Mortgage originators are seeing the value in offering HECMs
The Home Equity Conversion Mortgage (or HECM, commonly known as a reverse mortgage) is now understood to be a smart retirement funding strategy for older Americans, among both consumers and financial advisers. It’s also becoming more widely known as a significant business growth opportunity for “forward” mortgage originators.
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: 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.
This flexible payment feature is important for a rapidly expanding demographic that’s feeling a financial pinch in retirement. 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 is revealed: to deliver a potentially more suitable solution to this important consumer segment.
Adding HECMs to a product mix can be a seamless transition
Like any other business expansion, training, marketing, and technology are key. That’s why it’s important to work with a lender that provides both the product expertise and the specialized training needed to teach originators about this versatile product, as well as how to serve and educate senior clients.
More so than with most products, education is a major element of marketing the HECM, since many consumers may not be aware of the various ways it can be used – to refinance in order to reduce monthly expenses; as a home purchase loan; or as a line of credit. Being prepared to explain the HECM option to consumers who would not have otherwise considered it can open the door to increased business, by meeting a range of needs with a potentially more suitable solution that offers a variety of benefits and greater flexibility than other options.
For example, if a customer age 62+ is interested in buying a new home, educating them on HECM for Purchase financing may seal the deal if they are on the fence because they’re concerned about a monthly mortgage payment – because the HECM offers them the option to pay as much or as little as they like each month toward the loan balance. It can also increase their spending power to buy the home they really want, in the location they desire. This could impact a large segment of mortgage customers, as 25% of home buyers are age 60 and above according to the National Association of Realtors®.
In addition, older clients looking to refinance, consolidate debt, make major home renovations, and/or gain a “rainy day” fund with a line of credit will enjoy greater financial control with the HECM product — due not just to the flexible repayment option, but also its nonrecourse feature, meaning they will never owe more than their home is worth.
Technology can also play a pivotal role in acquiring new HECM customers. Case in point: LQ, a new, proprietary loan qualification engine created by Reverse Mortgage Funding LLC (RMF), which allows new originators to quickly and efficiently determine a borrower’s eligibility for a HECM loan. A user simply enters income, assets and liabilities, and the system provides an initial assessment of a prospect’s eligibility, including a residual income analysis. It also looks for compensating factors. This process is already familiar to originators in the forward mortgage space, because it’s similar to programs like Fannie Mae’s Desktop Underwriter, and it makes offering HECMs more accessible because it’s simple to use.
Of course, technology is imperative at each stage of the origination process, providing the support needed to incorporate this product into a business model, and also to grow in scale with it – and the opportunity to grow is significant, with roughly one million Americans age 62+ originating home equity loans each year1.
How can you get started?
RMF, an industry leader, offers a complete package of support that helps originators seamlessly enter the business and excel — including deep expertise, ongoing training, proven marketing strategies, cutting-edge technology, and one-on-one support by a team of highly experienced professionals, including a dedicated account team. To learn more or to register for a free educational webinar, call 866-318-2982 or visit Partners.ReverseFunding.com.
1Home Equity Borrowing, Reverse Mortgages and Senior Financial Outcomes; The Ohio State University
*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. Terms subject to change without notice. Certain conditions and fees apply. This is not a loan commitment. All loans subject to approval. L1307-Exp092018.