Reverse mortgages in general are considered a niche financial product, with a low penetration rate compared to the traditional world of term mortgages. The plethora of different product options available, including the Home Equity Conversion Mortgage (HECM), a growing variety of exclusive “jumbo” options and new product offerings aimed at combining a traditional mortgage, could be added. to the niche status of reverse mortgages. with certain qualities of a reverse mortgage.
Another option that remains little used is the HECM for Purchase (H4P), which gives eligible seniors the opportunity to purchase a new home using the proceeds of a reverse mortgage. Uptake of H4P options remains minimal, although some regional lenders have seen some degree of promise in dedicating some of their operations to H4P business, seeing significant growth in some cases.
To verify the progress of H4P business in 2021, RMD spoke with several major lenders as well as a reverse mortgage industry analyst to see what is happening with the H4P business segment and how lenders perceive the opportunities. that he could present.
Thoughts from lenders: why H4P lags behind traditional HECM
The major lenders who use the H4P product have various ideas as to why this specific variation has yet to take shape in the broader reverse mortgage market. One opinion is that for reverse mortgage agents, the H4P option is still relatively new compared to other types of reverse mortgages, especially HECMs.
“[I think] the product is relatively new to the market in terms of availability, ”said Jesse Allen, executive vice president of alternative distribution at American Advisors Group (AAG). “So there is definitely an ‘education opportunity’ for consumers, adult children, real estate agents, builders, and loan officers.”
Another potential barrier to using H4P could be related to a lack of sufficient knowledge of how purchase transactions work in relation to reverse mortgages specifically, Allen explains.
“The other thing, I think, that is slowing down the industry a bit [and keeps us] the underuse of the product is only the general awareness of the sales force and its expertise in the matter with the [H4P option]Allen explains. “We have a sales force, as an industry, that historically just isn’t as comfortable working with realtors or builders. [or] understand the purchase. It hasn’t always been a product that the reverse mortgage originator worked with. And so, A) it’s a new product, and B) it’s a skill set learned on many fronts with the sales force in the industry.
Another lender describes that while expanding the H4P business is a core priority, establishing meaningful business relationships will be key to increasing the penetration rate of H4P both with an originator’s primary lender, as well. than in the whole industry.
“While there is a lack of knowledge about HECM for Purchase, we believe that affinity relationships can help create a powerful platform for product awareness,” says Rob Cooper, national program sales manager at purchase from Reverse Mortgage Funding (RMF). “To better facilitate these relationships, RMF is expanding its corporate marketing purchase lead generation programs and investing in a team dedicated to building strategic business alliances. “
Allen adds that lenders need to go where customers are, and a compelling data point from the National Association of Realtors (NAR) research group study, “The 2019 Generational Trends of Home Buyers and Sellers Report,” helps further highlight the destination of a growing segment of seniors.
“You can’t ignore the fact that nearly 39% of all home purchases – not just new construction, but also existing homes – are made by baby boomers,” Allen said, citing the report. “Baby boomers are active in the home buying market, and we also know that a lot of this activity takes place because maybe only 4% of the homes they currently own are equipped for mobility. scaled down. So they have these problems in the houses they own, and not all of them want to age in their place.
Aging in place is, of course, a long-standing selling point in the reverse mortgage market, but if a growing portion of the target population is looking to move to a newer home for one of the reasons that can often be various, so the other way around The mortgage industry needs to make a concerted effort to meet these seniors where they are if they’re ready to make a purchase, Allen says.
“[Our audience is] telling us that they are active and that some of them want to move to different communities, ”he says. “They want to buy a new retirement home, maybe they want to move to a place where they have a better quality of life, or for reasons related to family, health care or transportation. If their current home is simply not suited to the limited mobility and health care needs of aging, this may be a viable option for them. “
The data: how H4P is lagging
According to HECM approval data over the past two years, overall levels of H4P approvals appear to be declining. Data compiled by Reverse Market Insight (RMI) and shared with RMD shows that in 2019 there were 2,305 H4P mentions in one year, for a total of 34,420 overall HECM mentions, which led to a penetration rate 6.7% H4P.
The following year, in 2020, when the reverse mortgage industry saw a noticeable increase in public interest during the COVID-19 coronavirus pandemic, the overall number of HECM approvals increased by approximately 10,000 loans, but saw only a marginal increase in the rate of H4P approvals. Out of 44,418 HECM riders in 2020, 2,493 of them were H4P loans, a penetration rate of 5.6%, or a drop of more than a percentage point even though the raw figures were higher.
So far in 2021 – with 16,984 HECMs approved between January and April – there have been 822 H4P riders, representing a penetration rate of 4.8% in the first four months of the year. If this trend continues through December, the rate of H4P loans relative to the larger volume of HECM will have declined at almost the same rate as last year.
“The industry clearly tends to decline 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 refinancings.”
Look for other H4P prospects on RMD in the coming days.