HECMomics 2021

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C H A N G E S…

We’ve seen more than we would’ve liked to over this past year. And although changing is most often an uncomfortable process, the concept is really nothing new. Everyone knows change itself can be grueling—if it weren’t, there wouldn’t be so much fuss over it. Just run a quick search on the web, walk through the aisles of your local bookstore, or even browse your favorite music app and you’ll find its it to be an incessant theme screaming out from all corners.

What is it about the word change that evokes the heebie-jeebies? Some say familiarity feels most comfortable, while others say the dread of future uncertainty overshadows the potential of a newly born chapter. This may explain why therapy rooms are filled with sufferers bound to their pasts and struggling to embrace what has delivered their present.  

Whether we like it not, the certainty of change is not a matter of if but when. We know the key to surviving it is our adaptability. Recent market changes have presented questions no one in the lending industry wants to be asking. The year 2020 brought us the record low mortgage rates that prompted a refinance boom—and although great at the time, the upsurge took a plunge when meddling interest rates rose up and crashed the party.

Refinances Take a Dip

As Pandemic restrictions loosened up, rising inflation made its entrance with the threat of increasing interest rates riding on its handlebars. Now, it’s not as though refinance opportunities overall cease to exist—they still do. But recent pandemic-related market changes have contributed to decreasing odds for loan eligibility. Many need-based borrowers were excluded from the pool, blaming job- and subsequent income losses. Gapped work statuses made it impossible to prove the ability to repay refinance/HELOC loans without the probable income and/or consistent employment history needed to qualify. Some Americans recently exited their Covid-induced mortgage forbearance to find they can no longer qualify for a traditional loan.

USA TODAY’s Swapna Venugopal Ramaswamy cited a Mortgage Bankers Association finding that “[a]bout 2.2 million homeowners had entered forbearance plans as of April 25, 2021,” and “[i]n May 2020, more than 4 million U.S. Mortgages were in forbearance.” So, while some aren’t necessarily ready for a refinance, others who could qualify are opting out due to creeping rates over the past year.

In an online survey conducted by Credit Karma and reported by Ramaswamy, it seems despite the temporary mortgage payment relief, “…the majority of people who went into forbearance remain stressed about getting—and staying—on track with their mortgage payments.” Yet, when quizzed on their understanding of terms related to homeownership, Ramaswamy reported that the majority “…84% of survey respondents overall knew that it’s possible to leverage home equity to access cash.” Folks acknowledge home equity as the viable cash source it is, but currently lack the ability to access it.

HECM Program Gaining Momentum

If the traditional refi isn’t the practical front runner in lending, what is? For golden-agers, traditional refinances with or without equity lines of credit aren’t practical borrowing options. Whether due to qualification hurdles or an inability to afford them, numbers of seniors are disqualified from obtaining traditional LOCs. Despite the supposed lending gap, it’s no secret that senior wealth is way up—we’ve been hearing the senior homeowner equity stats for a while. Data compiled from 2020’s Q4 was released by the National Reverse Mortgage Lenders Association (NRMLA) reporting that Senior Housing Wealth hit an astonishing $8.05 Trillion! Now that’s a whole lot of equity inventory LOs and their senior-aged clients can work with. In opting a Home Equity Conversion Mortgage (HECM), there’s tappable access to cash otherwise unavailable to elder-class borrowers.  

Adding to its value, HECMs not only afford borrower safety-nets, but non-borrowing spouse (NBS) protections as well. If the primary borrower should pass-on, FHA assures that eligible non-borrowing spouses can remain in the home—payment free—until he/she moves or passes-on, provided the property’s taxes, insurance(s) and upkeep are maintained (as per HECM qualification terms). Until now, primary borrowers were required to reside within the property 6 months of the year to maintain the primary residence status, which allows for NBS protections. And the condition stays in place so long as the primary borrower keeps within the loan’s required criteria.

Benefits allowing additional NBS protections rolled out this year, extending its protective reach. Among the beneficial changes, the newly published HUD Mortgagee Letter (ML) 2021-11 outlined an NBS protection that can push out an HECM Loan’s Due and Payable call. Contrary to before, primary borrowers can now move from their home due to a medical leave and an NBS can remain comfortably in their home—even if that move should exceed the previously provisioned 12-month period. Of course, this assumes all loan conditions continue to be met.

