According to the most recent annual report to Congress U.S. Department of Housing and Urban Development (HUD)’s Home Equity Conversion Mortgage (HECM) to Purchase (H4P) program’s share of total HECM approvals in 2023 rose to its highest level since 2019.
That’s not saying much. H4P recognition accounts for approximately 6% of the 32,963 HECM recognitions federal housing administration (FHA) Insurance for the fiscal year. It represents a modest revival of a highly underutilized option within a broader and equally underutilized loan program funded by the federal government.
Still, the past seven months have shown new signs of life. In October, the FHA announced a new set of H4P program provisions that would better integrate the reverse purchase program with the forward purchase program. Although HUD recently reversed some of these changes, industry professionals have responded positively to the final results of the new H4P policy.
That makes 2024 an active year for H4P discussions, but industry insiders are divided over whether it will be a major boon to turn around the mortgage business in the coming months and years.
Education and new business formats
RMD interviewed three national managers at different lending companies that trade reverse mortgage products. They shared their thoughts on the extent to which H4P drives active conversations, volume forecasts, and actual business. Each of them agreed that the product had great potential, but how to realize that potential was unclear.
Shannon Robinson, Vice President of Reverse Lending new america funding Renewed interest in H4P has brought in more business than in 2023, she said.
“I think we’re already purchasing more this year than we did last year, so it’s definitely going to be a big part of the business,” she said. “Our awareness of H4P has made people more curious. Inventory is so low, so people are trying to figure out how to move into a house.
This results in NAF personnel engaging in more specialized H4P conversations with prospects who may not be aware of the existence of this subset of the HECM program, which in a sense extends the delivery time to fully educate borrowers. On the other hand, rising interest has led the company to close more H4P loans, she said.
“We actually receive a lot of referrals from forward loan officers, and those referrals have been converted into purchase transactions,” she said. “That’s what they do for a living and that’s what they do well, and they really work closely with the builders.”
Robinson added that NAF’s forward lending professionals are tapping the reverse unit’s expertise on a more regular basis.
Sleeping giant?
When asked whether H4P could be considered a “sleeping giant”—in the sense that it could drive the reverse mortgage business at some point in the future—leaders were somewhat divided.
“I think there’s a segment of people who want to downsize, and maybe they’re not sure what their options are,” said Ryan Ogata, executive vice president of reverse mortgage lending. Guaranteed rate.
“For a variety of reasons, it seems to me that this HECM purchase is a great mechanism for people to sell properties that have outgrown their property, keep more of the sales proceeds in their pockets, and be able to purchase downsized properties. size property.
Ogata said current dynamics related to high home prices, limited inventory and historically high interest rates are leading to longer homeownership tenures, and older homeowners looking for some kind of change may be unsure of how to move forward.
“They feel the need to facilitate that shift, but they don’t really know how to do that and preserve as much liquidity as possible in their pockets,” he said. “That’s where this product comes into play.”
For Jesse Allen, President, 55+ Lending Division OneTrust Home LoanH4P has great potential, but he believes that it has not yet reached the standard of a “sleeping giant”.
“Actually, I don’t think so,” he said. “In a tough market, a lot of people are looking for a magic bullet. I believe that hard work and a smart, responsible culture of continuous improvement will lead to the most sustainable success over time. My operating philosophy here is Built on people, alignment of vision, systems and operational excellence, and a culture of continuous improvement.
The potential is real
After re-entering the reverse mortgage business in 2016, Allen said his perspective might have been different given the utilization rates at the time. His views have changed now, but that doesn’t diminish the H4P program’s potential to grow significantly in the coming years, he said.
“I think there’s a huge opportunity, especially given the current affordability, to help people who may feel like they’re stuck in a place that they don’t think is their dream retirement home,” he said. “For architecture For developers, it’s a way for homeowners to purchase their dream retirement home with upgrades and a suitable community close to friends and family.”
There’s another factor that can help older homeowners feel like they have more control over their retirement, he said.
“I think it’s very powerful as a product, much more powerful than the 6% adoption rate would suggest,” Allen said. “There’s a gap there. I do believe we’re going to see a continued improvement story.
Ogata seemed to agree with the idea, saying that the spread of good information would help the program reach more of its potential.
“As more correct information about the HECM program gets into the hands of consumers, and as we as an industry get better at safeguarding measures, I think the layoffs I’m talking about will be more adopted,” he said.
Robinson also sees growth potential.
“I think the opportunity is the same; it’s always been there. We just haven’t seen it take off,” she said. “Not everyone is good at person-to-person transactions, but for the loan officers here, we’re helping them through the process.
“We understand the changes that have occurred and we will do our best to continue to support our brokers and loan officers as we all grapple with these changes. But I think this is a great opportunity to continue to expand and grow HECM for Purchasing.
