The Reverse Mortgage product category is specifically designed to serve a primary demographic cohort: American seniors. While reverse mortgage industry professionals and even some commentators have commented on the potential that a reverse mortgage could help a broader segment of the population, the reverse mortgage restriction for seniors is unlikely, particularly in relation to the Home Equity Conversion Mortgage Program (HECM) , sponsored by the Federal Housing Administration (FHA).
Still, reverse mortgage lenders are beginning to experiment with the reverse mortgage offering in new and novel ways, particularly in the case of two major recent examples on the proprietary, non-agency side: Finance of America Reverse (FAR) and its new hybrid -Forward / Reverse “EquityAvail” product and the even more recent announcement of Reverse Mortgage Funding (RMF), which brings the qualifying age for its proprietary “Equity Elite” reverse mortgages down to just 55, the youngest age still from the reverse mortgage can be served industry.
These two approaches could show that the reverse mortgage industry is becoming more sensitive to the need to acquire new borrowers without relying solely on the product features of the HECM. Whether these approaches will be enough to convince a segment of new borrowers to consider reverse mortgages is unclear, but the industry seems poised to move even closer to that goal.
Borrower stagnation and the refi boom
Reverse mortgage industry players and analysts alike have recognized that the current boom the HECM-to-HECM refinance transaction business is experiencing is potentially beneficial to both lenders and borrowers, but the fact is that refinancing is very little cause expand the pool of borrowers that serves the industry. Lenders are returning to customers who have seen the reverse mortgage product category at least once, and those borrowers are a finite resource that depletes much faster than new customers.
The industry knows that, but it’s hard to turn down customers who turn to a lender for refinancing, given the double blow of high house prices and low interest rates. This was in a. further emphasized Summer presentation Done by industry analysts in front of an audience of reverse mortgage experts, which also made it clear that some of the trends driving refinancing are somewhat beyond the control of the industry.
However things that are under the control of the industry are the types of products that enter the market, especially those that do not involve FTA or other types of government funding. This is where the need for innovation on the market side comes into play most, and both FAR and RMF aim to address this need for innovation in two very novel ways.
Proprietary product innovation
In the case of FAR, that is the company announced “EquityAvail” – its hybrid, proprietary forward / reverse mortgage product – early March this year. As a quick refresher, EquityAvail is a single fixed-rate mortgage that is fully paid off upon completion with a maximum loan amount of up to $ 4 million. A tax and insurance escrow account is used for budgeting and management, much like traditional mortgages.
When the property no longer serves as the borrower’s primary residence, the remaining loan balance is repaid. The product retains the freedom of recourse of other reverse mortgages, has no issuing or monthly service fees, and has no minimum home value requirements.
So far, EquityAvail’s performance – which was first made available to borrowers in April – seems to keep FAR parent company Finance of America Companies happy. In both the company’s first quarter 2021 and second quarter 2021 earnings presentations, FOA CEO Patti Cook praised the performance of FAR in general and the launch of EquityAvail in particular as key features of the parent company’s product diversity. The first EquityAvail loan was funded in the second quarter, and both Cook and FAR President Kristen Sieffert were generally optimistic about what the hybrid product will mean for the company’s future.
“This product will combine elements of a traditional mortgage with a reverse mortgage to improve cash flow and help retirees meet their retirement goals,” Cook said during a review presentation for the results of the first quarter of 2021. Finance of America Home Improvement and EquityAvail are the latest examples of our proven ability to innovate and develop products that meet the changing needs of our customers. “
For RMF, the Equity Elite suite of proprietary reverse mortgage products has been a leader in developing the company’s practices that it hopes will prove innovative to the industry. This year RMF rolled out new underwriting guidelines for Equity Elite in the hopes of attracting additional borrowers, but the biggest event for the company came this month when it announced it would Reduction of the minimum eligible age to 55 for Equity Elite in 19 states and the District of Columbia.
This is a move that has the potential to open up the reverse mortgage product to a host of new, potential borrowers who were previously out of the question, and based on comments from RMF staff, it also has the potential to be forward-looking by beginning a transition to be process.
A new generation
RMD has the effects of the imminent change that the reverse mortgage industry will have to make in the coming years to serve a new generation of borrowers, namely “Generation X,” which is made up of people who lived between the early to mid-1960s and late 1970s or early Years were born 1980s. In contrast to the current prevailing generation served by the reverse mortgage industry, people who grew up as part of Generation X have demonstrably different financial circumstances than their baby boomer parents.
This is underscored by a recent Harris survey for the Fast Company publication in 2021, which found that older Generation X members were the least likely of an age group to believe that wealth is even an achievable goal in the modern United States, and pessimism about the financial outlook only seems to weaken with a view to the next millennial generation.
“As an industry, we’ve been thinking about how we can serve Gen X with the products on the market,” said Joe DeMarkey, RMF’s Strategic Business Development Leader, in an interview with RMD following the announcement. “We have just accelerated our ability to serve Gen Xers who may be interested in a reverse mortgage product by lowering the Equity Elite Eligibility Age to 55.”
Whether or not other members of the industry will follow suit and speed up the industry’s ability to serve Generation X remains to be seen, but given the potential, it would be difficult to ignore.