direction of, HUD, FHA or any government agency.
NOT FOR CONSUMER USE © 2017 Reverse Mortgage Funding LLC, 1455 Broad St., 2nd Floor, Bloomfield, NJ 07003. Company NMLS ID# 1019941. www.nmlsconsumeraccess.org. Equal Housing Lender. Not intended for NY or HI customers. Not all products and options are available in all states. Not intended for NY or HI customers. Terms subject to change without notice. Certain conditions and fees apply. This is not a loan commitment. All loans subject to approval. L1215-Exp082018.