Get Ahead of Your Competition

It’s unsettling to imagine Loan officers with record performance peaks suddenly facing a tumble down their lucrative mountains. And it makes sense to wonder in uncertain times how they’ll continue to thrive or even survive a probable lending valley. Well they can…if they’re willing to ‘change it up.’

What if I told you there was a loan product that offers your borrowers the option to refinance or purchase a new home with no monthly mortgage payments? And what if I told you that same loan product has an easier qualification process than any of its forward loan counterparts? You might think it strange or assume there’s some sort of catch...

Now granted, the possible HECM downside could be that its exclusively reserved for senior homeowners ages 62+, but there’s a generous asterisk attached to that requirement: non-borrowing spouses can also be younger. And since there’s no shortage of clients in the emerging baby-boomer age group, there’s plenty of eligible senior clients out there. The opportunity to draw business from this underserved senior crew is a whopping one. And with home equity up for senior homeowners nationwide, their introduction to and understanding of Reverse Mortgage remains very low.

Offer Seniors a Practical Borrowing Solution

Upon initial glance, the HECM Program might seem very different from products you might’ve encountered throughout your lending career. And to senior homeowners, HECM might appear suspect compared to other loan types they’ve encountered. Just because the program’s selling points might appear beyond belief, it doesn’t mean they are. HECM is a uniquely designed, unfamiliar product—we’ll give you that—but that’s the loan’s entire point and purpose. The program was drafted and detailed to meet the specific financial needs of retirees. The senior-friendly, highly flexible loan design provides option-controls and customized offerings no other loan in the industry does.

Backed by the Federal Housing Administration (FHA), the HECM Program offers a great alternative to traditional lending. Senior borrowers can refinance an existing mortgage loan or even an existing HECM Loan with a provable benefit. They could also sell their current home to purchase and right-size into a new one—all while eliminating their monthly mortgage payments (Borrower(s) must maintain home’s taxes, insurance(s) and upkeep).

It’s easy to see how borrowers would really benefit—and hopefully made obvious is your advantage potential, too.

Quick List: What You Need to Know About HECM

First, the basics…

  • HECM is a Non-Recourse Loan – Backed by FHA

  • Not Sensitive to Interest Rate Changes – Accessible product to seniors despite market changes

  • Easier Income and Credit Qualification Process – NO DTI (low residual income requirement applies)

  • Borrowers Must be 62+ Years-Old (one spouse may be younger)

  • Property Must be the Borrower’s Primary Residence (at least 6 months out of the year)

  • LTV about 50% (based upon 70-year-old borrower)

  • National Lending Limit $970,800 – increased this year

Next, Loan Options…

  • Growing Line of Credit with Cash Draw Access – Cannot be taken back/frozen by the bank

  • Lump-Sum Payout or Tenured Payment Options – Tailored to borrower’s financial needs

  • HECMs for Purchase: About 50% Down Payment (based upon 70-Year-Old Borrower) – Right-Size into a new home that’s more suitably fit to meet borrower’s financial and living needs

  • JUMBO Loans as High as $4+ Million

Change Leads to Growth

Maybe you’ve only offered forward mortgage loan products in the past and you’re not an HECM expert…we get that. But you don’t need to be an HECM specialist if you’re working with us. Where else could you find full a team offering you the rare opportunity to evolve and earn as you learn? Our team is stocked with marketing resources and we offer you personalized Account Executive guidance as well as One-on-One Coaching sessions with our highly experienced Division Manager.

Take a moment to envision the senior world becoming your new earning oyster! Today, you can begin earning on your referred and/or originated HECMs with our team’s expert knowledge and support. And you can earn even more on your HECM for Purchase transactions, which boast the highest compensation percentages in the industry.

Digging a little deeper into HECM will help you discover the many changes that have increased its rapidly growing appeal. Its adaptability makes it a lending solution fit for seniors of all circumstances. Moving this unique product into your preferred loan offerings can dramatically expand and improve your future business. Doesn’t matter if you baby step into HECM or dive right in—you can choose your perfect rhythm method.

Don’t take my word for it, fact check the benefits of HECM for yourself, and I’m confident you’ll walk away pleasantly surprised. Change isn’t easy, but it’s necessary. In the face of change, we must be willing to switch course to avoid being left behind. Take that first step and connect with our HECM Team today to get started because, “in life, change is inevitable. In business, change is vital,” (Warren Bennis, American Scholar and Author).

To learn more about HECM and its products, contact HECM411@prmg.net.