Lenders Seek Niche in Reverse Mortgage for Empty Nesters – Article in National Mortgage News

Austin, TX, May 6, 2014 (GLOBE NEWSWIRE) — (http://www.myprgenie.com) — Lenders are gearing up to
sell a type of reverse mortgage typically used by seniors looking
to downsize their homes, as Texas, a key market, opens to the
niche-within-a-niche product.

This version of the government-insured Home Equity Conversion
Mortgage, known as the HECM for purchase, gives seniors flexibility
in buying a home. The “loan” allows a borrower to tap the equity in
an existing home to buy a new one, frequently because the borrower
has an empty nest and needs less space. This setup means a senior
can pay for the purchase before selling the old home and without
taking on more debt payments.

Texas recently became the last state in the union to approve
HECM for purchase loans, says Joe Morris, senior vice president in
the reverse mortgage division at Open Mortgage in Austin.

HECMs have never grown very fast. Still, adding a
Realtor-friendly loan in one of the largest HECM markets should
help lenders seeking additional sources of purchase volume to make
up for dwindling refinancing business.

However, Texas could also be a promising market has it has
numbered among the top three states overall for HECMs in the last
12 months, according to Suits. Also it has been the second largest
state market for traditional HECMs, according to HUD/NRMLA.

Relatively few borrowers get traditional “forward” mortgages
after age 62 due the loan payment qualifications, which those
living on a fixed income in this demographic might find difficult
to meet.

Reverse mortgages that allow homeowners to tap home equity
without making payments lower that hurdle, although they have had
some qualifying criteria that traditional “forward” mortgages
lack.

And while HECM for purchase loans lack the monthly payment
qualifications forward loans have, borrowers still have to meet
income qualifications to make sure they can pay for living expenses
and property maintenance costs.

Generally, borrowers do sell the old home, as the new loan
requires owner-occupancy. However, if borrowers can show the
financial wherewithal to support the costs of both properties, they
theoretically could retain ownership of both.

While HECM for purchase may not directly boost lenders’ volumes
much, it can help build lenders’ relationships with real estate
agents who have increasingly been important referral sources as
refinancing volumes have dwindled.

“I wouldn’t say it’s the most promising product as far as
numbers are concerned, but I think each year the HECM for purchase
gathers momentum as more people understand it and as more Realtors
understand it,” Morris says.